Cache Logistics Trust - CIMB Research 2017-01-23: Further valuation drags on Singapore portfolio

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Further valuation drags on Singapore portfolio

FY16 DPU of 7.725 Scts was broadly within consensus and our expectations at 103% of our projection, but NPI margins continue to be under pressure.
More devaluations for Singapore portfolio, shaving book NAV to S$0.78/unit.
Operations-wise, portfolio occupancy held steady at 96.4%.
Continue to implement portfolio rebalancing to replace lower performing assets.

Maintain Reduce with a lower target price of S$0.71. Upside risks are resolution of Schenker dispute in CACHE’s favour and better leasing demand.

CACHE reported 4Q DPU of 1.85 Scts, -11% yoy, making up 25% of our FY16 forecast.
Excluding capital distribution from the Kin Heng Warehouse sale, the decline would have been a more muted 3.9% yoy.
For FY16, distributable income of S$66.8m was slightly ahead of our estimate due to additional revenue from Australia acquisitions, DHL Supply Advanced Regional Centre, partly offset by 51 Alps Ave.
4Q NPI margin dipped to 78.3% (vs. 79.8% a year ago) with more MTB buildings in the portfolio.

CACHE took a further S$44m devaluation loss in 4Q (3Q: S$36m for 51 Alps Ave) for its Singapore portfolio, lowering book NAV to S$0.78/unit. As a result, gearing ticked up to 43.1%. The trust has recently divested Cache Changi Districentre 3 for S$25.5m.
Assuming that the proceeds are used to repay debt, gearing would be a lower 41.9%.
That said, CACHE has minimal refinancing due in FY17 and 63% of its interest cost is hedged.

CACHE renewed/leased 314,000sf of space in 4Q (FY16: 1.2m sf) including early occupation by DHL Supply ARC, with portfolio occupancy steady at 96.4%.
Looking ahead, it has a remaining 4.9% of gross rental income to be re-contracted in FY17 and a further 22% in FY18, of which the bulk is from CWT Commodity Hub.
The warehouse leasing market remains highly competitive due to the oversupply environment and we anticipate rents to continue to come under pressure.

CACHE will continue to adopt a portfolio rebalancing and prudent capital management strategy. To this end, it would look to replace lower-performing assets with those that have more sustainable earnings as well as with long underlying land lease tenure. As such, we think it would likely continue to look to diversify and expand the Australian portion of its portfolio, which currently stands at 14% of gross revenue.

We lower our FY17-18 DPU estimates to factor in the divestment of Districentre 3 plus a smaller S$1.6m capital distribution from the remainder of proceeds from the sale of the Kim Heng Warehouse.
There are no further updates on the legal dispute with Schenker, though we believe that the case could drag through to end-2017. Hence, FY17 DPU is likely to continue to be dragged by the lower existing rents at 51 Alps Ave.
We maintain Reduce and lower our DDM-based TP to S$0.71 as we roll forward our projections.

YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-01-23

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