CLT – DBSV

Waiting to strike

At a Glance

• 4Q11 DPU of 2.102 Scts in line

• Strong balance sheet for acquisitions

• Maintain BUY and S$1.11 TP

Comment on Results

4Q11 results in line. Rental income and net property income (NPI) rose 14.5% and 11.7% yoy to S$16.9m and S$16.0m, respectively. The higher performance was mainly acquisition driven and from the annual 1.5% rental reversions on its IPO portfolio. 6 Changi North Way APC Districentre and 4 Penjuru Lane in Singapore, and Jinshan Chemical Warehouse in China were purchased in 1H11. Interest expenses were 27% higher due to increased borrowings to fund the acquisitions (all-in rate of 3.89%). Distributable income of S$13.4m (+9.2%) translates to a DPU of 2.102 Scts.

Slight uptick in asset valuations. Cache reported a S$23.1m net increase in valuation of its portfolio, largely from a compression of cap rates taken by valuers. Gearing as a result, decreased slightly to 29.6%.

On the look out for assets, focusing on China and Singapore. Balance sheet remains solid, with a headroom of S$80m before hitting gearing of 35%. Management is keen to grow its portfolio – targeting 3rd party opportunities in the Asia Pacific region namely Singapore & China as key markets. In addition, sponsor CWT and C&P can potentially offer another avenue of growth – 3.5m sqft (81% of current NLA) worth of warehouse space that could be injected in the medium term.

Recommendation

Maintain BUY and S$1.11 TP. Backed by a healthy and stable stream of cashflows, Cache offers attractive FY11-12F yields 8.6-8.7%. Target price of S$1.11 translates to a potential 18% total return.