CACHE 2Q14 DPU flat YoY at 2.147 S cents

In-line 2Q14 results
Cache Logistics Trust (CACHE) reported its 2Q14 results last evening, with NPI flat YoY at S$19.6m and distributable income up by 0.5% to S$16.7m. DPU stood at 2.147 S cents, unchanged from 2Q13 but up 0.3% QoQ. For 1H14, DPU cumulated to 4.287 S cents, down by 2.1% YoY due to a 5.0% increase in unit base over the period. We deem the results to be within expectations, as 1H14 distribution formed 49.3% of both our and consensus full-year DPU forecasts.

Still on a stable footing
CACHE’s portfolio remained largely resilient in our view. There was a slight dip in portfolio occupancy to 99.6% from 100% in 1Q, as the master lease at Jinshan Chemical warehouse has expired. However, as we were previously guided, underlying portfolio tenancy was close to fully occupancy, hence limiting the downward pressure. CACHE shared with us its strategy to transform the portfolio into a more multi-tenanted lease profile to reduce the concentration risk and capture the benefits of market cycles going forward. We are more neutral on the move in view of the substantial supply in warehouse space over the next two years and imposition of several cooling measures in the industrial market, including recent revision in JTC subletting policy. Nevertheless, we note that sponsor CWT Limited and C&P Group will remain as major tenants, occupying ~50% of the total NLA at the end of their respective master leases in Apr 2015. Over at C&P Changi Districentre, CACHE also disclosed that it has made good progress on its lease renewal, securing ~63.0% commitment ahead of its master lease expiry in 2015. This should limit any volatility in occupancy and income once the assets are converted into multi-tenancies.

Downgrade to HOLD on valuation grounds
CACHE’s units have enjoyed a good run-up in prices, and as a result, the last transacted price is just a tad lower than our fair value of S$1.25. While we continue to like CACHE’s strong financial position and quality portfolio assets, we believe that the stock is fairly priced at current level (1.27x P/B). As such, we downgrade CACHE from Buy to HOLD on valuation grounds.

CLT growth momentum to continue

Expecting robust FY13 results
We are reiterating our prognosis that Cache Logistics Trust (CACHE) is likely to continue to deliver sustainable growth for FY13. CACHE has a portfolio of quality assets which has a 100% occupancy rate and strong weighted average lease to expiry of 3.7 years. In 1Q13, CACHE has also fully addressed its lease expiry in 2013 by securing a new tenant, Agility Logistics, for its lease at APC Distrihub. This, together with its recent acquisition of Precise Two, is likely to meet our growth projection for 2013. As a note, Precise Two is expected to contribute ~4.2% to CACHE’s FY13 NPI, based on the property’s initial NPI yield of 8.7% and our assumptions.

Recent sector sell-down overdone
The S-REITs sector has recently experienced a sell-down on fears that the US Federal Reserve may reduce the pace of its bond purchase programme and raise the interest rates in the coming months. Since 22 May (one day before the sharp decline), CACHE’s unit price has fallen by 12.4%, in tandem with the FTSE ST REIT Index’s descend of 12.6% (STI: -8.5%) over the same period. However, we believe that the market reaction on CACHE is overdone, given its strong financial position and active capital management. CACHE’s aggregate leverage of 29.2% (no debt expiring until 2015) is lower than its subsector average gearing of 34.0%, while ~70% of its borrowings are hedged into fixed rates. In addition, we observe that the implied cap rates for the industrial REITs’ portfolio assets have been moving within a tight range (maximum spread of ~100bps) over 2008-2012, despite the credit crunch. Hence, we believe that the impact to both CACHE’s DPU and NAV from a potential interest rate hike is likely to be more limited than what the market has anticipated.

CACHE now offers attractive returns
At current price, CACHE offers a FY13-14F DPU yield of

CACHE offers attractive FY12F DPU yield

Fair value S$1.11


Expecting sturdy FY12 performance
Cache Logistics Trust (CACHE) appears to be on track to deliver a sturdy set of results for FY12. In addition to strong and predictable income streams from its existing portfolio properties, the REIT had announced two new acquisitions YTD that are expected to contributive positively to its financial performance. We note that the acquisition of Pan Asia Logistics Centre, announced in Jan, was completed on 30 Apr and is expected to give an initial NPI yield of 7.7%. On 7 May, CACHE proposed a sizeable acquisition of Pandan Logistics Hub from its sponsor CWT Limited at S$66m (~8.5% of total asset valuation as at 31 Dec 2011). This property incorporates a 2.5% annual rental escalation and has an initial NPI yield of 7.6%, based on details on the master lease arrangement with CWT. As the implied portfolio NPI yield stood at 7.3% for FY11, both acquisitions are expected to be accretive to its earnings.

Possibility of lower borrowing costs
We also observe that CACHE had announced the redemption of its

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