Wednesday, 19 September 2012

Cache Logistics Trust

OCBC on 19 Sept 2012

We continue to favour Cache Logistics Trust (CACHE) for its resilient portfolio. The REIT currently owns 12 logistics warehouse properties, of which eight of them have ramp-up features. Such warehouse space is limited in Singapore as specialized planning and design specifications are required for the development. CACHE’s portfolio has also remained 100% occupied since its listing in Apr 2010. In addition, the bulk of its leases are based on triple-net master lease structures with built-in annual rental escalation of 1.5-2.5%. This arrangement provides CACHE not only with high NPI margins but also stable income streams and a long weighted average lease to expiry of 4.4 years. For the rest of FY12, we expect CACHE to turn in a better set of results. While its 2Q12 DPU eased 5.0% YoY, we believe CACHE will see a lift in its DPU going forward when rental income from Pandan Logistics Hub starts to kick in from 2H12 onwards. Reiterate BUY on CACHE with a revised fair value of S$1.26 (S$1.18 previously).

Demand for portfolio assets to stay strong
We continue to favour Cache Logistics Trust (CACHE) for its resilient portfolio. The REIT currently owns 12 logistics warehouse properties, of which eight of them have ramp-up features. Such warehouse space is limited in Singapore as specialized planning and design specifications are required for the development. Based on our understanding, CACHE holds a sizeable 22.9% market share of ramp-up warehouses in Singapore. Hence, we expect the demand for its properties to remain robust.

Strong and predictable income streams
CACHE’s portfolio has retained 100% occupancy rate since its listing in Apr 2010. In addition, the bulk of its leases are based on triple-net master lease structures with built-in annual rental escalation of 1.5-2.5%. This arrangement provides CACHE not only with high NPI margins of 95.0%-97.4% over the past eight quarters but also stable income streams and a long weighted average lease to expiry of 4.4 years (with less than 2% of GFA due for renewal in 2013).

Improved performance for 2H12
For the rest of FY12, we expect CACHE to turn in a better set of results. While its 2Q12 DPU eased 5.0% YoY, we note that it was due to an enlarged unit base arising from private placement to fund the acquisition of Pandan Logistics Hub, even though the property has yet to contribute to its income. When rental income from Pandan Logistics Hub starts to kick in from 2H12 onwards, we believe CACHE will see a lift in its DPU going forward. This is in addition to a potential gain from interest savings following the recent refinancing of its outstanding debts with a new S$375.0m bank facility (all-in financing cost is expected to improve to 3.44% from 4.38%).

Maintain BUY
As CACHE is approaching the end of its 3Q, we now roll our valuations to FY13. This in turns raises our fair value estimate from S$1.18 to S$1.26. We reiterate our BUY rating on CACHE.

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