Cache Logistics Trust likely to deliver "sustainable growth" for FY13

High occupancy rate a contributing factor.

Other positive indicators for Cache Logistics Trust include its strong weighted average lease and successful acquisitions.

Here's more from OCBC:

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 6.8-7.1%, which represents an attractive spread of 471-500 bps to Singapore’s 10-year bond yield. While we now revise our fair value to S$1.40 from S$1.45 on higher risk-free rate assumption, we still see good upside potential on CACHE. Maintain BUY.