CLT – DBSV

Accelerating growth trajectory

• Under-rented portfolio to enjoy significant reversionary prospects come 2015
  
• Robust earnings CAGR of 8% over 3 years
  
• Maintain BUY, TP raised to S$1.37
  

Under-rented portfolio to be marked-to-market in 2015. Cache continued to deliver consistent results in 2Q14, with DPU of 2.147 Scts (flat y-o-y) backed by a portfolio of master-leases. However, in the next 2 years (FY15-16), these master leases will be rolling off from their initial lease terms. Lessees (CWT and C&P) would be winding down their exposure by 50% and we see strong reversionary prospects when that happens. We estimate close to c69% of its income will be up for renewal in the next 2 years with a majority (4 out of 6 properties or c60% of revenues) in April’15.

Strong earnings CAGR of 8% over FY14-16F.

Annual rental escalations of its initial portfolio grew by 1.5% p.a., which means that on a cumulative basis after 5 years, Cache’s rents would have only grown by c.8% by April’15. We have seen industry average warehouse rentals growing by 43% over the same period, implying a significant spread of close to 37%. While we expect rents to dip by c.5% over 2014-15 due to increasing competitive supply, there is still sufficient buffer for Cache to raise rents and we conservatively forecast a 10% rise. With our revised estimates, Cache is expected to deliver robust 8% CAGR in DPU over FY14-16F.

Maintain BUY, TP raised to S$1.37. We have raised our TP by c.10% to account for the estimated earnings hike from its initial portfolio. Despite trading at P/Bk NAV of 1.3x, we believe that the strong reversionary prospects will underpin further upside in NAVs, and be catalysts for further re-rating from current levels. Maintain BUY.