Cache Logistics Trust - DBS Research 2016-07-21: Attractive high yield

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Attractive high yield

2Q16 DPU will have been 1.7% higher y-o-y after excluding the one-off capital distribution in 2Q15.
Expiry of master leases in 2016 a concern but underlying occupancies of properties remain high.
Maintain BUY, TP S$0.93.

Cache Logistics Trust (Cache) offers yields of close to 9.0%, very attractive and one of the highest among industrial S-REITs. Trading at a yield that is more than 200 basis points (bps) higher than its industrial peers, we believe that most of the negatives are already priced in.

We acknowledge the uncertainty regarding Cache’s earnings outlook stemming from the expected expiry of its master leases in 2016.
Underlying occupancies for both properties (Schenker Megahub and Hi-Speed Logistics Centre) are high and given their strategic location at airport logistics hub where there is minimal new supply, demand for space should remain resilient.
In addition, Cache’s earnings are supported by a quality portfolio of warehouses that are ramping-up, and this should enable it to weather the downturn better than its peers.

DPU went down by 7.1% to 1.989Scts, despite a decent set of financial performance. This was mainly due to
1. capital distribution of S$1.5m or 0.185Scts in 2Q15 from the divestment of Kim Heng Warehouse;
2. an enlarged unit base as a consequence of fees paid in units.
2Q16 DPU represents 24.5% of our FY16 forecast, in line with our expectations. Stripping out the impact of capital distribution, DPU was 1.7% higher y-o-y.

Interest rate risk. Higher interest cost is expected to eat into distributions. We note that the Manager has locked in close to 67% of its debt into fixed-rates.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-07-21

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.93 Same 0.93