CLT – DBSV

Tapping sponsor’s pipeline

• Acquiring Chemical warehouse from sponsor, CWT Limited in Shanghai

• 8.6% yield is earnings accretive; long-term lease arrangement ensures strong earnings visibility

• BUY call, TP S$1.11 maintained

Acquire Chemical warehouse facility in Shanghai @ 8.6% NPI yield from CWT Limited. Cache Logistics Trust (“Cache”) announced that the trust would be acquiring a chemical warehouse facility in Jinshan district, Shanghai from its sponsor, CWT Limited for a total consideration of RMB 76m or S$14.6m (including attributable professional, acquisition fees). The property is located in Shanghai Chemical Industrial Park (“SCIP”), an established and also one of the largest petrochemical bases in Asia.

Accretive deal; strong earnings visibility from long-term lease arrangement. Initial yield of 8.6% is accretive and compares favourably against its implied trading yield of 7.2% and above recent transactions completed in Singapore (at 8.0% yield). Vendor CWT Limited will lease back the property at a net rent of RMB1.30/day for the next 3 years with an option to renew for an additional 3 years, with annual escalations of 2.0%, ensuring a stable step-up growth profile for Cache in the medium term. Cache is expected to fund the acquisition through debt and raise its gearing level slightly to 29.2% (from 27.9% previously).

BUY, TP S$1.11 maintained. We maintain our estimates as we have assumed acquisitions in our forecasts. The manager remains keen to grow its portfolio and continues to see acquisition possibilities in Singapore & Asia, on top of its pipeline of assets from sponsor CWT Limited. The stock remains attractive for its above consensus FY11-12F yield 8.6-9.2%, which is 260-590 bps above the peers.