Cache Logistics Trust

Cache Logistics Trust’s 3Q15 results were in line, with flat DPU of 2.14¢, while distributable income inched up 0.6% y/y to $16.8m which includes a partial capital distribution of $1.5m from its divestment of Kim Heng Warehouse in Jun '15.

Excluding the Kim Heng proceeds, distributable income would have fallen 8.4% to $15.3m following a 51.9% surge in net financing costs to $4.1m.

Revenue jumped 11.3% to $23.1m on full quarter contribution from the three Australian properties that were acquired in Feb ‘15, namely the Chester Hill, Somerton, and Coopers Plains properties.

However, NPI slipped 3.6% to $18.8m mainly due to higher vacancies and property expenses at newly converted multi-tenanted buildings as well as additional expenses from its DHL Supply Chain Advanced Regional Centre (DSC ARC), which received its TOP in Jul ‘15.

Portfolio occupancy slid 3.1ppt q/q to 95.2% with weighted average lease to expiry of 4.3 years after the trust renewed or replaced about 97% of total lease expiries in FY15.

The dip in occupancy was mainly due to the conversion of Pandan Logistics Hub to a multi-tenanted property as well as interim leasable space at the DSC ARC (19% leased out).

Aggregate leverage was stable at 38.3% (+0.3%) but average all-in financing cost jumped 29bps q/q to 3.4%, signalling some interest rate risk as 35% of its debt remained unhedged.

The trust recently announced the acquisition of a warehouse in Queensland, Australia for $27.1m. The property is fully let to Western Star Trucks Australia for a long WALE of 7.9%, giving a net property yield of 7%.

Management expects the industrial property market to remain challenging due to the ongoing supply glut of industrial space, uncertain macroeconomic conditions, and prohibitive government regulations regarding subletting that are in place.

As a gauge, JTC sees factory and warehouse space to jump by 76.7% y/y to 2.8m sqm by 2016.

In view of the weakening operating environment, the trust intends to pursue growth by way of acquisitions while working closely with master lessees to maintain its occupancy levels. Rental income from DHL ARC will commence from Jan '16.

Cache is currently trading at a 3Q15 annualised distribution yield of 8.35% and 1.1x P/B.