CLT – CIMB

Meeting expectations

• In line; maintain Outperform. 4Q10 results met Street and our expectations. FY10 DPU of 5.6cts (for 8.6 months of operations since listing) forms 100% of our pro-rated forecast. This translates to an annualised DPU of 7.73cts and yield of 7.8%, above the average S-Reit yield of 5.9% and average industrial REIT yield of 7.5%. We align our NPI margin assumptions with FY10 margins, and edge up our FY11-12 DPU estimates by 1.7%. We also introduce FY13 forecasts. Following our adjustments, our DDM target price climbs to S$1.32 from S$1.30 (discount rate of 8.4%). Cache trades at 1.09x P/BV, just below the 10% premium among its industrial peers but above the 6% premium for S-Reits on average. It remains our sector top pick and we expect stock catalysts from early announcements of accretive acquisitions.

• 4Q10 DPU at 1.94cts was flat qoq. Occupancy (100%) and rents were about the same as all its buildings are on master lease structures. In the quarter, some multinational corporations committed to occupying 350,000 sf (more than 15% of gross floor area) of CWT Commodity Hub for a minimum of eight years, beyond CWT's 5-year master lease. As with its earlier long-lease tenant secured last quarter, Cache has provided assurance to CWT of its right to occupy beyond the master lease (which expires in Apr 15) should the master lease not be renewed. This provides certainty of occupancy beyond the present master lease. Cache is also required to undertake some asset enhancement for its new tenants, with recovery by way of additional rents.

• Acquisition on the cards. Management continues to explore acquisition opportunities from its sponsor and third parties. Asset leverage remained low at 23%, giving Cache debt headroom of S$137m before breaching its gearing cap of 35%. We maintain our assumption of S$220m of acquisitions for this year, believing that Cache will be able to obtain a rating to gear up to 60% when it is ready to acquire beyond S$137m.