CLT – DBSV

Your money in a safe

At a Glance

• 4Q10 DPU of 1.94 Scts in line

• Modest 23% gearing with potential $135m financial headroom

• BUY, maintain TP at S$1.11 (Total Return of 20%)

Comment on Results

4Q10 DPU of 1.94 Scts was in line. Cache reported topline and net property income ("NPI") of S$14.7m and S$14.4m respectively, which was slightly ahead of IPO forecasts but met our estimates. Net interest costs was 5.8% lower compared to forecasts due to a lower all-in rate. As such, distributable income of S$12.3m exceeded forecast by 1.2%, translating to a DPU of 1.94 Scts. Superior financial metrics, modest gearing of 23.7%. Gearing remains at modest level of 23.7%, with interest cover of over 9.3x. Its loan tenure stands at 4 years, with 100% of interest costs fixed at an average all-in 4.36%.

Recommendation

Cache is positioned for further growth. Cache's current gearing empowers the trust with a debt-funded war chest of cS$135m at a gearing limit of 35%, given its non-credit rating status. Going ahead, acquisitions will drive growth. Besides the visible pipeline from sponsor CWT and C&P, the manager is also evaluating 3^rd party opportunities in Singapore and the region to grow its portfolio. We have assumed S$100m acquisitions in our numbers. BUY Call, TP maintained at S$1.11. We continue to like Cache for its transparent and sustainable earnings model, with annual step-up provisions ensuring steady growth Attractive FY11-12F yields of 8.4*-8.6%, some 240-260 bps above the Sreit sector average of 6.0%. Further upside will stem from Cache acquiring assets at larger quantum or higher yields than assumed.