Category: CLT
CLT – DBSV
Steady as she goes
• Maiden DPU of 1.71 Scts above IPO forecasts
• Adjusting DPU estimates upwards by 3% on lower interest costs assumptions
• Maintain BUY, TP revised to S$1.08; total return of 15%
DPU of 1.71 Scts (1.4% above IPO forecast). For the period of 12th April – Jun’10, Cache Logistics Trust (Cache) reported gross revenues and net property income of S$12.9 m and S$12.6 m that were 0.2% and 1.3%, respectively, above IPO forecasts. Distributable income came in at S$10.8m, 1.4% above forecasts due to lower than projected interest costs (achieved 4.14% all in costs, against estimate of 4.5%), translating to DPU of 1.71 Scts Note that while Cache will pay out dividends quarterly, its first distribution will be paid together with the next quarter’s distribution.
Strong financial metrics, adjusting earnings up from lower interest expense. Balance sheet metrics is strong with a low gearing of 25.5% with interest cover of over 9.3x. We adjust our forecasts slightly upwards given lower locked in all-in rates (4.14% vs 4.5% previously). DPU estimates are raised by 3%
Catalysts: Acquisitions to drive further earnings growth. Apart from an in-built 1.5% p.a growth in topline from its master lease structure, we believe that further earnings growth will have to be acquisition driven; we have assumed S$100m worth of new assets in our numbers. Apart from potential 3rd
party acquisitions, Sponsor CWT offers a visible pipeline of logistics properties for injection in the medium term (13 properties, 2.9 sqft of GFA).
Maintain BUY, TP revised to S$1.08. DPU is relatively secured. Cache is trading at FY10-11F yields of 8.0-8.3%, 140 bps above sector’s average of 6.6%, which is attractive. Price catalysts will hinge on (i) acquisitions to grow earnings; and (ii) Cache obtaining a rating that could improve its financial flexibility.
CLT – CIMB
Good debut
• Results above; maintain Outperform. Cache’s maiden results after its April listing for the period 11 Feb-30 Jun 10 exceeded our expectations. DPU of 1.71cts (annualised DPU of 7.81cts) forms 31% of our forecast of 5.6cts (adjusted from 5.2cts for alignment with the reporting period). The good results stemmed from higher NPI margins and lower-than-guided costs of debt. Reported DPU translates to an absolute dividend yield of 5.6% and annualised yield of 7.8%, above the average S-Reit’s yield of 7%. We fine-tune our estimates to adjust for the actual accounting period, higher NPI margins and lower interest costs. Our DPU estimates increase by 3-9% for FY10-12, lifting our DDM-based target price to S$1.26 (discount rate 8.4%) from S$1.23. Forward annualised yields based on our estimates are 7.95%. Management is exploring growth opportunities and we expect stock catalysts from early announcements of any accretive acquisitions.
• Portfolio 100% leased on long-term, stable triple-net master lease. Weighted average length of expiry (WALE) was 6.1 years, above the average industrial WALE of five years. Over 90% of its gross floor area is taken by MNCs and government agencies.
• Higher NPI margins, and 40bp reduction in interest cost. NPI margin was 97.7% in the quarter, above our estimate of 96%. Additionally, management was able to cut all-in borrowing costs after the listing from the 4.5% guided to 4.1% (inclusive of amortisation of upfront fees capitalised at 0.8% p.a. and margins of 2.3%).
Industrial REITs – OCBC
On stronger footing
Stronger balance sheets. The industrial REIT sub-sector is in much a stronger position, in our view, compared to a year ago. REITs including A-REIT, Mapletree Logistics Trust, AIMS AMP Capital Industrial REIT [AAREIT, NOT RATED] and Cambridge Industrial Trust [NR] have all raised fresh equity within the past year or so. The sub-sector is on average geared at 33.5% debt-to-assets versus the broader S-REIT average of 30.6%. While the level of debt has decreased generally, there are still pockets of industrial REITs with higher leverage. Leverage levels range from 25% (Cache Logistics Trust, NR) to 42.6% (Cambridge).
Expecting some stability. The managers for the most part presented a cautiously optimistic outlook going forward – both in terms of a bottoming out of asset values and of rents. This is in line with the expected GDP growth of 7-9% in Singapore this year. Colliers expects the recovery in the exports and manufacturing sector to “support an expansion in demand from manufacturers”. This, along with the return of institutional funds, could drive “rents, land and capital values of singleuser factories and warehouses [up] to 10 percent in the next 12 months”. The demand-supply picture varies by asset type, but we do expect a stable-to-positive year for rents and asset values this year, barring significant shifts in the economic environment Big growth plans. Acquisitions are back on the table with transactions worth S$1.25b done in the last seven months; we could potentially see MLT, A-REIT and Cache grow their portfolios further. Balance sheet strength and ability to access capital competitively remains the key sticking point. The subsector has also indicated a new focus on development projects, which has been A-REIT’s domain until now. Asset enhancements and divestments appear to be popular strategies as well.
