Cache Logistics Trust - UOB Kay Hian Research 2015-10-12: Proposed Acquisition of Fourth Australian Asset | SG Investors.io

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Cache Logistics Trust - UOB Kay Hian Research 2015-10-12: Proposed Acquisition of Fourth Australian Asset

Cache Logistics Trust - UOB Kay Hian Research 2015-10-12: Proposed Acquisition of Fourth Australian Asset

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Proposed Acquisition of Fourth Australian Asset

WHAT’S NEW

CACHE has proposed the acquisition of an Australian single-story warehouse for a total consideration of A$29.5m (~S$29.6m). The freehold warehouse is located in suburban Brisbane 18km away from Brisbane's CBD. 203 Viking Drive, as the building is referred to, has a gross lettable area of about 143,838 sf.

IMPACT

 Yield accretion likely to come from debt.

Management has refrained from revealing details on the property yield and borrowing cost. Taking Cache’s February Australian portfolio acquired at 7.3% yield, we estimate the acquisition’s unlevelled hedged yield at 6.97%. With raw current trading yield at 8.36%, assuming no leverage, the acquisition should result in a new hedged DPU yield of 8.08% (22 bp decline).

 Master lease agreement with subsidiary of NYSE listed Penske Automotive Group (PAG).

With annual rental escalation of 4% pa, the property's master lease agreement with Western Star Trucks Australia, a wholly-owned subsidiary of PAG, should extend until Aug 23, making its WALE 7.9 years. The Acquisition extends the Cache portfolio WALE by NLA from 4.5 years to 4.6 years.

 Aggregate gearing to increase from 38.0% (as of Jun 15) to 39.4% post completion.

 Transacted property price comes at independently valuation of A$27.0m (~S$27.1m) by valuer m3property Pty Ltd.

 Acquisition in line with management's strategy to expand its footprints in Australia.

This marks CACHE's fourth Australian acquisition after its maiden acquisition of a portfolio of three Australian assets announced in February this year. We estimate that Australia should account for about 8.1% of portfolio value once the acquisition is complete.

RECOMMENDATION

We have a BUY recommendation on CACHE with a target price of S$1.24. Our valuation is based on a two-stage DDM model (required rate of return: 6.8%; terminal growth rate: 1.3%).
We will incorporate the accretion once we receive full details on the transaction.

Jonathan Koh CFA UOB Kay Hian | http://research.uobkayhian.com/ 2015-10-12

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