CLT – CIMB

Slow and steady

CACHE’s 1Q14 distributable income expanded 5.5% yoy and its DPU was in line with expectations, accounting for 25% of our and consensus full-year forecasts. While DPU declined 4.2% yoy due to the dilution effect from its placement in Mar 13, we expect this to be mitigated as the trust deploys proceeds into its BTS project. Operationally, CACHE’s properties remain stable, with 100% occupancy and in-built rental escalation of 1.25-2.5%. We

expect growth to come from its recently-announced S$105m BTS project and stabilised NPI yield of c.7%. Maintain our Add rating, with an unchanged DDM-based target price (discount rate: 8%) of S$1.33.

1Q14 results highlight

CACHE’s 1Q14 NPI expanded 8.2% yoy and distributable income rose 5.5% yoy. During the quarter, it renewed the master lease at Kim Heng Warehouse with its existing tenant and announced that it will develop a build-to-suit (BTS) logistics warehouse for DHL.

Stable portfolio with growth from BTS

Operationally, CACHE’s portfolio remains stable, with a 100% occupancy rate, in-built step-up within master leases of 1.25-2.5% p.a., and minimal lease expiries due in 2014. With only 2% of leases (as percentage of leased area) due to be renewed for the rest of the year, we note that potential rental downside in the near term is limited. Respectable growth should come from its BTS project which is set to start contributing in 4Q15, with a stabilized NPI yield of c.7%.

Balance sheet is healthy, with a gearing of 29.1%. We expect its balance sheet to remain healthy at c.34.8% post the BTS project, largely in line with the S-REIT average of 32.5%.

Maintain Add

We maintain our Add recommendation in light of its stable portfolio and growth from the BTS project. CACHE’s FY14/15 dividend yield of 7.4%/7.6% is above the S-REIT average and in line with its industrial peers. While trading at a premium to book value at 1.18x P/NAV, we believe its stability is valued and that the BTS project will be NAV-accretive upon completion.