8.1% forward yields a steal
- Factor in interest savings from refinancing, asset disposal, as well as weak leasing.
- Maintain FY15 DPU but raise FY16’s from 9 to 9.3 SGD cts.
- Maintain BUY with DDM TP lifted to SGD1.37 (COE 8.5%, LTG 2%) from SGD1.33. Expect catalysts from BTS-DHL in FY16.
Factoring in positives & negatives
Interest cost savings of SGD3m.
- Cache’s active debt management brought down its all-in interest rate to 2.77% in 1Q15 from last year’s 3.43% average.
- Variable-interest rates hedged into fixed has also increased from 61.7% of total to 71%.
- We expect this year’s all-in interest cost to come in at 3%, potentially saving the REIT SGD3m.
Disposal gain of SGD0.7m.
- Kim Heng Warehouse was sold to JTC for SGD9.7m in Jun 2016. It was held on its books at SGD9.0m. Revenue lost should be minimal as the asset only contributed SGD0.5m in FY14. Cash proceeds are likely to be used for debt management.
- Islandwide warehousing occupancy worse than expected. Cache has the most-favourable tenant-expiry profile under our coverage at 9%/15%/3% for FY15-17.
- It is also defensively positioned with only 26% revenue exposure to the multi-tenanted market.
- Nonetheless, we account for this weak leasing environment by flattening our rent-reversion expectations.
- Our FY15 revenue expectation drops from SGD88.3m to SGD86.4m.
Raise FY16 DPU, attractive 8% yields
- FY15 DPU remains at 8.6 SGD cts as revenue cuts offset interest savings, but FY16’s rises from 9 to 9.3 SGD cts to capture the full benefit.
- BTS project for DHL is on track to underpin FY16 growth.
- Maintain BUY with TP lifted to SGD1.37 from SGD1.33 after DPU adjustments.
- Prospective yields of 8.1% compare favourably with the cap-weighted 6.7% average for industrial SREITs.
(Joshua Tan)
Source: http://www.maybank-ke.com.sg/
