CLT – CIMB

Backend-loaded contributions expected

• In line; maintain Outperform. 1Q11 DPU of 1.95 Scts met expectations, forming 21% of our FY11 estimate and 24% of the Street’s. This translates to an annualized DPU of 7.92 Scts for an 8.4% yield. We expect backend-loaded contributions with S$220m of debt-funded acquisitions assumed for FY11. No change to our DPU estimates or DDM-based target price of S$1.32 (discount rate 8.4%). We continue to like Cache for its quality portfolio and scalability. Balance sheet is one of the strongest among S-REITs, leaving it with debt headroom for accretive debt-funded acquisitions from sponsor CWT and third parties. Cache trades at 1.05x P/BV and offers a prospective FY11 DPU yield of 10%. We see catalysts from accretive acquisitions.

• 1Q11 DPU up 0.7% qoq. Cache’s portfolio remains fully leased, with a long WALE of 5.5 years. NPI was up 0.5% qoq in 1Q11 from rental step-ups though it missed management’s forecast by 1% due to timing differences for rental step-ups. Distributable income (+0.8% qoq) and DPU (+0.7% qoq), however, met management’s forecasts on lower financing costs.

• Maiden third-party acquisitions in 1Q11. Cache completed the acquisition of 6 Changi North Way on 31 Mar and is in the process of completing the acquisition of 4 Penjuru Lane. The latter comes with development potential with an un-maximised plot ratio of 0.63 (vs. maximum plot ratio of 2.5). We expect backend-loaded contributions from these two and look forward to more third-party acquisitions to expand its portfolio and dilute tenant concentration risks for sponsor, CWT.

• Acquisition catalysts. Asset leverage is expected to climb to 27.6% after the completion of the above two acquisitions, leaving Cache with debt headroom for S$84m before breaching its gearing cap of 35%. We continue to assume S$220m of acquisitions (inclusive of S$40m of acquisitions announced recently) for FY11, believing Cache will be able to obtain a rating to gear up to 60% on a full ramp-up of its acquisitions.