Cache Logistics Trust - Phillip Securities Research 2016-07-25: Decent performance against challenging environment

Cache Logistics Trust - Phillip Securities Research 2016-07-25: Decent performance against challenging environment  CACHE LOGISTICS TRUST K2LU.SI 

Cache Logistics Trust - Decent performance against challenging environment

  • S$28.09mn gross revenue exceeded our expectations of S$26.7mn by 5.2%. 
  • 1.989 cents DPU in line with our expectations of 2.016 cents.
  • Some success during the quarter, with forward renewals and new leases.
  • No update on Schenker Megahub as the case is ongoing.


Core-DPU had y-o-y growth, after adjusting out capital distribution contribution

  • Our forecast for 2QFY16 DPU was 2.016 cents, which includes 0.166 cents capital distribution from Kim Heng Warehouse, in our assumption. However, actual 2QFY16 DPU did not include any partial capital distribution. 
  • Actual 2QFY16 DPU of 1.989 cents exceeded our expectations of core DPU of 1.85 cents by 7.5%. After adjusting out the non-recurring 0.185 cents from the Kim Heng Warehouse distribution, 2QFY15 core DPU is 1.955 cents. 
  • On a core-DPU basis, 2QFY16 DPU is actually 1.7% higher y-o-y.

Successful new leases and forward renewals done during the quarter, inching up portfolio occupancy to 95.8% from 94.2%; portfolio WALE now 4.1 years

  • Over 125,000 sqft of new leases were secured over spaces that were previously vacant. This comes from small pockets of spaces in Cache Cold Centre, Pandan Logistics Hub and notably Block 2 of DHL Supply Chain Advanced Regional Centre (DSC ARC). 
  • Block 2 had been slow to fill up, but is now about half-filled, by our estimates. Half of level 2 of Block 2 has been leased out, with negotiations ongoing for the other half with another potential tenant. Level 1 of Block 2 has been partially leased out on short-term leases. 
  • Management shared that the occupancy at the DSC ARC property is now at 89% (Block 1 100% occupied). Forward lease commitments in 2018 were from CWT Commodity Hub.

Conversion of Hi-Speed Logistics Centre to multi-tenanted; negative impact to NPI 

  • The lease of the existing master lease expires in mid-October 2016. The property represents about 5% (by NLA) of the Singapore portfolio. An existing end-user, Nippon Express, will take up 77% of the property. The remaining 23% of the property has been leased to a 3PL user. 
  • While gross revenue for the property is likely to be higher, that will be offset by higher property expenses associated with the conversion from a triple-net to multi-tenancy. 
  • We believe that on the whole, the property will contribute a lower net property income (NPI) post-conversion.

Upgrade to "Neutral" rating with higher DDM valuation of S$0.85 (previous: S$0.78)

  • We have been overly-pessimistic on the ability of the portfolio to retain tenants and fill vacant space. 
  • As a result of the successful leasing activity, we have re-jigged our forecasts, consequently lifting FY16/FY17/FY18 DPU by 4.5%/10.4%/10.8% from previous. 
  • New target price is 9.0% higher from previous, but we still see lower y-o-y DPU, going forward.

Lease expiry profile

9.6% of leased lettable area up for renewal in FY16

  • The expiries are substantially from two properties: Schenker Megahub (31 August) and Hi- Speed Logistics Centre (15 October). The 3% by NLA of "lease under documentation" in 2016 refers to Nippon Express, which we highlighted earlier. 
  • The lease has been agreed upon and just needs to be signed. Following that, 2016 lease expiry by NLA will be down to 6.6%, of which is substantially Schenker Megahub.

3.0% of leased lettable area up for renewal in FY17

  • The leases expiring do not pose a material threat to the overall portfolio. They come from multi-tenancies; and there are no master leases expiring during the year.

25.3% of leased lettable area up for renewal in FY18

  • This arises primarily from the master lease of CWT Commodity Hub which will be expiring in April. Some forward lease commitments were signed during the quarter, with the end- users at CWT Commodity Hub. 
  • While there is not much new supply of space coming on- stream in 2018, Management is cautious of new space from 2016 and 2017 that remain vacant going into 2018.

Peer relative valuation

  • Cache Logistics Trust is on par with its nearest peer in terms of trailing P/NAV multiple, and has a higher 12M trailing yield.

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-07-25
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