CLT – AmFraser

Building a resilient platform for growth. Cache’s full‐year results are in line, with FY13 DPU of 8.64c representing 101.4% of our full‐year estimate. Driven by built‐in rent escalations and the addition of new properties to the portfolio in FY12 and FY13, distributable income is up by 14.1%. In FY13, Cache also clocked in a revaluation gain of S$6.7mil. We note that this is primarily driven by an improved market valuation of CWT Commodity Hub ‐ bearing testament to its asset quality.

We laud Cache’s proactive efforts on the capital management front. Cache’s aggregate leverage currently stands at 29.1%, translating into a comfortable debt headroom of S$98mil (assuming a target leverage ratio of 35%). Notably, Cache does not face any debt refinancing needs till 2015. Meanwhile, all‐in financing cost is at 3.48%, of which 70% has been hedged into fixed‐rate, and this would considerably mitigate its interest rate risks.

Against the odds. Despite a relatively muted near‐term outlook for warehouse rents, we continue to view Cache’s rental prospects positively. Expiring rents in FY15 are estimated to be below market rents and only 3% of Cache’s portfolio is due for renewal in FY14. We are currently factoring in positive rent reversions of approx. 5% in FY15.

Acquisition pace likely to pick up steam. Owing to heightened competition among S‐REITs and a tougher regulatory environment, the hunt for yield‐accretive assets in Singapore is undeniably proving to be a daunting task. As such, Cache is broadening its acquisition focus to overseas markets such as China and Malaysia.

Conservatively, we factor in S$80mil of acquisitions in FY14 at a NPI yield of 7.5%. This raises our FY14 and FY15 DPU by 2.3% and 7.9% respectively.

An attractive yield opportunity. With an annualized yield of 7.7%, Cache ranks highly amongst the industrial S‐REITs in terms of distribution yields (average: 7.4%). We note that this also represents a 519 basis point spread over the 10‐year Singapore Government

Bond yield ‐ a comfortable level in our view.