CLT – CIMB

Resilience in current times

2Q12 was another steady quarter, reflective of a resilient portfolio. Its acquisition of assets in April and July was testament to management's ability to deliver acquisition-led growth. A Malaysian asset was added into the ROFR pipeline with Cache exploring options there as well.

2Q/1H12 DPU came in within expectations at 24%/48% of our FY12 (back-end loaded contributions), and consensus. We tweak estimates, lift acquisition assumption to S$100m in 2013, and lower risk premium on proven resilience in portfolio yields. We raise our DDM target price (disc rate: 8.1%). Maintain Outperform with accretive acquisitions as catalyst.

Steady quarters ahead

2Q12 NPI grew 8.1% yoy, led by acquisitions and rental step-ups. DPU declined by 5% yoy due to enlarged share base from the private placement in March. We estimate a moderate 4% yoy growth otherwise. Rents are likely back-end loaded with newly acquired Pandan Logistics Hub and Pan Asia Logistics Centre to fully contribute in 2H12. Organic growth continues to stem from the 1.5-2.5% step-up rental escalation structured into master leases. Management has already begun renewal of master leases due in FY15/16 at similar step-up rates.

What's next for growth?

Management remains committed to acquisition-led growth. Following the acquisition of a pipeline asset from CWT, ROFR to a Malaysian warehouse was secured in 2Q12, bringing assets in the pipeline back to 13 properties with c.3.5m sf GFA. The asset will be completed in 2012. Cache continues to explore the Malaysian market to gain familiarity, and stated preference for larger assets (for more discernable impact to the bottom line), albeit harder to come by.

Stability in current times

We like Cache for its resilient yields, backed by a 100% occupied portfolio and master leases with rental step-ups. Triple net leases (WALE: 4.4 years) further mitigate exposure to inflationary cost pressures. Management's prudence leaves us confident of accretive acquisitions: we factor in S$100m for 2013.