As stable as it gets
Boasting 100% occupancy, low gearing, no debts to refinance until 2015, hardly any leases due to be renewed in 2014 and built-in rental escalation, CLT is viewed as one of the most defensive REITs in Singapore.
Given the support of its sponsor and its ROFR list of potential acquisition targets, we believe CLT is well positioned to grow through acquisitions and AEIs. Under our revised rating structure, our call has changed from Outperform to Add. Our DDM-based target price (discount rate: 7.8%) remains unchanged at S$1.33.
During the 9M13, Cache registered increases of 12.5% yoy in NPI and 15.7% yoy in distributable income. This was mainly attributed to rental contributions from acquisitions made in 2012 and Two Precise, acquired earlier this year, as well as built-in rental escalation within the portfolio. Occupancy for the portfolio remains at an impressive 100%, with only 3% of portfolio lease (as a percentage of GFA) due to be renewed in 2014, before 34% of GFA comes up for renewal the following year. Apart from its defensiveness, CLT‟s portfolio enjoys built-in rental escalation of 1.3-2.5% p.a.
Strong balance sheet
Asset leverage as at September 13 was unchanged from a quarter ago at 29%. This is slightly below the industrial average of 34%, leaving debt headroom for future
AEIs/acquisitions. Although third-party acquisitions are likely to remain a challenge, Cache will still be able to engage in acquisitions from the ROFR list, which consists of 14 quality warehouses from its sponsor. Concurrently, management is exploring the possibility of enhancing its current assets through AEIs.
We continue to favour Cache for its resilient portfolio with built-in rental growth and a strong balance sheet. CLT is an Add with an unchanged DDM-based target price of S$1.33 as we see room for Cache to grow through future accretive acquisitions/AEIs.
Publish date: 29/11/13