16 April 2014
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Sound operations

  • DPU stable y-o-y at 1.97 Scts, in line
  • Portfolio fully occupied; REIT to benefit from rising demand for space at Marina Bay area
  • Maintain HOLD, TP S$1.29


1Q14 results. KREIT booked S$47m revenue (+13% y-o-y), S$39m NPI (+15%), and S$55m distribution income (+5.5%) for the quarter. Topline growth was driven by (a) better performance at Ocean Financial Centre (OFC) and Prudential Tower, and (b) new contribution from 8 Exhibition Street (acquired In Aug-13). There was also higher contribution from MBFC Phase 1, leading to 13% growth in associate income. Financing costs rose 13% to S$14.5m due to an expanded portfolio. DPU was flat at 1.97 Scts on a larger share base after several equity fund-raising (EFR) exercises in FY13.

Marina Bay: positive leasing momentum to ease negative impact of loss of income support. KREIT will see 3.1% and 6.3% of NLA due for renewal and rent review, respectively. We understand the majority of these leases are for OFC and MBFC Phase 1 where passing rents are lower than market currently. Given healthy office leasing momentum in the Marina Bay area, we expect 10-15% uplift in those rents. This should mitigate the slight drop in rental income as income support from MBFC Phase 1 had expired last quarter. Income support from OFC also fell to S$10.5m due to larger share of retail leases and other ancillary income (advertising and signage).

Our View

Early debt refinancing to stabilise interest cost. KREIT continued to be proactive in capital management by refinancing S$350m of debt due in FY15 (38% of total debt) and FY16 (16%), terming out debt to 3.9 years from 3.5, while maintaining

fairly low all-in interest cost of 2.18% (vs 2.15%). In addition, the REIT has hedged 68% of total borrowings with fixed rate debt to minimise risk to rising rates in the near term.

High acquisition hurdle. Given high gearing of 42%, future acquisitions would have to be financed via EFR, which will be difficult to execute given high implied yields compared to market. Despite the availability to acquire MBFC Phase 2 from its Sponsor Keppel Land, K-REIT would be hard pressed to make any DPU accretive acquisitions at this point given that cap rates for office assets in Singapore are c.4% currently.


Maintain HOLD, TP S$1.29. We like K-REIT for their quality prime Grade A portfolio. Further clarity on the planned acquisition of MBFC Phase 2 and funding could be re-rating catalysts.



15 April 2014
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Clinches first BTS development

  • BTS warehouse completion expected in 2H15
  • Long-term lease with quality tenant
  • Funded by debt and internal sources


Development of ramp-up warehouse

Cache Logistics Trust (CACHE) announced yesterday that it has entered into an agreement with DHL Supply Chain Singapore Pte Ltd to develop and lease a build-to-suit (BTS) ramp-up warehouse located at Greenwich Drive, Tampines LogisPark. The development comprises two blocks with a total GFA of ~989,200 sqft and NLA of ~928,100 sqft. The total cost of the project is estimated to be ~S$123.5m, including S$105.1m development costs and S$18.4m non-development expenses.


Arrangements relating to development

Development risk is minimised through a fixed price building works contract with Precise Development Pte Ltd, a qualified and well-established contractor founded in 1983. Recall that CACHE acquired a ramp-up warehouse from the contractor via a sale-and-leaseback arrangement in Apr 2013. In addition, CACHE’s sponsor, CWT Limited, will assist by providing strategic project management expertise. Temporary occupation permit is expected to be issued by 2H15. Upon completion, DHL Supply Chain will occupy 100% of Block 1 NLA, 50% of Block 2 NLA from year 3 onwards, and 100% of Block 2 NLA from year 5 onwards. All three lease terms will co-terminate at the end of the initial 10-year period, with an option for renewal. In our view, the lease with DHL Supply Chain (part of world’s leading logistics solution provider Deutsche Post DHL) will provide CACHE with quality long-term recurring income, while improving its portfolio’s average lease term from 3.1 years

to 4.1 years.

Maintain BUY; fair value raised

According to management, the stabilized NPI yield is expected to be comparable to CACHE’s existing properties in the vicinity, and annual rental escalations will apply throughout the first lease term. We also understand that CACHE has secured a loan facility of S$97.0m to finance the development (remaining costs to be funded by internal sources). We estimate a NPI yield-on-cost of 8.5% and rental escalation of 1.5%, with contribution to start in 2016. Our value fair is now raised from S$1.20 to S$1.25. Maintain BUY.

CLT – Maybank Kim Eng

15 April 2014
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New BTS asset to lift DPU; up to HOLD

  • Foray into build-to-suit development with DHL Supply Chain at a total cost of SGD123.5m. New asset to account for 12% of our total GAV.
  • Yield-on-cost estimated at ~11% on a stabilised basis, with 1.1-8.6% boost to FY15E-16E DPU.
  • Upgrade to HOLD with a higher DDM-derived TP of SGD1.15.

What’s New

CACHE has entered into an agreement with DHL Supply Chain Singapore to develop and lease a build-to-suit (BTS) warehouse (NLA: 928,100 sq ft) at Greenwich Drive in Tampines LogisPark. The development will comprise two blocks of ramp-up warehouses. JTC Corporation will grant CACHE a 30-year land lease starting from 16 Jun 2014 and CACHE has to complete the development within the next 15 months. The cost of development amounts to ~SGD105.1m, while non-development expenses will add another SGD18.4m.

What’s Our View

CACHE’s foray into BTS development is overall positive in our view as the new asset will generate better yields, increase its total deposited property (by 8.6% to SGD1.17b), lengthen its portfolio’s weighted average lease to expiry (to 4.1 years from 3.12) and reduce the average portfolio building age (to 4.9 years from 5.82). We factor in a yield-on-cost of ~11% on a stabilised basis (ie, full occupancy). Our FY15E-16E DPU would thus rise by 1.1-8.6% which is already incorporated into our forecasts. Post development, CACHE’s gearing will rise to a still comfortable 34.8% from 29.1% at end-2013. We note also that its sponsor, CWT, has seconded

strategic project management personnel to Cache Property Management to assist in quality control and on-time delivery. The new BTS development is estimated to account for 12% of our total GAV. As we are positive on this acquisition, we upgrade CACHE to HOLD from SELL with a higher DDM-derived TP of SGD1.15 (previously SGD1.05).

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