- No surprises with 1Q15 NPI and DPU in line.
- Interest costs fell on prudent debt management.
- Reiterate BUY with catalysts from resilience & clear DPU growth in 2016. DDM TP still at SGD1.33 (CoE 8.5%, LTG 2%).
1Q15 revenue was SGD21m (+1.6% YoY, +1.9% QoQ). NPI was SGD19.7m (+0.6% YoY, +1.6% QoQ). NPI growth lagged revenue on rising property-operating expenses, as landlords do more for tenants in a tough leasing environment. Respectively, revenue and NPI were 23.7% and 23.6% of our FY15. Australian acquisitions will contribute a full quarter from 2Q15, which should put it on track for our full-year expectations. Annualised DPU of 8.7 SGD cts almost matches our projection of 8.6 SGD cts.
Prudent interest-cost management
All-in interest costs dropped from 3.3% in 4Q14 to 2.77% in 1Q15 after refinancing. Cache also hedged more debt with fixed rates, up from 61.7% to 71%. It has no refinancing needs till 2017 when SGD97m will come due, at about 20% total debt.
BUY for DPU resilience
Some 74% of NPI remains tied to single-tenanted master leases. These provide income predictability in an environment of strong supply/weak demand. Cache has the lowest tenant lease expiries among industrial SREITs under our coverage: 9%/15%/3% for the next three years. Annual rental step-ups of 1-3.5% provide certain organic growth, while next year’s BTS project for DHL should contribute to DPU growth of 5.7%. Maintain BUY with DDM TP intact. We consider Cache undervalued to peers as its earnings quality is high and risks, lower.
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