CLT – Maybank Kim Eng

New BTS asset to lift DPU; up to HOLD

• Foray into build-to-suit development with DHL Supply Chain at a total cost of SGD123.5m. New asset to account for 12% of our total GAV.
  
• Yield-on-cost estimated at ~11% on a stabilised basis, with 1.1-8.6% boost to FY15E-16E DPU.
  
• Upgrade to HOLD with a higher DDM-derived TP of SGD1.15.
  

What’s New

CACHE has entered into an agreement with DHL Supply Chain Singapore to develop and lease a build-to-suit (BTS) warehouse (NLA: 928,100 sq ft) at Greenwich Drive in Tampines LogisPark. The development will comprise two blocks of ramp-up warehouses. JTC Corporation will grant CACHE a 30-year land lease starting from 16 Jun 2014 and CACHE has to complete the development within the next 15 months. The cost of development amounts to ~SGD105.1m, while non-development expenses will add another SGD18.4m.

What’s Our View

CACHE’s foray into BTS development is overall positive in our view as the new asset will generate better yields, increase its total deposited property (by 8.6% to SGD1.17b), lengthen its portfolio’s weighted average lease to expiry (to 4.1 years from 3.12) and reduce the average portfolio building age (to 4.9 years from 5.82). We factor in a yield-on-cost of ~11% on a stabilised basis (ie, full occupancy). Our FY15E-16E DPU would thus rise by 1.1-8.6% which is already incorporated into our forecasts. Post development, CACHE’s gearing will rise to a still comfortable 34.8% from 29.1% at end-2013. We note also that its sponsor, CWT, has seconded

strategic project management personnel to Cache Property Management to assist in quality control and on-time delivery. The new BTS development is estimated to account for 12% of our total GAV. As we are positive on this acquisition, we upgrade CACHE to HOLD from SELL with a higher DDM-derived TP of SGD1.15 (previously SGD1.05).