• 3Q14 DPU +0.7% YoY to 2.14 S cents
• Pro-active management team
• Warehouse supply concerns weigh

3Q14 results in-line with expectations

Cache Logistics Trust (CACHE) reported a stable set of 3Q14 results which were in-line with our expectations. Revenue and DPU climbed 0.4% and 0.7% YoY to S$20.8m and 2.14 S cents, respectively. For 9M14, revenue growth of 3.3% to S$62.2m formed 72.7% of our FY14 forecast, while DPU of 6.427 S cents (-1.2%) constituted 74.0% of our full-year projection. CACHE’s portfolio occupancy was steady at 99.5% (2Q14: 99.6%), while balance sheet remains healthy with a gearing ratio of 28.8%, as at 30 Sep 2014. We like management’s execution capabilities as seen in its successful attempt to refinance S$375m of its existing loan facilities this month at an all-in margin savings of ~100 bps. Its weighted average debt maturity has also been extended from 1.6 years to 4.2 years and it no longer has any debt due until Oct 2017. 70% of its debt has been hedged, as at 30 Sep 2014.

Management proactive, but supply concerns weigh

Approximately 24% of CACHE’s leased area will expire in FY15. While we appreciate management’s efforts to actively secure forward renewals in advance (expiry profile was 34% at start of the year), the large supply of warehouses coming into the market in 2015 still provides a cause of concern. This situation may be exacerbated by CACHE’s strategy to transit to a more multi-tenanted lease profile going forward to reduce its concentration risk.

Maintain HOLD

Given the likely oversupply scenario as highlighted earlier, we believe the pressure on industry rentals and occupancy rates may result in greater volatility in CACHE’s share price, especially if its operating statistics exhibits signs of deterioration in the year ahead. Hence we see the need to raise our cost of equity assumption from 8.0% to 8.9% to reflect the marginally increased risk profile ahead. As a result, our DDM-derived fair value on CACHE slips from S$1.25 to S$1.13. Although FY14F and FY15F distribution yield remains attractive at 7.3%, we maintain our HOLD rating on CACHE, given the lack of near-term catalysts.

Source: OCBC Research - 27 Oct 2014