Cache Logistics Trust - Maybank Kim Eng 2015-11-04: Dilutive Placement

Cache Logistics Trust - Maybank Kim Eng 2015-11-04: Dilutive Placement CACHE LOGISTICS TRUST K2LU.SI 

Cache Logistics Trust - Dilutive Placement 

  • Placing out SGD100m new units at SGD0.941-0.96. Units in issue would expand c.14%. 
  • As only SGD37m of proceeds will be for future acquisitions & SGD60m for debt repayment, highly DPU-dilutive. 
  • Cut FY15-17 DPU by 4-7% & TP from SGD0.97 to SGD0.95 as we tighten our yield target from 9% to 8.5%. Maintain HOLD. Prefer MINT (MINT SP, TP SGD1.49) for sector exposure. 

What’s New 

  • Cache is placing out SGD100m new units at 94.1-96 Scts each, or 4- 6% discounts to its VWAP the day before, up to the time of its announcement. 
  • After deducting SGD3m for issue expenses, SGD37m will be reserved for potential acquisitions in Australia. 
  • About SGD60m will be used to repay debt, lowering its aggregate leverage from 39.4% to c.35.5%. 
  • As the placement is not connected with any specific acquisition and the money will be largely used for debt repayment, it immediately dilutes DPU. Units in issue will rise c.14%. After factoring in interest savings from reduced debt and extra earnings from an all-debt-funded acquisition in October of a Brisbane warehouse for SGD27.1m (7% NPI yield, 4% pa rental stepup), our FY15-17 DPUs drop by 4-7%. 

What’s Our View 

  • Not positive. 
  • Apart from dilution, Cache’s pre-placement aggregate leverage was 39.4%, a comfortable distance from REITs’ 45% limit. 
  • No debt is expiring until FY17. As such, we don’t see an urgent need for new funds. Its unit price could slip by c.5% to c.SGD0.95 after this announcement, within its placement-price range. This implies an 8.5% yield on our FY16 DPU. 
  • As such, we tighten our yield target from 9% to 8.5%, applied to our FY16 DPU, our TP dips to SGD0.95 from SGD0.97. 
  • Maintain HOLD. Our yield target for Cache is still at a marked discount to Areit’s 7% and MINT’s 7.25%.

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-04
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 0.95 Down 0.97