Cache Logistics Trust

OCBC on 2 Jul 2012

Cache Logistics Trust (CACHE) had received approval from unitholders pertaining to the proposed acquisition of Pandan Logistics Hub and the entry of a master lease agreement with CWT Limited. With the addition of this prime logistics property, CACHE will have 12 quality assets under management and an enlarged GFA of ~4.83m sq ft. CACHE also embarked on a capital management exercise to enhance its debt profile, consistent with our expectations. Notably, the effective interest rate for the new bank facility is 2.8% plus SOR, which is at 30bps below its existing rate of 3.1% plus SOR. Hence, CACHE is likely to gain from interest savings going forward. We are reiterating our BUY rating on CACHE. Our fair value is raised from S$1.11 to S$1.18, after we incorporate the acquisition of Pandan Logistics Hub and interest savings into our model.

Addition of another quality asset
Cache Logistics Trust (CACHE) had received approval from unitholders pertaining to the proposed acquisition of Pandan Logistics Hub and the entry of a master lease agreement with CWT Limited. With the addition of this prime logistics property, CACHE will have 12 quality assets under management (eight with ramp-up features) and an enlarged GFA of ~4.83m sq ft (+7.3%). As a note, Pandan Logistics Hub is expected to contribute S$5.2m in rental income to the REIT in the first year, translating to an initial NPI yield of 7.6%. This is likely to add ~0.28 S cents to its DPU on an annualized basis, based on our estimates.

Refinancing on more favourable terms
CACHE also embarked on a capital management exercise to increase the amount and duration of its debt facility, consistent with our expectations communicated in our 11 Jun report. According to the May 2012 circular to unitholders, a new bank facility of S$375.0m will be used to retire its existing bank facility of S$203.0m and repay its S$40m unsecured loan, while an projected S$79.6m (including S$11.0m refinancing costs) is expected to be used to finance the Pandan Logistics Hub acquisition. Notably, the effective interest rate for the new bank facility is 2.8% plus SOR, which is at 30bps below its existing rate of 3.1% plus SOR. Hence, CACHE is likely to gain from interest savings going forward.

Retain BUY with higher fair value of S$1.18
We continue to like CACHE for its resilient portfolio (100% occupied; master lease arrangements), healthy financial position and attractive FY12F DPU yield of 7.9%. We now incorporate the acquisition of Pandan Logistics Hub into our model as the transaction is expected to complete by 9 Jul. We also tweak our estimates to reflect a marginally lower cost of debt. Accordingly, our fair value is raised from S$1.11 to S$1.18. Reiterate BUY on CACHE.