More to come

• 2Q13 DPU of 2.147 Scts in line
  
• Acquisitions a likely catalyst; opportunities to extract further GFA in portfolio
  
• BUY, TP S$1.45
  

Highlights

2Q13 DPU of 2.147 Scts in line. Cache Logistics Trust (“Cache”) reported gross revenue and net property income of S$20.4m and S$19.6m, which were 16.5% and 17.0% higher y-o-y. The improved earnings were largely attributed to contribution from the acquisition of Precise Two, which was completed in April 13, supported by higher rental adjustments. Distributable income of S$16.6m was 20% higher y-o-y, translating to a DPU of 2.147 Scts (+8% y-o-y). Cache’s 1H13 DPU of 4.38 Scts forms c49% of our FY13F DPU.

Our View

Lowly geared balance sheet; growth opportunities galore for management. Gearing remains conservative at c.29%, which is below management’s optimal range of 35%. Looking ahead, we continue to see opportunities for the Manager to utilise its balance sheet to fund acquisition opportunities. In this respect, the Manager is looking actively at potential acquisitions (sponsor CWT/C&P and 3^rd
parties) in Singapore, Malaysia and China. We have factored in S$200m worth of acquisitions in our FY13/14F.

Redevelopment potential within portfolio. With the master lease expiring in 2014F, management remains keen to explore a redevelopment of Kim Heng Warehouse, where the built-up GFA of 54,000sf is substantially lower than the maximum GFA of c.180,000sf allowed for the property. If executed upon, there could be significant upside to earnings and capital values in the medium term.

Recommendation

BUY, revised TP of S$1.45. With a visible and growing pipeline of warehouses (totaling up to 4.5m sqft of GFA) from sponsor CWT/C&P, we remain positive on Cache’s long term inorganic growth prospects. Forward yields of 7.0-7.2% are attractive given its solid earnings profile with minimal earnings downside risk. Our TP is revised to S$1.45 as we adopt higher risk free assumptions (2.6% vs 1.8%).

Awaiting acquisitions

1Q13 was a steady quarter, led by organic growth from rental step-ups within the portfolio master leases. We look forward to the rest of FY13 as contributions from Precise Two kicks in and expect debt headroom to be utilised for accretive debt-funded acquisitions.

1Q13 DPU met our and consensus estimates at 26% of our FY13 forecast. We lower FY13-15 DPUs, factoring in Cache’s recent equity issuance, offset partially by a higher acquisition assumption. Our DDM-based target price, however, is raised on a lower discount rate of 7.1% (previously 7.7%). Maintain Outperform, with accretive acquisitions as catalysts.

Steady quarter

1Q13 DPU grew 7% yoy on the back of a 12% NPI increase due mainly to rental contributions from the acquisitions of Pan Asia and Pandan Logistics Hub in FY12. Qoq, DPU was up 4% due to some cost savings, with equity dilution kicking in only towards the end of 1Q. A new lease was signed within APC Distrihub with Agility Logistics, leaving Cache with no remaining leases that will expire in 2013.

Acquisition growth

We look forward to contributions from Cache’s recent acquisition of Precise Two which will kick in from 2Q13. NPI yield is at a high 8.7% compared to 7.1% on its existing portfolio. With rental step-ups of 4.0% every two years being incorporated into the master lease, we expect Precise Two to add to the resilience of its existing portfolio and contribute to organic growth.

Asset leverage is at 29% after the recent placement, leaving Cache with ample debt headroom for accretive acquisitions in Singapore, Malaysia and China. Meanwhile, management is also on the search for asset enhancement and re-development opportunities to enhance portfolio quality. Given bigger debt headroom, we now factor in a larger S$120m (previously S$100m) of acquisitions for FY13.

Maintain Outperform

Maintain Outperform as we continue to like Cache for its resilient portfolio, built-in organic growth via rental step-ups and quality assets.

• Cache Logistics Trust posted 1Q ’13 distributable income of S$15.8 million, up 18.3% y-o-y. Distribution per unit (DPU) for 1Q ’13 came in at 2.234 cents (including the advanced distribution of 2.121 cents scheduled to be paid on 26 April 2013). This amounts to an annualized dividend yield of 6.9%.
  
• The increase in distributable income came mainly from the upward rental adjustments and rentals from investments properties acquired in 2012.
  
• The trust’s aggregate gearing ratio fell to 29.2%, down from 31.7% in the previous quarter, after it raised approximately S$84.8 million by way of a private placement in March 2013.
  
• With the current portfolio of assets running at 100% occupancy and 0% of its gross floor area (GFA) due for lease renewal for the remaining of FY ’13, there is little room for earnings from existing assets to surprise in the near term. Going forward, key catalysts would be coming mainly from accretive acquisitions.

RAISING EQUITY TO FUND ACQUISITION

• Exercise option to buy warehouse
  
• Fully funding acquisition by equity
  
• FV revised to S$1.33
  

Acquisition of ramp-up warehouse

Cache Logistics Trust (CACHE) has exercised the call option to acquire Precise Two from Precise Development Pte Ltd (PDPL) for S$55.2m. Precise Two is a newly completed ramp-up logistics warehouse which is strategically located in the Jurong Industrial Precinct and has modern and attractive technical specifications. The transaction is a sale and leaseback to PDPL on a lease agreement for six years with an option to renew for another six years, and incorporates a locked-in rental escalation of 4.0% every two years. The property’s FY12 NPI is estimated to be ~S$4.8m, implying an initial NPI yield of 8.7%. Upon completion of the acquisition (expected in early Apr), CACHE’s portfolio size is expected to increase to over S$1.0b.

Private placement to raise S$86.8m

In a separate announcement, CACHE also launched a private placement of 70m new units to raise gross proceeds of S$86.8m. According to management, the placement saw strong participation from new and existing institutional investors. The issue price has been fixed at S$1.24 per unit, which is at the low end of the indicative price range of S$1.24-S$1.265. We view the placement as opportunistic as the issue price represents a considerable 29.2% premium to its NAV and only a 5.3% discount to the last transacted price prior to the announcement. CACHE intends to use ~66.0% (S$57.3m) of the gross proceeds to wholly fund the proposed acquisition of Precise Two, another 31.0% (S$26.9m) to fund potential acquisitions or pare down debt, and the balance for estimated fees/working capital purposes.

Maintain BUY

We have earlier anticipated CACHE to fund the acquisition fully by debt, since it has recently received its maiden credit rating from Moody’s (which allows it to exceed its previous debt ceiling of 35%). With this new development, we now adjust our estimates to factor in the placement and enlarged unit base. We also forecast a reduction in leverage as we believe CACHE may pare down its debts using the remaining proceeds to cushion a near-term dilution in DPU. Our fair value is revised slightly down to S$1.33 from S$1.34. Maintain BUY.

Opportunistically turning on the equity tap

Raising S$86.8mil through a private placement. Cache Logistics Trust announced the close of a private placement of 70mil new units at an issue price of S$1.24 per new unit. Net proceeds will amount to approximately S$84.2mil. Funds raised from the private placement will be utilised to finance the acquisition of Precise Two, a fully ramp‐up warehouse that is valued at approx. S$55.2mil.

Opportunistically leveraging on its low cost of equity. We are not surprised that Cache has opted to tap on the equity market to finance its proposed acquisition. Pu