• 4Q14 DPU +0.4% YoY to 2.146 S cents
• Focus on occupancy rates
• Raise FV slightly but maintain HOLD

4Q14 results in-line with expectations

Cache Logistics Trust (CACHE) reported its 4Q14 results which met our expectations. Gross revenue declined 0.4% YoY to S$20.6m due to higher vacancies and tenant rent free period. Nevertheless, DPU climbed 0.4% to 2.146 S cents. For FY14, revenue rose 2.3% to S$82.9m and this formed 96.7% of our full-year forecast. Income available for distribution increased 2.0% S$66.9m, but DPU slipped 0.8% to 8.573 S cents due to a larger unit base. The latter constituted 98.7% of our FY14 projection.

Outlook remains challenging

CACHE is currently undergoing a transition period as it is in the midst of converting some of its assets from master-leased properties to multi-tenanted properties. This had some impact on its occupancy, which declined from 99.5% to 97.5%. Management will continue to step up its efforts to secure forward renewals during this conversion phase. 11% of its lettable area is up for renewal in FY15. Approximately 72% of C&P Changi Districentre and 41% of CWT Cold Hub have been pre-committed by tenants, with a strong pipeline of interest from new tenants, according to CACHE. We expect some near-term pressure on its NPI margins due to expenses related to these conversions. Concerns over the oversupply situation for Singapore’s industrial space also remain as a concern. On a positive front, CACHE managed to renew the master lease of CWT Commodity Hub with its sponsor CWT for a period of three years from Apr 2015, with an estimated initial uplift of 1% in rental rates.

Maintain HOLD

Looking ahead, CACHE will seek to pursue yield accretive acquisitions. Australia is one of its key areas of focus given the institutional-grade warehouses with good credit tenants. China has moved behind Australia in the pecking order as cap rates have narrowed. We lower our FY15 DPU forecast slightly by 1.1% and introduce our FY16 projections. Rolling forward our valuations, our fair value is increased from S$1.13 to S$1.15. Maintain HOLD.

Source: OCBC Research - 28 Jan 2015