(BUY, SGD1.24, TP: SGD1.42)
We initiate coverage on Cache with a BUY rating. Based on our DDM model, and assuming a terminal growth rate of 2.0% and a COE of 9.1% (with a risk-free rate of 2.5%, 0.8x beta and 7.0% equity risk premium), we arrive at our TP of SGD1.42. Given the commitment from its sponsor and the high occupancy rate within its portfolio, we believe Cache to be one of Singapore’s most defensive industrial REITs.
Full occupancy with minimal renewal risk. With its properties rented out under a master lessee (except APC Distrihub, which has two key tenants), Cache is able to enjoy a stable 100% occupancy rate with a long-term weighted average lease to expiry (WALE) profile of 3.7 years. Coupled with a low portfolio lease expiry profile of 0% and 6% for FY13F and FY14F respectively (despite some 27.4m sq ft and 20.1m sq ft in industrial space coming online in 2013 and 2014 respectively), we expect the REIT to be able to deliver stable yet sustainable income to investors over the next few years.
Additional income from new acquisitions. Cache reported a 2QFY13 dividend per unit (DPU) of 2.15S¢ (+8.4% y-o-y). Revenue for this period grew to SGD20.4m (+16.5% y-o-y) while net property income (NPI) rose by 17.0% y-o-y, mainly attributed to additional contribution from a full quarter’s rental income from the REIT’s Pandan Logistics Hub (acquired in July 2012) and the recent acquisition of Precise Two in April. In the subsequent quarters, we expect to see decent growth from Cache as the latter property will continue to contribute to its earnings growth.
Initiate coverage with a BUY and a TP of SGD1.42. We believe Cache will be able to achieve stable and long-term growth, thereby benefiting its unitholders, given: i) the high occupancy rate and the superior profile of its assets, ii) strong support from its sponsor, and iii) no debts due for renewal until 2015 and 70% of total debt tied to a fixed rate. Currently trading at 6.8% and 7.2% of FY13F and FY14F dividend yields respectively, Cache is one of Singapore’s highest yielding REITs. We initiate coverage on the REIT with a BUY and a DDM-based (COE: 9.1%, terminal growth: 2.0%) TP of SGD1.42
Publish date: 26/07/13