• 2Q16 DPU fell 7.1% YoY
• Slight improvement in occupancy
• Keeping our FV and BUY rating

2Q16 results within our expectations

Cache Logistics Trust (CACHE) reported its 2Q16 results which met our expectations. Gross revenue spiked up 30.3% YoY to S$28.1m, driven by incremental revenue from its Australian acquisitions last year and contribution from DHL Supply Chain Advanced Regional Centre (DSC ARC). However, DPU fell 7.1% YoY to 1.989 S cents as a result of a larger unit base and capital distribution of S$1.5m in 2Q15 arising from the sales proceeds of an asset disposal.

Excluding this item, CACHE’s adjusted DPU rose 1.7% YoY. For 1H16, CACHE’s gross revenue jumped 31.5% to S$56.0m but its DPU slipped 6.0% to 4.028 S cents. These formed 52.6% and 49.4% of our FY16 forecasts, respectively.

More clarity on 40 ALPS Avenue property

CACHE shared some positive developments on its 40 ALPS Avenue property (also known as HiSpeed Logistics Centre). The master lease for this asset was due to expire in Oct this year.

Although the property will be converted from master lease to multi-tenancy, occupancy would remain practically full, as ~210,000 sq ft of lettable area is currently under lease documentation (key commercial terms agreed), with the remainder of space already precommitted by another major 3PL provider. Hence, CACHE’s portfolio lease expiry profile for 2H16 would be reduced from 9.6% (by NLA) to 6.6%.

As for the other major upcoming lease expiry at Schenker Megahub, there were no further updates provided by management since its 31 May announcement highlighting the disagreement between Schenker Singapore (end-user occupying the property) and the master lessee C&P Land Pte Ltd, with regards to the anchor lease agreement.

On an overall portfolio basis, CACHE’s occupancy improved slightly from 94.2% (as at 31 Mar 2016) to 95.8%, as management secured new leases at DSC ARC, Cache Cold Centre and Pandan Logistics Hub.

Maintain BUY

We trim our FY16 and FY17 DPU forecasts slightly by 0.2% and 1.1%, respectively, as we factor in a lower NPI margin at 40 ALPS Avenue property following the upcoming conversion to a multi-tenanted building. However, as we also adopt a lower risk-free rate assumption of 2.4% (previously 3.0%) in our model, our fair value estimate remains unchanged at S$0.95. Maintain BUY.

Source: OCBC Research - 21 Jul 2016