CLT – AmFraser

Delivering another year of stellar performance

Cache Logistics Trust delivered another year of stellar performance, with its FY2012 revenue and distributable income up by 12.4% and 9.5% respectively. Following our downgrade call to hold on 25 October 2012, Cache witnessed a correction of c.6%. While it has recovered ground in recent months, we believe Cache is now close to being fully valued. We maintain HOLD with fair value of S$1.315.

Forward dividend yield of 6.7% for Cache. We continue to like the sustainability of Cache’s dividend yield, which remains one of its key investment positives. Factors namely its triple‐net master lease structure, 1.25%‐2.5% annual rental escalation rates and strong cash flow generation will continue to underpin the stability of Cache’s distribution yield.

Minimal releasing risks in 2013. We would also highlight that Cache faces negligible releasing risks in 2013. Only 2% of its GFA is up for renewal this year, leaving it well‐insulated against current macroeconomic uncertainties.

Hungry for acquisitions. Cache’s current gearing stands at 31.7%, which provides ample headroom for it to pursue acquisitions in its focus markets of Singapore and China. Should Cache choose to finance its acquisition entirely with debt, it would find itself with an additional debt headroom of S$48.8mil. Given the assumption of a 7.1% yield on acquired properties, this would be 2% accretive to our target price. Alternatively, Cache could finance its acquisition through a mix of debt and equity and take on additional leverage of S$127mil based on a debt‐to‐asset ratio of 45%. Assuming that acquisitions come at a 7.1% yield, we estimate that such a scenario would be 3% accretive to our current fair value.

Assessing the impact of the seller’s stamp duty. From a divestment perspective, the recent imposition of the seller’s stamp duty on industrial properties is unlikely to bear a significant impact on Cache given that its assets are held with a long‐term investment horizon in mind. As its potential acquisition targets are typically under JTC leases, which have to fulfil a minimum lease term before they can be divested, Cache is not likely to face a substantially higher acquisition price tag as well.