• 1Q16 DPU down 5.0% YoY
• Seeking to renew master leases
• Raising our FV and maintain BUY

1Q16 results met our expectations

Cache Logistics Trust (CACHE) reported its 1Q16 results which were within our expectations. Gross revenue jumped 32.7% YoY to S$27.9m, due to incremental revenue from six Australian warehouses which were acquired between Feb and Dec 2015, coupled with contribution from DHL Supply Chain Advanced Regional Centre which was completed recently.

However, DPU slipped 5.0% YoY to 2.039 S cents as a result of weaker NPI margins, higher finance costs and a larger unit base; but partially offset by a capital distribution of S$1.6m, which came from a portion of the sales proceeds from its disposal of Kim Heng warehouse. 1Q16 gross revenue and DPU constituted 26.2% and 25.0% of our FY16 forecasts, respectively.

Focus remains on renewing two major master leases this year

CACHE’s portfolio occupancy remained largely stable, coming in at 94.2%, as at 31 Mar 2016, versus 94.9% as at end-FY15. It has 10.9% of its gross rental income due for renewal for the remainder of FY16. This is largely made up of two master leases at Schenker Megahub and HiSpeed Logistics Centre, with their respective leases expiring in Aug and Oct 2016. We understand that negotiations have already taken place between the parties, although no agreement has yet been reached.

Maintain BUY

Looking ahead, we believe CACHE will continue to source for inorganic growth opportunities, with a likelihood of further increasing its exposure to the Australian logistics market, following its penetration into this market in 2015. This would provide an avenue for longer term growth and diversification.

Moreover, Australian industrial assets sitting on freehold land or long land leasehold tenures are more common as compared to Singapore industrial properties. Hence we believe this justifies us raising our terminal growth assumption on CACHE to 1%.

Consequently, our DDM-derived fair value estimate is bumped up from S$0.88 to S$0.95. Although CACHE’s share price has appreciated 7.2% since we upgraded the stock to a ‘Buy’ on 30 Mar this year, we believe it still offers investors an attractive distribution yield of 9.2%. Maintain BUY.

Source: OCBC Research - 25 Apr 2016