FY13 results in line with our and market expectations.

We see industrial REITs facing major downside risks from the impending hike in interest rates and possible recalibration of over-inflated property prices.

CACHE’s properties have been revalued upwards by at most 12-13% since its IPO, but the stock currently trades at 14% premium to book, which is still rich in our view. Maintain SELL with an unchanged DDM-derived TP of SGD1.05.

Results in line with expectations

CACHE’s FY13 revenue grew 11.4% YoY to SGD81m, constituting 101% of our and consensus estimates. The increase was attributable to rental contribution from the acquisition of Precise Two in Apr 2013 as well as built-in rental escalation within the portfolio. Full-year DPU grew 3.3% to 8.64 SGD cts, achieving 100% of our and 101% of market forecasts. Weighted average lease term to expiry (WALE) of the portfolio is around 3.1 years, with 65% of the leases due to expire in 2015-2016. CACHE’s aggregate leverage was 29.1%, down slightly from 29.2% in the previous quarter due to revaluation gains of SGD6.7m.

Remain negative on industrial REITs

We see industrial REITs facing major downside risks from the impending hike in interest rates and possible recalibration of over-inflated property prices – both of which can drag NAV down. Other challenges include a fragile global macroeconomic outlook and ample supply in the pipeline. Iskandar Malaysia will also pose competition in the medium term, especially for lower value-added industrial activities within Singapore. We note that CACHE’s properties have been revalued upwards by at most 12-13% since its IPO, but the stock currently trades at a 14% premium to book, which is still rich in our view. Maintain SELL with an unchanged DDM-derived TP of SGD1.05 (Discount rate of 7%).

Source: Maybank Research - 22 Jan 2014