Cache Logistics Trust

OCBC on 11 Apr 2012

Cache Logistics Trust (CACHE) had recently announced the close of its private placement of 60m new units at an issue price of S$0.985 apiece. We estimate CACHE’s aggregate leverage to drop to ~26% following the placement. This provides the REIT with additional debt headroom of ~S$120m, which is strong enough to capitalize on any attractive growth opportunities as they arise. In relation to the placement, CACHE also announced an advanced distribution of its distributable income for the period from 1 Jan to 29 Mar 2012. The quantum was initially guided at ~2 S cents, and is in line with the DPU of 1.95 S cents and 2.10 S cents seen in 1Q11 and 4Q11 respectively. Assuming that CACHE distributes 100% of its income for the quarter, this is consistent with our expectation that the REIT is likely to showcase another set of stable performance in 1Q12. We maintain our BUY rating with a revised fair value of S$1.11 on CACHE, after adjusting for the private placement.

Successful private placement
Cache Logistics Trust (CACHE) had recently announced the close of its private placement of 60m new units. The issue price was fixed slightly north of the midpoint of the initial price range at S$0.985 apiece and represented a 5.2% discount to its volume weighted average price of S$1.0387. While the issue was somewhat unexpected, given its already healthy financial position (29.6% aggregate leverage as at 31 Dec 2011) and lack of new acquisition drive, we note that the placement saw strong participation from Asian and European investors (1.24x subscribed). The net proceeds from this exercise are expected to amount to ~S$57.1m, and will likely be used to fund the acquisition of 21 Changi North Way and partially repay debt. We estimate CACHE’s aggregate leverage to drop to ~26% post placement. This provides the REIT with additional debt headroom of ~S$120m (possibly secured at more favourable terms) before it reaches the regulatory leverage limit of 35%, which is strong enough to capitalize on any attractive growth opportunities as they arise.

Expecting stable 1Q12 performance
In relation to the placement, CACHE also announced an advanced distribution of its distributable income for the period from 1 Jan to 29 Mar 2012, just two days before 1Q12 ends. The quantum was initially guided at ~2 S cents, and is in line with the DPU of 1.95 S cents and 2.10 S cents seen in 1Q11 and 4Q11 respectively. Assuming that CACHE distributes 100% of its income for the quarter, this is consistent with our expectation that the REIT is likely to showcase another set of stable performance in 1Q12.

Maintain BUY
We continue to favour CACHE as one of the preferred picks in the industrial REIT space. While the placement may dilute the DPU payout in the short term, we believe CACHE will actively seek avenues to make up the shortfall. Adjusting for the private placement, our fair value now eases to S$1.11 from S$1.19 previously. Maintain BUY as upside potential still remain attractive.