Cache Logistics Trust

AmFraser Securities on 11 Sept 2012

WE initiate coverage on Cache Logistics Trust with a "buy" and a fair value of $1.291 based on discounted cash flow (DCF). Backed by a quality portfolio of logistics warehouse assets, Cache is well-positioned to capture the growth opportunities presented by Singapore's development as a global logistics hub. Cache's master and multi-tenanted leases are structured with built-in rental escalation rates of 1.5 to 2.5 per cent. This, along with its triple-net master leases, allows Cache to pass on the bulk of its inflationary burden to its master lessees and end-user tenants.

CWT has provided Cache with a strong pipeline of local and foreign acquisition assets by granting it rights of first refusal (ROFR) on 13 properties, bolstering its inorganic growth plans.

The biggest attraction for us is its sustainable FY2012-13 yield of 7.0 to 7.3 per cent. A portfolio of strategic assets, strong underlying occupancy rates and its long-term triple-net master lease structure all combine to underpin its earnings stability and thus ensuring the consistency of its attractive dividend yield.

Should Cache obtain a credit rating, the company would be able to drive up its aggregate leverage to a maximum of 60 per cent. Amid the current environment of strong liquidity and low interest rates, Cache could be motivated to take on a more aggressive stance on gearing to support its acquisition of desirable assets. Generating around 40 per cent of its rental revenues from CWT Commodity Hub, Cache is largely exposed to risks that could adversely impact the operations or business of CWT Commodity Hub.

We derive a fair value of $1.291 based on a DCF model. Our model factors in a terminal growth rate of 1.5 per cent and is based on the assumptions of a risk-free rate of 1.38 per cent, a beta of 0.8, and market risk premium of 9.2 per cent.
BUY