Cache Logistics Trust (CACHE) remains one of the most resilient landlords within the industrial REIT subsector. In 1Q14, CACHE delivered a firm set of results, driven by contribution from acquisition of Precise Two in Apr 2013 and stepped-up rents within its portfolio. Going forward, management said it will continue its pursuit to grow the portfolio via quality, accretive acquisitions in its key markets. We believe CACHE may possibly conclude at least one acquisition this year, which is likely to propel its growth. In mid-Apr, CACHE also secured an agreement to develop and lease a ramp-up warehouse. This will not only provide CACHE with quality recurring income, enhance its lease expiry profile, but also strengthen its market position in modern ramp-up warehouse. Maintain BUY and S$1.25 fair value on CACHE. Potential risks ahead include short-term headwinds in the industrial market and renewal risk in 2015.
Solid portfolio and favourable lease structure
Cache Logistics Trust (CACHE) remains one of the most resilient landlords within the industrial REIT subsector. Of the 13 logistics warehouses owned by CACHE, we note that 12 are on triple-net master lease arrangements, which are structured with longer lease durations and locked-in annual rental escalations of 1.25%-2.5%. This has helped CACHE maintain its portfolio occupancy at 100% since its listing in Apr 2010, while providing it with predictable income stream.
Future earnings profile likely to be enhanced
In 1Q14, CACHE delivered a firm set of results, driven by contribution from acquisition of Precise Two in Apr 2013 and stepped-up rents within its portfolio. Going forward, management said it will continue its pursuit to grow the portfolio via quality, accretive acquisitions in its key markets (Singapore, China and Malaysia). We believe CACHE may possibly conclude at least one acquisition this year, which is likely to propel its growth. In mid-Apr, CACHE also secured an agreement with DHL Supply Chain to develop and lease a ramp-up warehouse at Tampines LogisPark. This will not only provide CACHE with quality recurring income, enhance its lease expiry profile, but also strengthen its market position in modern ramp-up warehouse (currently nine in portfolio). According to Colliers International, only ~28.1% of Singapore’s total warehouse stock as of 4Q13 was ramp-up warehouse space. As such, we expect the demand to remain robust.
Potential risks ahead; CACHE well positioned
Nonetheless, the industrial market in Singapore is expected to face some headwinds over the short term, given the government cooling measures and substantial supply (~18% of total stock) of warehouse space in 2014-16. This is likely to put downward pressure on the rental and occupancy rates. There is also renewal risk in 2015, as the master leases for several of its IPO assets expire (34% of portfolio GFA). However, given that CACHE is already in talks to address the lease expiries and that the underlying tenancy is close to full occupancy, we believe CACHE’s performance to remain strong. Maintain BUY and S$1.25 fair value.
Cache Logistics Trust (CACHE) remains one of the most resilient landlords within the industrial REIT subsector. Of the 13 logistics warehouses owned by CACHE, we note that 12 are on triple-net master lease arrangements, which are structured with longer lease durations and locked-in annual rental escalations of 1.25%-2.5%. This has helped CACHE maintain its portfolio occupancy at 100% since its listing in Apr 2010, while providing it with predictable income stream.
Future earnings profile likely to be enhanced
In 1Q14, CACHE delivered a firm set of results, driven by contribution from acquisition of Precise Two in Apr 2013 and stepped-up rents within its portfolio. Going forward, management said it will continue its pursuit to grow the portfolio via quality, accretive acquisitions in its key markets (Singapore, China and Malaysia). We believe CACHE may possibly conclude at least one acquisition this year, which is likely to propel its growth. In mid-Apr, CACHE also secured an agreement with DHL Supply Chain to develop and lease a ramp-up warehouse at Tampines LogisPark. This will not only provide CACHE with quality recurring income, enhance its lease expiry profile, but also strengthen its market position in modern ramp-up warehouse (currently nine in portfolio). According to Colliers International, only ~28.1% of Singapore’s total warehouse stock as of 4Q13 was ramp-up warehouse space. As such, we expect the demand to remain robust.
Potential risks ahead; CACHE well positioned
Nonetheless, the industrial market in Singapore is expected to face some headwinds over the short term, given the government cooling measures and substantial supply (~18% of total stock) of warehouse space in 2014-16. This is likely to put downward pressure on the rental and occupancy rates. There is also renewal risk in 2015, as the master leases for several of its IPO assets expire (34% of portfolio GFA). However, given that CACHE is already in talks to address the lease expiries and that the underlying tenancy is close to full occupancy, we believe CACHE’s performance to remain strong. Maintain BUY and S$1.25 fair value.
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