Cache Logistics Trust In Focus

 
ALP REIT INVESTMENT CLUB
(16March2016)
Cache Logistics Trust / K2LU
 
(16March2016) close: S$0.84
12M-Target price: S$0.85
 
1.)    Type of Reit: Logistics reit
2.)    Number of property in the portfolio: 19 properties in three countries, namely, Singapore (12), Australia (six), and China (one)
3.)    Top 5 properties that generates the highest revenue (Decreasing order): The top 5 that generate the highest revenue are all located in singapore. 
 
4.)    Challenges: Higher finance cost, high property expenses and Net change in fair value of investment properties (MAJOR FACTOR) contribute to the negative Net Profit of the group. The REIT warned that “the Singapore industrial property market condition will remain challenging over the next 12 months.” It added that an “imbalance of supply and demand of industrial space, slowing global growth and government regulations” continues to have a negative impact on its market.
 
5.)    Strengths: Cache Logistics Trust has approximately 62% of  its debt hedged for the next 2.5 years, which should provide some stability in terms of finance costs. The all-in interest rate on its debt also came in at 3.25%, a slight improvement from the 3.3% seen at end-2014.
                                                              
6.)    Significant events: During 2015, the Group completed the acquisition of six properties located in Australia (collectively “Australian properties”), completed the construction of DHL Supply Chain Advanced Regional Centre which obtained its TOP in July 2015 and the disposal of Kim Heng warehouse.
 
 
7.)    TABLE:
cache
 
 
8.)    Recommendation:  Hold. Cache’s Singapore portfolio is expected to see rental pressure from (i) conversions of single-user properties to multi-tenanted properties, (ii) heightened competition due to new supply. As such, growth will mainly be driven from its recent acquisitions such as the four properties in Australia. We believe Australia is an attractive target market given its long leases and the weak AUD-SGD exchange rate, which could present upside if the AUD strengthens in the medium term. However, Singapore is still its biggest revenue driver and there are limited acquisition capacity as gearing nears 40%. (Take note that MAS has adopted a single-tier leverage limit of 45% instead of the two-tier limits).
 
COMPILED BY: Tan Eng Jian
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

 



[1]Due to Fair Valuation Adjustment. Relates to fair valuation adjustments of investment properties as of 31 December 2015. The revaluation exercise was performed by DTZ Debenham Tie Leung (SEA) Pte Ltd, DTZ Debenham Tie Leung Limited, m3property Pty Limited and JLL Adelaide, South Australia as at 31 December 2015. Valuations of the Singapore properties were negatively affected by: shorter land tenure, drop in market rent and anticipated slower rental growth, vacancy allowance and higher operating costs associated with the converted multi-tenanted buildings. For the newly-acquired Australian properties, fair value adjustments were primarily due to capitalised acquisition costs written off.

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