POSITIVE START TO FY12

•1Q12 results within expectations

•High cash flow and earnings visibility

•Likely in acquisition mode

Stable set of 1Q12 results

Cache Logistics Trust (CACHE) released its 1Q12 results after market close yesterday. NPI grew 11.6% YoY (flat QoQ) to S$16.1m, while distributable income rose 7.6% (flat QoQ) to S$13.4m. The YoY performance was mainly driven by incremental rental income from upward rental adjustments and acquisitions over the past year. DPU for the quarter came in at 2.086 S cents and represented a 6.9% YoY increase. The results were in line with our expectations, with DPU forming 25.0% of our full-year estimate (24.8% of consensus).

Portfolio performance remains robust

As at 31 Mar, CACHE’s portfolio properties remained 100% occupied with a combination of triple-net master leases (with locked-in annual rental escalation of 1.5-2.0%) and multi-tenanted lease structures. The weighted average lease expiry (WALE) stood at 4.4 years, relatively unchanged from the WALE of 4.65 years seen in prior quarter. Management reiterated that there will be no lease renewal in 2012 (<2% of GFA due for renewal in 2013). This provides a significant amount of earnings visibility and stability.

Private placement improves financial position

With the recent issuance of 60m new units to raise ~S$57.1m in net proceeds via a private placement, we note that CACHE’s aggregate leverage improved from 29.6% as at 31 Dec 2011 to 27.7%. This gives the REIT an estimated S$110m of additional debt headroom for future investment opportunities. Average all-in financing cost increased marginally from 3.89% in 4Q11 to 3.94%, but interest cover was maintained at a strong 8.0x.

Maintain BUY

Going forward, we believe CACHE will actively seek growth avenues now that it is well capitalized. In the meantime, we understand that the acquisition of Pan Asia Logistics Centre is due to complete by end Apr. The warehouse has an initial NPI yield of ~7.7% and is likely to provide marginal lift to its income. We make no changes to our forecasts as results were in line. Maintain BUY and S$1.11 fair value.

Cache Logistics Trust's Q1 DPU up 7% at 2.09 cents

CACHE Logistics Trust delivered a distribution per unit (DPU) of 2.09 cents for the first quarter of 2012, a 7 per cent increase from 1.95 cents in the same period last year.

Distributable income was $13.4 million, up 7.6 per cent from the year-earlier period, while net property income rose 11.6 per cent to $16.1 million.

Gross revenue for the quarter was $16.9 million, a 13.9 per cent rise over the previous year, due mainly to additional rental income and revenue from new acquisitions. Net financing costs also increased 29.5 per cent year on year to $2.5 million, largely due to increased borrowings for acquisition funding.

The Q1 results give rise to an annualised DPU of 8.39 cents, and a corresponding distribution yield of 8.4 per cent based on Cache's closing unit price of $1 as at yesterday.

Said Daniel Cerf, CEO of trust manager ARA-CWT Trust Management (Cache) Limited: "The biggest driver for DPU growth is acquisitions. . . We will continue to embark on acquisitions when they make sense . . . to add value to the portfolio as well as the bottom line."

Cache's portfolio is set to comprise 11 assets by the end of April, with the completion of a $35.18 million acquisition and leaseback arrangement of a Changi North warehouse facility with Pan Asia Logistics. The acquisition will provide a starting net property income yield of approximately 7.7 per cent.

Addressing a possible ramping up of supply in the logistic assets sector this year, Mr Cerf said: "We think that this supply will be absorbed . . . on the back of Singapore's attractiveness to third-party logistics providers and manufacturing firms who need to get goods to the market quickly."

Capital and equity management has been on the cards for Cache recently, including the issuing of 60 million new units at 98.5 cents apiece in a private placement on March 21, raising $57.1 million in net proceeds and resulting in a reduced 27.7 per cent gearing ratio as at March 31.

The firm also declared an advanced distribution of 60 million new units of 2.044 cents for the period from Jan 1 to March 29, to be paid on April 30.

Units of the trust gained half a cent to close at $1 yesterday.

GEARING UP FOR GROWTH

•Placement to boost financial position

•Expecting to see stable results in 1Q

•Possibly in active search for growth

Successful private placement

Cache Logistics Trust (CACHE) had recently announced the close of its private placement of 60m new units. The issue price was fixed slightly north of the midpoint of the initial price range at S$0.985 apiece and represented a 5.2% discount to its volume weighted average price of S$1.0387. While the issue was somewhat unexpected, given its already healthy financial position (29.6% aggregate leverage as at 31 Dec 2011) and lack of new acquisition drive, we note that the placement saw strong participation from Asian and European investors (1.24x subscribed). The net proceeds from this exercise are expected to amount to ~S$57.1m, and will likely be used to fund the acquisition of 21 Changi North Way and partially repay debt. We estimate CACHE’s aggregate leverage to drop to ~26% post placement. This provides the REIT with additional debt headroom of ~S$120m (possibly secured at more favourable terms) before it reaches the regulatory leverage limit of 35%, which is strong enough to capitalize on any attractive growth opportunities as they arise.

Expecting stable 1Q12 performance

In relation to the placement, CACHE also announced an advanced distribution of its distributable income for the period from 1 Jan to 29 Mar 2012, just two days before 1Q12 ends. The quantum was initially guided at ~2 S cents, and is in line with the DPU of 1.95 S cents and 2.10 S cents seen in 1Q11 and 4Q11 respectively. Assuming that CACHE distributes 100% of its income for the quarter, this is consistent with our expectation that the REIT is likely to showcase another set of stable performance in 1Q12.

Maintain BUY

We continue to favour CACHE as one of the preferred picks in the industrial REIT space. While the placement may dilute the DPU payout in the short term, we believe CACHE will actively seek avenues to make up for the shortfall. Adjusting for the private placement, our fair value now eases to S$1.11 from S$1.19 previously. Maintain BUY as upside potential still remain attractive.

Growing presence in Changi

• Acquisition of Changi North Warehouse at initial yield of 7.7%

• Accretive to earnings, gearing to head up to 32.6%

• BUY, TP raised to S$1.13

Strategic acquisition of Changi North warehouse for S$35.2m. Cache Logistics Trust (Cache) announced the acquisition of a 4-storey ramp-up warehouse in Changi North International LogisPark for S$35.18m (all in cost of S$37m). The facility has a niche location in Changi North, which has limited upcoming competing supply, thus enjoying robust demand for space. The area caters to endusers operating in the air cargo industry. The vendor, Pan Asia Logistics, will lease back the facility for 10 years.

Accretive to earnings, gearing to head up to 32.6%. Initial yield is estimated to be c7.7%, in line with its current implied trading yield. We note that Cache has the financial capability to fund this acquisition. Assuming it is fully debt-funded, gearing is estimated to head towards 32.6%, which means that deployable headroom (to its regulatory limit of 35%) will be limited to a further cS$30m.

Further acquisitions could involve capital raisings. There is a visible pipeline of completed / completing warehouse properties from its sponsor CWT/C&P which could be on offer for Cache to acquire in the medium term. Hence, obtaining a credit rating will provide the REIT greater financial flexibility to gear up beyond 35%. In our view, potential acquisitions could also involve some form of capital raising exercise, which we have not factored into our estimates.

Maintain Buy, TP raised slightly to S$1.13. Our estimates are raised slightly to account for this acquisition. Cache continues to offer attractive prospective yields of close to 9%, which should have more upside in the event of more acquisitions.