Cache Logistics’ Q3 DPU up 8% at 2.095 cents

CACHE Logistics Trust has achieved a third-quarter distribution per unit (DPU) of 2.095 cents, up 8 per cent from 1.94 cents a year ago.

This translates to an annualised DPU of 8.312 cents, which implies a yield of 8.3 per cent based on yesterday’s closing price of $1.00.

Distributable income for the three months ended Sept 30 came in 8.6 per cent higher at $13.4 million, compared with $12.3 million a year back and exceeded forecasts by 8 per cent.

Boosted by additional rental income from the acquisition of investment properties during the period, the logistics real estate investment trust’s (Reit’s) net property income (NPI) registered a gain of 11.4 per cent at $16 million compared with $14.4 million in 3Q10.

For the first nine months of the year, the NPI and distributable income have risen 69.8 per cent and 68.8 per cent year-on-year, with numbers coming in at $45.9 million and $39.1 million respectively.

As at end-September, all of the warehouses in Cache’s portfolio continue to be fully occupied with a weighted average lease to expiry of 4.9 years – one of the highest in the local Reit universe.

Gearing came in slightly higher at 30.4 per cent for the period, up from 2Q11’s 29.1 per cent, but remains at healthy levels leaving adequate debt headroom.

Recent acquisitions by the Reit include the Air Market Logistics Centre at 22 Loyang Lane, which brings the Cache’s total portfolio to a total of 10 properties located in both Singapore and China.

The CEO of the Reit’s manager, Daniel Cerf, remains optimistic on Cache’s outlook, saying: ‘We will continue to track the positive fundamentals of the market in our pursuit of enhancing the portfolio organically and with value- add acquisitions.’

Yesterday, Cache closed two cents higher at $1.00.

Defensive stock with attractive yields

Defensive stock. We continue to maintain our positive view on Cache Logistics Trust (CACHE) and rate it as one of our preferred picks in the S-REIT space. Defensiveness and attractive yields have become the investment community buzzwords in recent months amid the market uncertainty, and we think CACHE fits into these themes smugly. The stock has posted a slight loss of 2.6% YTD, significantly outperforming FTSE ST REIT Index and STI, which were down 15.9% and 20.7% respectively during the same period. Operationally, CACHE is also relatively well protected from the market downturn and negative rental reversions due to the master lease arrangement for its portfolio. Specifically, this provides for long lease durations (weighted average lease to expiry of 5.1 years in 2Q11), with locked-in annual rental escalation of 1.5-2% and a triple-net lease structure for the contracted lease term, which in turn provides organic growth and earnings predictability for the group.

Attractive yields. CACHE also has one of the more attractive DPU yields in the sector. We estimate that the group would give out 8.3-8.6 S cents in FY11-12 (in line with Bloomberg consensus), representing yields of 8.8-9.1%. This is higher than the sector average consensus yields of 7.8-8.0%.

Acquisitions made are DPU accretive. CACHE made its maiden acquisitions in Mar, with the purchase of 6 Changi North Way and 4 Penjuru Lane, Singapore. In Jun, it announced that the acquisition of chemical warehouse facility in Shanghai from its sponsor CWT Limited, marking its foray into China. More recently, CACHE reported the completion of acquisition of purpose-built four-storey bonded warehouse at 22 Loyang Lane, Singapore. These acquisitions, we note, have NPI yields of 7.4-8.6% (relatively consistent with estimated NPI yield of 7.7% for its existing portfolio) and are DPU accretive.

Financial resources available. With additional debt headroom of ~S$60m before it reaches the regulatory aggregate leverage ceiling of 35% (from 30.2% currently) without a credit rating, CACHE has the financial resources to fund more acquisitions, possibly from CWT. We note that the latter has properties that are granted the Right of First Refusal to CACHE. We would not be surprised if the group announces more acquisitions in coming quarters, as several of these properties have completed construction.

Maintain BUY. We now revise our forecasts to include its 2Q11 results and contribution from 22 Loyang Lane. Our RNAV based fair value now stands at S$1.14 (previously S$1.06), representing an attractive upside potential of 21.6% (excluding FY11F DPU yield of 8.8%). Maintain BUY on CACHE.

Earnings stability with growth to boot

• Earnings stability, high yields and acquisition growth. Cache offers one of the most attractive and defensive yields in our coverage, with CY12 DPU yields of 8.0%. In the event of an economic downturn, a potential flight to yields could provide support for its share price, we believe. Further, we like its earnings stability, low gearing and acquisition pipeline from its strong sponsor, CWT. We maintain our earnings estimates and DDM-based target price of S$1.15 (discount rate 8.6%), anticipating re-rating catalysts from lower financing costs and accretive acquisitions.

