ON CLEAR GROWTH TRAJECTORY

•4Q results spot on with our estimates

•Sound fundamentals intact

•Strong position for growth

4Q11 results well within expectations.

Cache Logistics Trust (CACHE) delivered a good set of 4Q11 results, with DPU growing 8.5% YoY to 2.102 S cents. This brings the total DPU for FY11 to 8.235 S cents, implying an attractive yield of 8.3%. The strong performance was mainly attributable to a 11.8% YoY growth in NPI to S$16.0m, driven by incremental rental income from acquisitions since Mar 2011. Both the quarterly NPI and DPU were spot on with our estimates, though they were slightly ahead of the consensus numbers.

Portfolio fundamentals remain strong.

CACHE remains one of the most resilient REIT in the industrial subsector. Portfolio occupancy as at Dec 2011 was maintained at 100%, with a weighted average lease to expiry (WALE) at 4.65 years. For FY12-13, in particular, we note that less than 2% of its leases (by GFA) are due for renewal. Moreover, its master leases encompass locked-in annual rental escalation of 1.5-2% and a triple-net lease structure for the contracted lease term. This not only provides strong earnings and cash flow visibility, but also limits the downside risks from a market slowdown, in our view.

Maintain BUY.

Looking ahead, we believe CACHE will continue to perform. While its master lease arrangements may appear to limit its growth potential, we expect the REIT to continue to benefit from full-year contributions from its 2011 acquisitions. CACHE is also certainly in a comfortable position to seek growth via asset injection, with its aggregate leverage at a healthy 29.6%. We are keeping our FY12 forecasts largely unchanged for now, as the results were within our expectations. However, as we roll over our valuation to the new fiscal year, our fair value is raised to S$1.19

Waiting to strike

At a Glance

• 4Q11 DPU of 2.102 Scts in line

• Strong balance sheet for acquisitions

• Maintain BUY and S$1.11 TP

Comment on Results

4Q11 results in line. Rental income and net property income (NPI) rose 14.5% and 11.7% yoy to S$16.9m and S$16.0m, respectively. The higher performance was mainly acquisition driven and from the annual 1.5% rental reversions on its IPO portfolio. 6 Changi North Way APC Districentre and 4 Penjuru Lane in Singapore, and Jinshan Chemical Warehouse in China were purchased in 1H11. Interest expenses were 27% higher due to increased borrowings to fund the acquisitions (all-in rate of 3.89%). Distributable income of S$13.4m (+9.2%) translates to a DPU of 2.102 Scts.

Slight uptick in asset valuations. Cache reported a S$23.1m net increase in valuation of its portfolio, largely from a compression of cap rates taken by valuers. Gearing as a result, decreased slightly to 29.6%.

On the look out for assets, focusing on China and Singapore. Balance sheet remains solid, with a headroom of S$80m before hitting gearing of 35%. Management is keen to grow its portfolio – targeting 3rd party opportunities in the Asia Pacific region namely Singapore & China as key markets. In addition, sponsor CWT and C&P can potentially offer another avenue of growth – 3.5m sqft (81% of current NLA) worth of warehouse space that could be injected in the medium term.

Recommendation

Maintain BUY and S$1.11 TP. Backed by a healthy and stable stream of cashflows, Cache offers attractive FY11-12F yields 8.6-8.7%. Target price of S$1.11 translates to a potential 18% total return.

Cache Logistics reports 8.5% jump in Q4 DPU

Distributable income up 9.2% for the quarter, boosted by acquisitions

CACHE Logistics Trust posted a fourth-quarter distribution per unit (DPU) of 2.10 cents, up 8.5 per cent from the previous corresponding period’s 1.94 cents.

Boosted by accretive acquisitions completed last year, the logistics real estate investment trust’s distributable income for the three months ended Dec 31, 2011, came in 9.2 per cent higher at $13.4 million, compared with $12.3 million a year back.

Increased revenue contributions from the acquisition of investment properties since March last year also pushed net property income (NPI) up 11.8 per cent year-on-year to $16.05 million for the final quarter.

On a full-year basis, the NPI and distributable income rose 49.7 per cent and 48.1 per cent to $61.9 million and $52.5 million respectively, from $41.4 million and $35.4 million for the period Feb 11 (date of constitution of the trust) to Dec 31, 2010.

Cache officially commenced operations on April 12, 2010, which is also its listing date.

Full-year DPU was 8.24 cents, giving an annualised yield of 8.7 per cent based on Cache’s closing price of 95 cents as at Dec 31, 2011.

As at the end of 2011, all of the warehouses in Cache’s portfolio continue to be fully tenanted, with a weighted average lease to expiry of 4.6 years.

Gearing remains a healthy 29.6 per cent, leaving more than sufficient debt headroom for future acquisitions.

As at Dec 31, Cache’s total portfolio of investment properties was valued at $842.8 million.

On when the Reit would hit a portfolio size of $1 billion, Daniel Cerf, chief executive officer of ARA-CWT Trust Management (Cache), the manager of Cache, remained tight-lipped, but said he would rather it be ‘sooner than later’ as ‘size does matter’.

