Cache Logistics Trust poised to repeat its success

Fair Value S$1.14


• 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.