CLT – DBSV

Going on the offensive

• Acquisitions the key driver in 2013
  
• Portfolio to remain stable, with minimal renewals over the next 2 years
  
• Upgrade to BUY, TP S$1.40 based on DCF
  

Acquisitions the key driver in 2013. Armed with a Pan Asian mandate, the management team continues to see acquisition opportunities in the region but with a near term focus in deepening its Singapore exposure. Targeting yields of 7.0-7.5%, which is higher than current implied yield of 6.0%, acquisitions are likely to mean further accretion to distributions Given the strong visibility of available acquisitions; we have now doubled our acquisition forecasts to S$200m (vs S$100m previously) @ 7.25% initial yield. These are projected to be completed over 2013-14. Gearing level of 31% is comfortable and management is open to obtaining a credit rating (more gearing flexibility) if a large acquisition opportunity arises.

Portfolio with minimal earnings risks. 4Q12 results was in line with estimates, with a higher DPU of 2.139 Scts (+2.5%) owing due to an expanded portfolio. Looking ahead, Cache has minimal lease expiries (8% of income) over 2013-2014, which will shield the trust from any releasing risks given the large completing supply in the warehouse space over the same period. Moreover, given that underlying end-users are largely 3PLs, demand for its warehouse should remain firm.

Upgrade to BUY, TPS$1.40. Cache offers one of the strongest earnings visibility over the coming 2 years with potential upside if management undertakes a more aggressive acquisition stance against our forecasted S$200m. We estimate that an additional S$25m in acquisitions can raise our DPU estimates and TP further by c0.4% and 1 Sct respectively.