However, with the increasing prevalence of bearish takes on the industrial segment, Mr Cerf would prefer to be ‘cautiously optimistic’ going forward.

On the acquisition front, Mr Cerf highlighted that the Reit will continue to seek attractive growth opportunities in the Asia-Pacific, in particular in Singapore and China.

‘Pockets of opportunities remain and we believe that with sound prudent asset and capital management practices, we are well positioned to achieve sustainable, yield-accretive returns going forward,’ said Mr Cerf.

In the longer term, he remains confident that the Reit would be able to ride through the influx of warehousing space in late 2013 and 2014, as most of Cache’s master leases are up for renewal only in 2015.

Yesterday, the industrial trust closed half a cent higher at 99 cents.

POISED TO REPEAT ITS SUCCESS

•Expecting good 4Q results

•Earnings to stay resilient

•Recent government measures are Positive

Expecting another round of good performance.

Cache Logistics Trust (CACHE) is due to release its 4QFY11 results after the trading hours on 18 Jan. We project that the REIT would rake up 10.8% and 6.4% YoY growth in its gross revenue and DPU respectively, bolstered by additional rental income from its recent acquisitions. This would bring the total FY11F DPU to 8.2 S cents, representing an attractive yield of 8.4% versus the industry average of 7.4%.

Limited impact from market slowdown.

While the Singapore economy growth is anticipated to moderate in 2012, including the prospect of a technical recession in 1Q, we believe the impact to its financial performance is likely to be limited. The REIT offers one of the highest earnings visibility and stability, due to master lease arrangements with Sponsor CWT and C&P Holdings. The weighted average lease to expiry (WALE), for example, was at 4.9 years as at 30 Sep, which compares favourably to its peers’ median of 3.5 years. Moreover, its leases usually encompass locked-in annual rental escalation of 1.5-2% and a triple-net lease structure for the contracted lease term. This limits the downside risks from a market downturn while ensuring organic growth for CACHE.

Government measures likely a positive.

Pertaining to the recent steps taken by the Ministry of Trade and Industry (MTI) to better meet genuine end-user industrialists’ needs and to quell increasing speculation in the industrial space, we are of the view that it will be beneficial to CACHE. We have earlier noted in our strategy report dated 19 Dec 2011 that the high capital values of industrial properties in the current uncertain economic conditions are likely to make it harder for REITs to justify their potential acquisitions. With these measures, we expect better stability in the end-user demand and industrial property prices, as well as opportunities for asset injection. Maintain BUY rating and S$1.14 fair value.

Continues to perform

Good 3Q11 results. Cache Logistics Trust (CLT) delivered an 8.0% YoY growth in 3Q11 DPU to 2.095 S cents, in line with both our and consensus expectations. Together with first-half DPU of 4.038 S cents, 9M11 DPU amounted to 6.133 S cents, or 74.1%/74.8% of our/consensus full-year estimates. The strong performance, we note, was achieved on the back of a 13.5% and 11.4% YoY growth in gross revenue and NPI respectively, as the additional rental income from its recent acquisitions contributed positively to the topline. This also helped to lift its distributable income by 8.6% YoY to S$13.4mn, notwithstanding a 20.9% increase in net financing costs.

Operating metrics showed resilience. As at 30 Sep, the group portfolio remained 100% occupied with a combination of triple-net master leases and multi-tenancy lease structures. The weighted average lease to expiry (WALE) was also relatively high at 4.91 years, as compared to 5.1 years a quarter ago. This provides a high degree of predictability in cash flows and stability in earnings, in our view.

Aggregate leverage at healthy level. While aggregate leverage inched up slightly from 29.1% in 2Q to 30.4%, the overall all-in-financing costs averaged at 3.81%, down from 3.92% in prior quarter due to benefits from its unsecured S$35mn 3.5% fixed-rate notes issued in Aug. Based on its reported debt level, we estimate that CLT still have an available debt headroom of ~S$65mn before it reaches an aggregate leverage limit of 35.0%. This provides the group sufficient ammunition to fund future investment opportunities.

Positive outlook. Management also painted a rather positive outlook on Singapore warehouse market fundamentals, citing CBRE’s 3Q11 industry report that demand for warehouses stabilized during the quarter, with third-party logistics providers, logistics and self-storage companies renewing their leases at higher rents. We understand that the average island-wide monthly gross rents for warehouses rose by 2.9% QoQ to S$1.75 psf for ground floor units and 3.6% QoQ to S$1.45 psf for upper floor units. This supports our view that CLT is relatively well protected from the market downturn and negative rental reversions, even when the leases come due (also aided locked in rental escalation for long leases).

Retain BUY. We continue to like CLT for its defensive nature, attractive FY11F DPU yield of 8.2%, and steady pipeline of assets from sponsor CWT with Right of First Refusal. We are keeping our FY11 estimates largely unchanged as the results were consistent with our expectations. Maintain BUY with S$1.14 fair value.