Cache Logistics Trust - Expanding Australian presence with warehouse acquisition
- Cache Logistics Trust (Cache) announced the acquisition of logistics warehouse in Melbourne, Australia for a total acquisition cost of AUD24.0m (~SGD26.1m). The property is located within the industrial suburb of Laverton North, approximately 18kms west of Melbourne Central Business District.
- The warehouse is fully tenanted to Spotlight Pty Ltd with a remaining lease term of 4.5 years. The tenant also has renewal option of 6+6 years at the end of the lease. The transaction is expected to be completed by mid-March 2017.
- The acquisition is done at an initial NPI yield of 7.4%, comparable to its FY16 portfolio NPI yield of 7.5%. The leases comes with fixed annual rent escalations of 3.25%, which provides growth visibility. The acquisition will be fully funded by the proceeds from recent sale of Changi Districentre 3.
- Post acquisition, Cache’s gearing will increase marginally from 43.1% to 43.2%.
- Amidst falling industrial property values in Singapore, Cache’s gearing of 43.1% (max allowable gearing limit is 45%) remains a cause of concern.
- Cache has been diversifying its portfolio away from Singapore amidst challenging domestic market conditions. Australia will account for 16.2% of its portfolio value post completion of this transaction.
- Although, Cache offers relatively high yield of 9.5%, Cache's ongoing rental disputes and high gearing level should remain an overhang for the stock.
- Maintain NEUTRAL recommendation with a SGD0.86 TP.