Cache

Cache: 2Q15 results were in line even as DPU dipped 0.3% y/y to 2.14¢ due to a larger unit base arising from consideration units issued to the manager.

Revenue climbed 3.7% to $21.6m but NPI fell 5.4% to $18.5m, weighed by higher property expenses as three buildings (Cold Centre, Changi Districentre 1 and Changi Districentre 2) were converted from single-tenanted to multi-tenanted in a soft rental market, leading to a slight increase in vacancy.

Distributable income was relatively flat at $16.8m (+0.3%), which included a $1.5m capital distribution derived from a portion of sale proceeds from Kim Heng warehouse.

Portfolio occupancy slipped 0.8ppt q/q to 98.3%, with steady weighted average lease to expiry of 4.5 years.

Aggregate leverage stood at 38% with average all-in financing cost of 3.11% (+34bps q/q) and debt maturity of 3.5 years.

Management expects the industrial property market conditions to remain challenging with significant new incoming supply amid slow demand, as well as prohibitive government regulations in place.

As a gauge, 2015-16 warehousing supply is 213% of annual demand.

In view of the weak market dynamics, Cache is focusing on maintaining passing rents and occupancies with rent incentives, which could apply pressure on NPI margin.

At the current price, Cache is valued at 1.2x P/B and trades an annualized 7.4% distribution yield.

Latest broker ratings:
UOB Kay Hian maintains Buy with TP of $1.35
Maybank-KE maintains Buy with lower TP of $1.33 from $1.37
PhillipCapital maintains Accumulate with lower TP of $1.27 from $1.31
CIMB maintains Add with lower TP of $1.23 from $1.34