Valuation. In terms of forward yield, industrial REITs trade at a premium of 100 basis points to the broader sector. Interesting, industrial REITs are actually trading at a lower 5% discount-to-book versus 13% for S-REITs on average. There is significant divergence in valuations within the sub-sector: while A-REIT is trading at a 22% premium to book value, on the other extreme, AAREIT trades at a 32% discount to book. We think this is partially because of continued investor caution towards smaller industrial REITs. Nevertheless, if second-tier industrial REITs can present two to three quarters of sustained earnings performance and deliver on their strategic plans, we could see the valuation gap narrow. We have a NEUTRAL rating on the broader S-REIT sector.
CLT – DMG
Ramped up and ready to go
We think Cache Logistics Trust (CLT) is priced right versus it peers at 8.7% yield and is 7.8x over subscribed. Apart from the large market share of 97% of rampup warehouses, there is a high barrier to entry. CLT has quality assets with high (above average) occupancy rates of 94.1%. Without a credit rating, CLT has a debt headroom of another S$100m before reaching its statutory limit of 35%. Assuming a 7-8% target yield (a discount to A-REIT), CLT should be valued at between S$0.96-S$1.09, or 9-24% above its IPO price of S$0.88.
97.3% share of ramp-up warehouses with high barrier to entry. CLT owns 97.3% (by GFA) of ramp-up warehouses in Singapore. As ramp-up warehouses require large sites (>1ha) relative to conventional warehouses, the shortage of such suitable sites in land scarce Singapore, particularly in well-established locations, is a natural barrier to competing new supply.
Quality properties with high occupancy rate. The assets are well located in established logistics clusters, near air and sea transportation ports such as Changi Airport, Jurong Port and PSA Terminal. The assets currently enjoy a higher than average occupancy rate of 94.1% (industrial’s average at 90%).
Ample room to gear up for acquisitions. CLT’s current gearing is 25.9%, lower than most of its peers at 30-40%. As CLT does not have a credit rating, it is only allowed to gear up to a maximum of 35% (versus 60% with rating). Assuming 100% debt financing for new asset acquisitions, this leaves CLT with a debt headroom of ~S$100m.
Priced right against peers. At S$0.88, CLT is priced at 8.7% yield, in between its peers trading yield of 7-11%. A-REIT trades at 7.1% FY10 yield (heydays at 6%) while Cambridge Industrial Trust trades at 11.2% yield (heydays at 7%). Assuming a 7-8% target yield (a 100bps discount to the larger A-REIT trading range of 6-7%), CLT should be valued at between S$0.96-S$1.09, or 9-24% above its IPO price of S$0.88.
CLT – BT
Cache IPO 7.8 times subscribed
CACHE Logistics Trust’s initial public offering (IPO) of 474.1 million units was about 7.8 times subscribed, drawing support from major institutional investors from Asia, Europe, the Middle East and Australia.
Other institutional investors who were allocated units under the placement tranche include DBS Asset Management Ltd and Fullerton Fund Management Company Ltd.
Trading in the counter on the Singapore Exchange is expected to begin at 2pm today.
At the offer price of 88 cents per unit, gross proceeds of $417.2 million have been raised.
The trust will be managed by ARA-CWT Trust Management (Cache) Limited, a 60:40 JV between ARA Asset Management and CWT Limited. CWT is also the Reit’s sponsor.
The offering comprised an international placement of about 433.1 million units, as well as 41 million units to the public in Singapore of which 14 million units were reserved for subscription by the directors, management, employees and business associates of CWT, ARA and their subsidiaries.
The real estate investment trust (Reit) will hold an initial portfolio of six properties in Singapore with a total gross floor area (GFA) of 3.9 million square feet.
The Reit will focus on expanding locally in the near term before looking at acquisitions in foreign markets such as Greater China and Malaysia.
Some of the principal unitholders of Cache include CWT (12.2 per cent), ARA, C&P Holdings, and cornerstone investors JF Asset Management Ltd and Morgan Stanley Investment Management Company.
Cache’s manager has forecast for the current year ending Dec 31, 2010 a distribution per unit of about 7.65 cents, which reflects a distribution yield of 8.7 per cent.