CLT – DBSV

More to come

• 2Q13 DPU of 2.147 Scts in line
  
• Acquisitions a likely catalyst; opportunities to extract further GFA in portfolio
  
• BUY, TP S$1.45
  

Highlights

2Q13 DPU of 2.147 Scts in line. Cache Logistics Trust (“Cache”) reported gross revenue and net property income of S$20.4m and S$19.6m, which were 16.5% and 17.0% higher y-o-y. The improved earnings were largely attributed to contribution from the acquisition of Precise Two, which was completed in April 13, supported by higher rental adjustments. Distributable income of S$16.6m was 20% higher y-o-y, translating to a DPU of 2.147 Scts (+8% y-o-y). Cache’s 1H13 DPU of 4.38 Scts forms c49% of our FY13F DPU.

Our View

Lowly geared balance sheet; growth opportunities galore for management. Gearing remains conservative at c.29%, which is below management’s optimal range of 35%. Looking ahead, we continue to see opportunities for the Manager to utilise its balance sheet to fund acquisition opportunities. In this respect, the Manager is looking actively at potential acquisitions (sponsor CWT/C&P and 3^rd
parties) in Singapore, Malaysia and China. We have factored in S$200m worth of acquisitions in our FY13/14F.

Redevelopment potential within portfolio. With the master lease expiring in 2014F, management remains keen to explore a redevelopment of Kim Heng Warehouse, where the built-up GFA of 54,000sf is substantially lower than the maximum GFA of c.180,000sf allowed for the property. If executed upon, there could be significant upside to earnings and capital values in the medium term.

Recommendation

BUY, revised TP of S$1.45. With a visible and growing pipeline of warehouses (totaling up to 4.5m sqft of GFA) from sponsor CWT/C&P, we remain positive on Cache’s long term inorganic growth prospects. Forward yields of 7.0-7.2% are attractive given its solid earnings profile with minimal earnings downside risk. Our TP is revised to S$1.45 as we adopt higher risk free assumptions (2.6% vs 1.8%).