CLT – CIMB

Ramping up logistics yields

• Initiate with Outperform and target price of S$1.23. Cache Logistics Trust is a REIT sponsored by CWT investing in income-producing logistics assets in Asia-Pacific. We value Cache using DDM valuation (discount rate 8.4%) and arrive a target price of S$1.23 which factors in S$220m of potential acquisitions. We believe it is reasonable to assume acquisitions given limited scope for organic growth via asset enhancement as the buildings are relatively new. Our target price offers a total prospective return of 45.1% from potential price upside of 39.2% and forward 2010 yield of 5.9% from its IPO price of S$0.88.

• Master leases ensure defensible income streams. Cache’s initial portfolio is leased back to its sponsor CWT with a triple net master lease structure. There is limited property expenses and capital expenditure for the REIT on such a structure. Cache’s weighted average lease expiry of 6.4 years is significantly longer than the industrial REIT average of 4.8 years.

• Pure Singapore logistics play for now. Cache is likely to acquire assets from its sponsor CWT, and from C&P in the short term. Staying Singapore-centric will give it significant edge over its closest peer MapleLog which is subject to higher country risk with a geographically diversified portfolio. The IPO price of S$0.88 prices Cache at book value. At this level, Cache’s annualised yield of 8.8% looks highly attractive against the SREIT sector (0.9 P/BV, 6.8% yield); and its industrial peers AREIT (1.2x P/BV, 6.7% yield ), and MapleLog (at book value, 6.7% yield).