Cache Logistics Trust - Maybank Kim Eng 2016-04-25: All clear if Shenker and Hispeed leases are renewed

Cache Logistics Trust - Maybank Kim Eng 2016-04-25: All clear if Shenker and Hispeed leases are renewed CACHE LOGISTICS TRUST K2LU.SI 

Cache Logistics Trust (CACHE SP) - All clear if Shenker and Hispeed leases are renewed 

Flat DPU outlook; Still cheap despite re-rating 1Q16 results are in line. 

  • Underlying occupancy remains stable. 
  • We maintain BUY, TP unchanged at SGD0.94, derived by applying our yield peg of 9% to FY16-18 blended DPU. 
  • Cache is now trading at 9.4% yield, and the re-rating since our 4 Apr report suggests it offered deep value at 10.1% yield
  • We still think it has room to re-rate higher to the mean (9%) as industrial peers are trading at -1SD below the mean. 

Results in line; Occupancies stable 

  • Cache’s results met our expectations, with revenue/DPU at 26%/24% of estimates. 
  • Contributions from Australian acquisitions and the build-to-suit for DHL caused revenue/NPI to surge 32.7%/12% YoY. But as forecast, there is no flow through to DPU (-5% YoY) due to higher interest cost from debt taken to fund those acquisitions and c.9% dilution from equity fund raising. 
  • Underlying trends seem fairly stable as occupancy was 94.2% (4Q15: 94.9%), a result of occupancy transitions. 

Few lease expiries during the supply years 

  • Singapore warehouse supply is formidable for 2016-17 but will tighten dramatically in 2018. 
  • As a percentage of rent, Cache’s portfolio lease expiry profile for 2016-17 is thankfully small, just 10.9%/2.6%. 
  • Nonetheless, tenant demand is guided weaker this year compared to last year, and we conservatively dock our DPUs c.1.5% for FY16-17 (oversupply years), and raise FY18 DPU 1.6% (tight supply year). 

Downside is fairly well priced in 

  • In our 4 Apr 2016 report, we flagged that Cache was a deep value play. The 10.9% lease expiry relates to Shenker Megahub and Hi-speed logistics (renewing Aug/Oct 2016), two properties located in the Airport Logistics Park of Singapore, a Free Trade Zone next to Changi Airport. Such attributes make the properties sought after. 
  • Our worst case scenario would be a multi-tenanted conversion, which could knock DPUs to 8.0/8.0 S cts in FY16-17. 
  • At today’s price, that would be a yield of 9%, which is the mean of this cycle’s trading history. The downside is therefore fairly well priced in. 

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-25
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.94 Same 0.94