Cache Logistics Trust (CACHE) reported a challenging set of 1Q17 results but was within our expectations. Gross revenue fell 2.9% YoY to S$27.1m and formed 25.0% of our FY17 forecast. NPI dipped by a larger magnitude of 5.8% YoY to S$20.8m due to weaker margins (1Q17: 76.8%; -2.3 ppt YoY).

This was broad-based across all its geographical regions (Singapore, Australia and China). The decline was largely attributable to higher property related expenses arising from the conversion of certain properties from master leases to multi-tenancies.

DPU fell 11.7% YoY to 1.80 S cents and constituted 25.5% of our fullyear projection. This was due to a larger unit base and smaller capital distribution (0.103 S cents in 1Q17 versus 0.184 S cents in 1Q16). Excluding the latter, CACHE’s adjusted DPU would have declined 8.5% YoY to 1.697 S cents.

In terms of financial position, CACHE’s aggregate leverage remains elevated at 43.1% as at 31 Mar 2017 (unchanged QoQ), which is slightly below the regulatory limit of 45%. Operationally, portfolio committed occupancy stood at 97.2%, a slight improvement from end-FY16 (96.4%).

With regards to its 51 Alps Ave property, CACHE highlighted that legal proceedings are still continuing and updates will be provided when material developments arise.

We maintain our HOLD rating and fair value estimate of S$0.79 on CACHE..

Source: OCBC Research - 21 Apr 2017