CLT – DMG

Ramped up and ready to go

We think Cache Logistics Trust (CLT) is priced right versus it peers at 8.7% yield and is 7.8x over subscribed. Apart from the large market share of 97% of rampup warehouses, there is a high barrier to entry. CLT has quality assets with high (above average) occupancy rates of 94.1%. Without a credit rating, CLT has a debt headroom of another S$100m before reaching its statutory limit of 35%. Assuming a 7-8% target yield (a discount to A-REIT), CLT should be valued at between S$0.96-S$1.09, or 9-24% above its IPO price of S$0.88.

97.3% share of ramp-up warehouses with high barrier to entry. CLT owns 97.3% (by GFA) of ramp-up warehouses in Singapore. As ramp-up warehouses require large sites (>1ha) relative to conventional warehouses, the shortage of such suitable sites in land scarce Singapore, particularly in well-established locations, is a natural barrier to competing new supply.

Quality properties with high occupancy rate. The assets are well located in established logistics clusters, near air and sea transportation ports such as Changi Airport, Jurong Port and PSA Terminal. The assets currently enjoy a higher than average occupancy rate of 94.1% (industrial’s average at 90%).

Ample room to gear up for acquisitions. CLT’s current gearing is 25.9%, lower than most of its peers at 30-40%. As CLT does not have a credit rating, it is only allowed to gear up to a maximum of 35% (versus 60% with rating). Assuming 100% debt financing for new asset acquisitions, this leaves CLT with a debt headroom of ~S$100m.

Priced right against peers. At S$0.88, CLT is priced at 8.7% yield, in between its peers trading yield of 7-11%. A-REIT trades at 7.1% FY10 yield (heydays at 6%) while Cambridge Industrial Trust trades at 11.2% yield (heydays at 7%). Assuming a 7-8% target yield (a 100bps discount to the larger A-REIT trading range of 6-7%), CLT should be valued at between S$0.96-S$1.09, or 9-24% above its IPO price of S$0.88.