CLT – OCBC

Continues to perform

Good 3Q11 results. Cache Logistics Trust (CLT) delivered an 8.0% YoY growth in 3Q11 DPU to 2.095 S cents, in line with both our and consensus expectations. Together with first-half DPU of 4.038 S cents, 9M11 DPU amounted to 6.133 S cents, or 74.1%/74.8% of our/consensus full-year estimates. The strong performance, we note, was achieved on the back of a 13.5% and 11.4% YoY growth in gross revenue and NPI respectively, as the additional rental income from its recent acquisitions contributed positively to the topline. This also helped to lift its distributable income by 8.6% YoY to S$13.4mn, notwithstanding a 20.9% increase in net financing costs.

Operating metrics showed resilience. As at 30 Sep, the group portfolio remained 100% occupied with a combination of triple-net master leases and multi-tenancy lease structures. The weighted average lease to expiry (WALE) was also relatively high at 4.91 years, as compared to 5.1 years a quarter ago. This provides a high degree of predictability in cash flows and stability in earnings, in our view.

Aggregate leverage at healthy level. While aggregate leverage inched up slightly from 29.1% in 2Q to 30.4%, the overall all-in-financing costs averaged at 3.81%, down from 3.92% in prior quarter due to benefits from its unsecured S$35mn 3.5% fixed-rate notes issued in Aug. Based on its reported debt level, we estimate that CLT still have an available debt headroom of ~S$65mn before it reaches an aggregate leverage limit of 35.0%. This provides the group sufficient ammunition to fund future investment opportunities.

Positive outlook. Management also painted a rather positive outlook on Singapore warehouse market fundamentals, citing CBRE’s 3Q11 industry report that demand for warehouses stabilized during the quarter, with third-party logistics providers, logistics and self-storage companies renewing their leases at higher rents. We understand that the average island-wide monthly gross rents for warehouses rose by 2.9% QoQ to S$1.75 psf for ground floor units and 3.6% QoQ to S$1.45 psf for upper floor units. This supports our view that CLT is relatively well protected from the market downturn and negative rental reversions, even when the leases come due (also aided locked in rental escalation for long leases).

Retain BUY. We continue to like CLT for its defensive nature, attractive FY11F DPU yield of 8.2%, and steady pipeline of assets from sponsor CWT with Right of First Refusal. We are keeping our FY11 estimates largely unchanged as the results were consistent with our expectations. Maintain BUY with S$1.14 fair value.