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Cache Logistics Trust - Phillip Securities Research 2016-04-25: Stark disconnect between portfolio growth and DPU return

Cache Logistics Trust - Phillip Securities Research 2016-04-25: Stark disconnect between portfolio growth and DPU return CACHE LOGISTICS TRUST K2LU.SI 

Cache Logistics Trust - Stark disconnect between portfolio growth and DPU return 

  • S$27.87mn 1Q16 gross revenue exceeded consensus expectations of S$25.3mn; and met 25.8% of consensus full year expectations of S$108.2mn. 
  • 2.039 cents 1Q16 DPU in line with consensus expectations of 2.1 cents; and met 24.9% of consensus full year expectations of 8.2 cents. 


Successful renewals and new leases 

  • The Manager reported the successful renewals and new leases of 22% of the c.960k sq ft that are due for expiry in FY16. 
  • Owing to the current softness in the market, we believe these were done at slightly negative reversions. 
  • Portfolio diversification to Australia, 13.1% of portfolio value 19% and 14% of portfolio gross revenue and net property income (NPI) respectively now comes from Australia. About half of the AUD NPI for FY16 has been hedged into SGD. 
  • Going forward, 2QFY16 will see lower yoy growth in gross revenue compared to 1QFY16 because the first three properties were acquired in 1QFY15. 

Long portfolio WALE of 4.3 years, but lease expiry profile shows concentration risk 

  • The portfolio's weighted average lease expiry (WALE) is 4.3 years by net lettable area (NLA). This was extended by the long master leases for the Australia portfolio. However, the leases that are expiring within the coming 3 years are from the Singapore portfolio, where the market is already soft. 
  • Concentration risk coming particularly from master leases that are expiring. 

Australian portfolio came with additional costs 

  • Acquisition of the Australia portfolio had contributed to a 112.4% yoy increase in net financing costs, 8.2% yoy increase in Manager's base fee, 12.2% yoy increase in Manager's performance fee, 647% yoy increase in tax, additional wholesale trustee and custodian fees of A$12,500 to A$35,000 per annum for each of the six subsidiaries and a 14.3% yoy larger unit base following the November 2015 Private Placement. 

Maintain "Reduce" with unchanged DDM valuation of S$0.78 

  • Much of the gross revenue growth was eroded by higher expenses due to conversions. There were three conversions in 2QFY15 and one in 3QFY15. As such, the drag on NPI, will continue but ease during 2Q and 3QFY16, finally plateauing in 4QFY16 onwards. 
  • Limited support from capital distribution from Kim Heng Warehouse remains, with S$6.72mn of the S$9.7mn having been paid out to date.



Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-04-25
Phillip Securities SGX Stock Analyst Report REDUCE Maintain REDUCE 0.78 Same 0.78


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