CLT – CIMB

Good debut

• Results above; maintain Outperform. Cache’s maiden results after its April listing for the period 11 Feb-30 Jun 10 exceeded our expectations. DPU of 1.71cts (annualised DPU of 7.81cts) forms 31% of our forecast of 5.6cts (adjusted from 5.2cts for alignment with the reporting period). The good results stemmed from higher NPI margins and lower-than-guided costs of debt. Reported DPU translates to an absolute dividend yield of 5.6% and annualised yield of 7.8%, above the average S-Reit’s yield of 7%. We fine-tune our estimates to adjust for the actual accounting period, higher NPI margins and lower interest costs. Our DPU estimates increase by 3-9% for FY10-12, lifting our DDM-based target price to S$1.26 (discount rate 8.4%) from S$1.23. Forward annualised yields based on our estimates are 7.95%. Management is exploring growth opportunities and we expect stock catalysts from early announcements of any accretive acquisitions.

• Portfolio 100% leased on long-term, stable triple-net master lease. Weighted average length of expiry (WALE) was 6.1 years, above the average industrial WALE of five years. Over 90% of its gross floor area is taken by MNCs and government agencies.

• Higher NPI margins, and 40bp reduction in interest cost. NPI margin was 97.7% in the quarter, above our estimate of 96%. Additionally, management was able to cut all-in borrowing costs after the listing from the 4.5% guided to 4.1% (inclusive of amortisation of upfront fees capitalised at 0.8% p.a. and margins of 2.3%).