Category: CLT
CLT – OCBC
A year in transition
- 4Q14 DPU +0.4% YoY to 2.146 S cents
- Focus on occupancy rates
- Raise FV slightly but maintain HOLD
4Q14 results in-line with expectations
Cache Logistics Trust (CACHE) reported its 4Q14 results which met our expectations. Gross revenue declined 0.4% YoY to S$20.6m due to higher vacancies and tenant rent free period. Nevertheless, DPU climbed 0.4% to 2.146 S cents. For FY14, revenue rose 2.3% to S$82.9m and this formed 96.7% of our full-year forecast. Income available for distribution increased 2.0% S$66.9m, but DPU slipped 0.8% to 8.573 S cents due to a larger unit base. The latter constituted 98.7% of our FY14 projection.
Outlook remains challenging
CACHE is currently undergoing a transition period as it is in the midst of converting some of its assets from master-leased properties to multi-tenanted properties. This had some impact on its occupancy, which declined from 99.5% to 97.5%. Management will continue to step up its efforts to secure forward renewals during this conversion phase. 11% of its lettable area is up for renewal in FY15. Approximately 72% of C&P Changi Districentre and 41% of CWT Cold Hub have been pre-committed by tenants, with a strong pipeline of interest from new tenants, according to CACHE. We expect some near-term pressure on its NPI margins due to expenses related to these conversions. Concerns over the oversupply situation for Singapore’s industrial space also remain as a concern. On a positive front, CACHE managed to renew the master lease of CWT Commodity Hub with its sponsor CWT for a period of three years from Apr 2015, with an estimated initial uplift of 1% in rental rates.
Maintain HOLD
Looking ahead, CACHE will seek to pursue yield accretive acquisitions. Australia is one of its key areas of focus given the institutional-grade warehouses with good credit tenants. China has moved behind Australia in the pecking order as cap rates have narrowed. We lower our FY15 DPU forecast slightly by 1.1% and introduce our FY16 projections. Rolling forward our valuations, our fair value is increased from S$1.13 to S$1.15. Maintain HOLD.
CLT – DBSV
Accelerating growth trajectory
- Under-rented portfolio to enjoy significant reversionary prospects come 2015
- Robust earnings CAGR of 8% over 3 years
- Maintain BUY, TP raised to S$1.37
Under-rented portfolio to be marked-to-market in 2015. Cache continued to deliver consistent results in 2Q14, with DPU of 2.147 Scts (flat y-o-y) backed by a portfolio of master-leases. However, in the next 2 years (FY15-16), these master leases will be rolling off from their initial lease terms. Lessees (CWT and C&P) would be winding down their exposure by 50% and we see strong reversionary prospects when that happens. We estimate close to c69% of its income will be up for renewal in the next 2 years with a majority (4 out of 6 properties or c60% of revenues) in April’15.
Strong earnings CAGR of 8% over FY14-16F.
Annual rental escalations of its initial portfolio grew by 1.5% p.a., which means that on a cumulative basis after 5 years, Cache’s rents would have only grown by c.8% by April’15. We have seen industry average warehouse rentals growing by 43% over the same period, implying a significant spread of close to 37%. While we expect rents to dip by c.5% over 2014-15 due to increasing competitive supply, there is still sufficient buffer for Cache to raise rents and we conservatively forecast a 10% rise. With our revised estimates, Cache is expected to deliver robust 8% CAGR in DPU over FY14-16F.
Maintain BUY, TP raised to S$1.37. We have raised our TP by c.10% to account for the estimated earnings hike from its initial portfolio. Despite trading at P/Bk NAV of 1.3x, we believe that the strong reversionary prospects will underpin further upside in NAVs, and be catalysts for further re-rating from current levels. Maintain BUY.