Cache Logistics Trust

OCBC on 11 June 2012

Cache Logistics Trust (CACHE) appears to be on track to deliver a sturdy set of results for FY12. In addition to strong and predictable income streams from its existing portfolio properties, the REIT had announced two new acquisitions YTD that are expected to contributive positively to its financial performance. We also observe that CACHE had announced the redemption of its S$35m 3.5% fixed rate notes due 2016 on 31 May. This is somewhat unexpected in our view, as the date of maturity is still four years away and as CACHE clearly need the capital for growth. This leads us to believe that CACHE may be in the process of injecting new capital via borrowings at more favourable terms. Should this turn out to be true, we expect CACHE to benefit from interest savings. Maintain BUY with unchanged fair value of S$1.11.

Expecting sturdy FY12 performance
Cache Logistics Trust (CACHE) appears to be on track to deliver a sturdy set of results for FY12. In addition to strong and predictable income streams from its existing portfolio properties, the REIT had announced two new acquisitions YTD that are expected to contributive positively to its financial performance. We note that the acquisition of Pan Asia Logistics Centre, announced in Jan, was completed on 30 Apr and is expected to give an initial NPI yield of 7.7%. On 7 May, CACHE proposed a sizeable acquisition of Pandan Logistics Hub from its sponsor CWT Limited at S$66m (~8.5% of total asset valuation as at 31 Dec 2011). This property incorporates a 2.5% annual rental escalation and has an initial NPI yield of 7.6%, based on details on the master lease arrangement with CWT. As the implied portfolio NPI yield stood at 7.3% for FY11, both acquisitions are expected to be accretive to its earnings.

Possibility of lower borrowing costs
We also observe that CACHE had announced the redemption of its S$35m 3.5% fixed rate notes due 2016 on 31 May. This is somewhat unexpected in our view, as the date of maturity is still four years away and as CACHE clearly need the capital for growth. This leads us to believe that CACHE may be in the process of injecting new capital via borrowings at more favourable terms (equity issue is probably an unlikely scenario at this juncture given its comfortable aggregate leverage of 27.7% as at 31 Mar). Should this turn out to be true, we expect CACHE to benefit from interest savings.

Maintain BUY
We continue to like CACHE for its resilient portfolio (100% occupied; master lease arrangements), long WALE of 4.4 years and attractive FY12F DPU yield of 8.1%. We are currently holding off adjusting our estimates for the Pandan Logistics Hub acquisition as it is still subject to unitholders’ approval on 19 Jun. Maintain BUY with unchanged fair value of S$1.11.