• 1Q15 DPU +0.3% YoY
• Focus on leasing efforts
• Raise FV but maintain HOLD

1Q15 results in-line with expectations

Cache Logistics Trust (CACHE) reported its 1Q15 results which came in within our expectations. Gross revenue climbed 1.6% YoY to S$21.0m but NPI increased at a slower pace of 0.6% to S$19.7m due to higher property maintenance expenses and lease commissions. Consequently, DPU inched up 0.3% to 2.146 S cents. Gross revenue and DPU constituted 25.0% and 25.1% of our FY15 projections, respectively.

Lease negotiations remain as priority

CACHE has placed strong focus on securing new leases for its assets which have been converted from master-leased properties to multi-tenanted properties in Apr this year. These properties are Cache Cold Centre, Cache Changi Districentre 1 and Cache Changi Districentre 2. Approximately 70% of its leases expiring in FY15 have been pre-committed, an improvement compared to the 65% pre-commitment level as at 31 Dec 2014. Hence, only 9% of its portfolio lettable area is up for renewal in FY15, versus 11% as at end-2014. Nevertheless, we believe the leasing environment will remain challenging due to supply concerns and uncertain macroeconomic outlook. Colliers International expects rents to soften due to higher supply of warehouse space, while cost pressures will also be an issue.

Full quarter contribution from Australia assets to come

Given headwinds facing the Singapore industrial sector, CACHE has sought to diversify its operations by completing the acquisition of three distribution warehouses in Australia on 27 Feb this year for a total acquisition cost of A$75.6m. This marks its maiden entry into Australia, with a full quarter of contribution to come from 2Q15. The three properties are located on freehold land and in established locations. The initial NPI yields range from 7% to 8.6% and we expect it to be immediately DPU accretive to CACHE since the acquisitions are fully debt-funded. We raise our FY15 and FY16 DPU forecasts by 1.6% and 1.8%, respectively, to account for this development. Our fair value estimate thus increases from S$1.15 to S$1.17. However, we are keeping our HOLD rating on CACHE given the limited total potential returns of 4.7%.

Source: OCBC Research - 23 Apr 2015