CLT – AmFraser

Results within expectations. Cache’s 1Q14 revenue and net property income was within 0.14% and 1.0% of our forecasts, with DPU of 2.14c at 24.4% of our FY14 estimate. The distribution will be paid on 27 May 2014. The respective q‐on‐q 8.2% and 5.5% increases in NPI and distributable income were from rental contributions from Cache’s 2013 acquisitions, and built‐in rental escalations on masterleased properties.

Aggregate leverage of 29.1% to increase to 34.8% after DHL development. Cache’s aggregate leverage stood at 29.1% for 1Q14. However, in our 15 April note, we noted that Cache’s aggregate leverage will rise to an estimated 34.8% upon completion of the DHL build‐to‐suit logistics warehouse in 2H15. We reiterate our positive view on the development as it lengthens Cache’s weighted average lease expiry from 2.9 years in 1Q14 to 3.9 years, and increases Cache’s GFA by a sizeable 19.3%. Also, although Cache does not have any loans maturing until 2Q15, we note management has indicated they are exploring refinancing options to lengthen the debt maturity profile.

Renewal of Kim Heng Warehouse master lease. We continue to view Cache’s rental prospects positively. The renewal of the Kim Heng Warehouse master lease for another two years is testament to the quality of Cache’s assets.

Attractive yield resilient despite moderating outlook. We expect Cache’s 7.3% yield to remain resilient despite the slight decline in 1Q14 rents in the prime conventional warehouse segment reported by Collierts International, and expectations of downward pressure on occupancy rates and rents from an increase in supply of industrial space. First, only 2% of Cache’s NLA remains to be renewed in FY14, and it is currently at 100% occupancy. Second, Cache’s triple‐net master leases lock in annual rental escalations of 1.25‐2.5%. We reiterate our DDM‐derived TP of $1.41, which offers a 20.5% upside from the last close price of S$1.175.