• 2Q14 DPU flat YoY at 2.147 S cents
• Moving towards multi-tenanted lease profile
• Upside likely limited at current level

In-line 2Q14 results

Cache Logistics Trust (CACHE) reported its 2Q14 results last evening, with NPI flat YoY at S$19.6m and distributable income up by 0.5% to S$16.7m. DPU stood at 2.147 S cents, unchanged from 2Q13 but up 0.3% QoQ. For 1H14, DPU cumulated to 4.287 S cents, down by 2.1% YoY due to a 5.0% increase in unit base over the period. We deem the results to be within expectations, as 1H14 distribution formed 49.3% of both our and consensus full-year DPU forecasts.

Still on a stable footing

CACHE’s portfolio remained largely resilient in our view. There was a slight dip in portfolio occupancy to 99.6% from 100% in 1Q, as the master lease at Jinshan Chemical warehouse has expired. However, as we were previously guided, underlying portfolio tenancy was close to fully occupancy, hence limiting the downward pressure. CACHE shared with us its strategy to transform the portfolio into a more multi-tenanted lease profile to reduce the concentration risk and capture the benefits of market cycles going forward. We are more neutral on the move in view of the substantial supply in warehouse space over the next two years and imposition of several cooling measures in the industrial market, including recent revision in JTC subletting policy. Nevertheless, we note that sponsor CWT Limited and C&P Group will remain as major tenants, occupying ~50% of the total NLA at the end of their respective master leases in Apr 2015. Over at C&P Changi Districentre, CACHE also disclosed that it has made good progress on its lease renewal, securing ~63.0% commitment ahead of its master lease expiry in 2015. This should limit any volatility in occupancy and income once the assets are converted into multi-tenancies.

Downgrade to HOLD on valuation grounds

CACHE’s units have enjoyed a good run-up in prices, and as a result, the last transacted price is just a tad lower than our fair value of S$1.25. While we continue to like CACHE’s strong financial position and quality portfolio assets, we believe that the stock is fairly priced at current level (1.27x P/B). As such, we downgrade CACHE from Buy to HOLD on valuation grounds.

Source: OCBC Research - 22 Jul 2014