Cache Logistic Trust

Cache Logistic Trust (S$0.87): 4Q15 DPU beat on divestment gains but dilution risk looms

Cache Logistic Trust’s 4Q15 results exceeded estimates despite reporting a drop in DPU to 2.07¢ (-3.4% y/y). This brought full-year DPU to 8.5¢ or about 108% of consensus forecast.

DPU was diluted by an enlarged unit base due to a $100m fund raising placement in Nov ‘15, of which $60m was used to pare down debt and the remaining for its foray into Australia.

Distributable income of $17.6m (+4.7%) included a Kim Heng divestment gain of $2.1m. Excluding this, distributable income would have dropped 7.9% to $15.5m

Gross revenue surged to $24m (+16.6%), mainly on maiden contributions from six Australian acquisitions ($2.3m) and stronger contribution from Singapore properties (+5.3% to $21.4m).

However, NPI slipped to $19.2m (-1%) on increased property expenses (+295%) at newly converted multi-tenanted properties.

Portfolio occupancy dipped 0.3ppt q/q to 94.9%, with weighted-average-lease-to-expiry of 4.4 years.

Aggregate leverage edged up sequentially by 1.5ppt to 39.8%, while average debt cost eased to 3.25% (-0.15ppt) with debt tenor of 3.1 years.

There is notable interest rate risk as close to 38% of borrowings remained unhedged, and Cache estimates a 50bps increase in interest rate will sap $1m off distributable income or 0.11¢ DPU.

Going forward, management is not sanguine about the Singapore industrial property market, which makes up 89% of its gross rental income, even though there will be added contribution from the built-to-suit warehouse for DHL Supply Chain Singapore from Jan ’16 onwards.

Maybank-KE sees little room for the REIT to grow inorganically as its aggregate leverage is approaching the 45% regulatory limit, and touts that there could be further dilution risk.

Consequently, the house maintains a Hold rating and shaved its TP to $0.93 from $0.95.

Cache Logistic Trust is currently trading at 1x P/B and offers an annualised distribution yield of 9.5%.

Latest broker ratings:
DBS Vickers maintains Buy with TP of $0.96
Maybank-KE maintains Hold, cuts TP to $0.93 from $0.95
RHB maintains Neutral, cuts TP to $0.86 from $0.97