• Earnings stability in a downturn. CWT is Cache’s main sponsor and master tenant for the bulk of its portfolio. With triple net master leases and rental escalation for all its warehouses, Cache’s earnings are largely guaranteed.

• Low gearing with no immediate refinancing pressure. Cache has one of the lowest gearing ratios among peers. Near-term refinancing risks are low, as no major refinancing is expected until 2014.

• Growth from acquisitions and lower financing costs. We believe sponsor CWT could monetise one of its warehouses in 2012, offering acquisition opportunities to Cache. We also expect a near-term DPU uplift as management attempts to lower its all-in financing costs.

Upside from Acquisitions

At a Glance

• In line with expectation and on track to meet our full year forecasts

• Acquisitions and asset enhancement activities to drive earnings growth.

• Maintain Buy, S$1.11

DPU of 2.1ct is inline with expectation. Cache Logistics Trust (“Cache”) reported S$15.5m net property income (“NPI”), 6.1% above IPO forecasts. 2Q sequential performance was relatively robust with gross revenue and NPI rising 9.2% and 7.2% to S$16.2m and S$15.5m respectively, lifting distributable income to about S$13.2m (+7.1% qoq). The robust performance was largely due to an enlarged portfolio and the group’s continuous asset enhancement efforts. As a result, DPU rose by about 6.8% qoq to 2.09cts. The first 2 quarters’ DPU forms 50% of FY11 forecast.

New acquisitions yet to kick in, more to come. Recent acquisition of Jinshan Chemical warehouse in Shanghai and Air market Logistic Centre in Singapore, as well as the 70,000 sf asset enhancement works at Cold Hub should underpin earnings growth in the coming quarters. Gearing remained healthy at 29.1% and the group is looking to grow portfolio further via acquisitions in Singapore and China. All-in Interest rate has also lowered from 4.37% to 3.92% due to the more attractive rates secured for its recent acquisitions.

Recommendation

BUY Call, TP maintained at S$1.11. Cache remains attractive for its FY11-12F yield 8.2-8.7%, which is 230-270 bps above the peers’ average 5.9% – 6.2%. Re-rating catalysts will be the execution of more acquisitions that the manager is currently reviewing.

Cache’s Q2 DPU surpasses forecast

Logistics Reit clocks 7% q-o-q rise in DPU to 2.086 cents

Distributable income for the second quarter came in 7.1 per cent higher at $13.3 million, compared with Q1’s $12.4 million, and also beat the Reit’s earlier Q2 projection of $12.4 million by 7.4 per cent.

On the back of upward rental adjustments across the portfolio and contributions from new acquisitions, Cache’s net property income (NPI) for Q2 surpassed forecasts by 6 per cent, coming to $15.5 million. Quarter-on-quarter, NPI also improved by more than 7 per cent, exceeding Q1’s NPI of $14.4 million.

Combining the first two quarters, Cache outperformed its first half (1H2011) distributable income and NPI forecasts by 3.8 per cent and 2.5 per cent, with numbers coming in at $25.7 million and $29.9 million respectively.

In response to Cache’s growth plans in the local logistics space, Daniel Cerf, chief executive officer of ARA-CWT Trust Management said in an interview with BT yesterday: ‘This is our backyard, we will continue to grow here (Singapore) as much as we can.’

However the industry has been getting rather ‘crowded’ of late, making it increasingly difficult to acquire ideal logistics properties.

The logistics Reit recently completed the acquisition of three new properties, bringing its logistics portfolio to a total of nine high quality logistics warehouses located in the Asia-Pacific region, amounting to a total portfolio value of $805.1 million.

‘We are pleased with our performance and the fact we have exceeded the $800 million mark in assets under management. We will continue to pursue growth from within the portfolio as well as through external growth by way of acquisitions that are conducive to the portfolio,’ commented Mr Cerf in relation to Cache’s portfolio.

As at end-June, all of the warehouses in Cache’s portfolio are 100 per cent occupied, with tenants on triple-net master leases and multi-tenancy leases.

Gearing also remains at a healthy level of 29.1 per cent with about $231.2 million in borrowings as at end-June.

When asked whether investors can expect Cache’s DPU to continue on an uptrend, Mr Cerf declined comment, though he did hint that the Reit was ‘on track’ in that aspect.

Mr Cerf shared with BT that to him, driving Cache’s stock price is not as much of an issue as ensuring healthy distributions. After all, he said, ‘I know if I’m doing the right thing, people will do the right thing and buy the stock.’

Cache’s stock closed half a cent lower at 97.5 cents yesterday.