CLT – DBSV

Sound earnings, high yields

• Proposed acquisition of Pandan Logistics Hub for S$66m from sponsor CWT

• Widely anticipated and earnings accretive deal; gearing to head towards 31%

• Attractive 8.3-8.5% yields; Maintain BUY and S$1.11 TP

Tapping sponsor’s pipeline. Cache Logistics Trust (Cache) is proposing to acquire Pandan Logistics Hub from sponsor CWT for a total consideration of S$66.0m (all in cost of S$69.3m, inclusive of a 1% acquisition and professional fees). Pandan Logistics Hub is a 5-storey ramp up warehouse located at 49 Pandan Road, built by the sponsor, CWT Limited. The warehouse is relatively sizeable, with total GFA of 329,109 sf and typical floor plate sizes of 58,000 sf. Together with accessible mezzanine office space, we believe the building caters well to single-user end tenants to base their operations. The property has just recently achieved CSC status (Apr 12, TOP in Oct 11).

Master lease arrangement with CWT. Upon completion of the purchase, CWT will leaseback the whole property on a triple net basis for 3 years. The first year rent is negotiated at S$5.2m (est. at S$1.32 psf pm, initial yield of 7.6%), with annual escalations of 2.5% which we believe fair given its master lease structure. Upon the expiry of the master lease after 3 years, CWT has signed an agreement to extend leases for the first and fifth storeys for an additional 2-4 years, bringing the total weighted average lease for this property to 4.3 years. This will then allow Cache to engage the end tenants occupying the other parts of the warehouse and actively manage the property to optimize yields. Given the size of the acquisition and it is an interested party transaction, the manager will be calling for an EGM to seek unitholders approval.

Earnings accretive. The purchase consideration implies a net property income yield of 7.6%, which is higher than its current implied yield of close to 7.0%, meaning that that the acquisition is expected to be accretive to the trust. The manager intends to fund the acquisition fully by debt, at an estimated interest cost of c4.0% (in line with its current debt facilities). Gearing is projected to head towards 31% post completion of this acquisition (assuming 100% debt).

BUY rating and S$1.11 TP maintained, no change to forecast. A widely anticipated and timely move, in our view , as we are looking for the manager to execute on acquisitions in order to maintain Cache’s upward distribution growth momentum. Minimal impact on our numbers as we have factored in S$60m acquisitions in our forward estimates. Maintain BUY and S$1.11 TP. Stock continues to offer an attractive FY12-FY13F distribution yields 8.3%-8.5%.