• 3Q15 DPU flat YoY at 2.14 S cents
• Occupancy rate fell to 95.2%
• Increasing presence in Australia

3Q15 results ahead due to capital distribution from divestment

Cache Logistics Trust (CACHE) reported flat DPU of 2.14 S cents in 3Q15, beating our expectations due to a capital distribution of S$1.5m which came from a portion of the sales proceeds from its disposal of Kim Heng warehouse. Gross revenue jumped 11.3% YoY to S$23.1m, underpinned by contribution from acquisitions, but NPI dipped 3.6% to S$18.8m due to higher property expenses arising from the conversion of several properties from master lease to multi-tenancy.

Additional property expenses were also incurred at DHL Supply Chain Advanced Regional Centre, which received its TOP in Jul 2015 but rental income would only come in Jan next year. For 9M15, CACHE’s gross revenue rose 5.5% to S$65.7m, while DPU of 6.43 S cents was similar to 9M14. The latter formed 78.2% of our FY15 forecast, but if we exclude the capital distributions made in 2Q15 and 3Q15, CACHE’s adjusted DPU would have constituted 73.6% of our original full-year projection.

Lower occupancy; seeking inorganic growth opportunities

Given the conversions of some master-leased properties to multi-tenanted properties as highlighted earlier, CACHE’s portfolio occupancy slipped from 98.3% to 95.2%, as at 30 Sep 2015. The subdued macroeconomic conditions and industry oversupply concerns would make it challenging for management to backfill its vacancies, in our view, although CACHE has only 1% of its NLA due for renewal for the remainder of FY15.

Attention would be turned to FY16’s lease expiries, which form 15% of CACHE’s NLA. To mitigate the headwinds facing Singapore’s industrial market, CACHE proposed earlier this month to acquire a warehouse in Queensland, Australia, for a purchase consideration of A$27.0m (~S$27.1m). This works out to a net property yield of 7%.

Maintain HOLD

We incorporate this acquisition into our model, but as we also lower our NPI margin forecast, our fair value estimate is kept unchanged at S$1.00. We expect management to pay out another S$1.5m of capital distributions from the Kim Heng warehouse sales proceeds in 4Q15. Maintain HOLD.

Source: OCBC Research - 22 Oct 2015