Cache Logistics Trust - DBS Research 2017-02-23: Acquires new warehouse in Australia

Cache Logistics Trust - DBS Vickers 2017-02-23: Acquires new warehouse in Australia CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Acquires new warehouse in Australia

  • Acquisition of new warehouse in Australia.
  • Deepens exposure in Australia with further diversification for the trust.
  • Maintain HOLD, TP S$0.77.

What’s new? 

  • What: CLT announced on 22 February 2017 that it has entered into a contract of sale to acquire the property located at 217-225 Boundary Road, Laverton North, Victoria, Australia. The site is near the main east-west link freeways and is supported by local arterial road transport system. The land area is c.36,250sqm with a gross lettable area of c.20,723sqm.
  • Where: Laverton North is in the rural-urban fringe suburb of Melbourne, 18km west of Melbourne’s CBD, and is predominantly an industrial suburb.
  • How much: The total acquisition cost, estimated to be A$24.0m (around S$26.1m), was negotiated on a willing-buyer and willing-seller basis. The initial net property yield is expected to be 7.4%.
  • When: Completion of the acquisition is expected to be by mid-March 2017.
  • Who it is leased to. The tenant is understood to be Spotlight, a leading retail chain selling fabric, craft and homeware items with over 130 outlets across Australia, New Zealand and Asia. We understand that the current 10-year lease was signed back in 2011 and is now mid-way through.

The Manager believes the acquisition will bring the following benefits to CLT:

  • Further exposure to the Australian market: The acquired asset will be the Trust’s seventh property in Australia and deepens its exposure there. 
  • Adding freehold property to the portfolio: The acquisition will increase the proportion of freehold assets in CLT’s portfolio which help to compensate for the shorter land leases for its Singapore assets.
  • Income diversification and growth: The initial net property yield of c.7.4% is expected to somewhat compensate for the income vacuum from the sale from Changi Districentre 3.
  • Improve WALE and master tenancy: 100% of the lettable area is leased to Spotlight Pty Ltd for a remaining lease term of 4.5 years, with two 6+6 years renewal options. CLT portfolio's WALE will be lengthened to 3.9 years from 3.88 years by NLA.
  • Gearing, however remains at close to 43%. The Manager intends to fund the acquisition by way of proceeds from the sale of Changi Districentre 3 which was concluded on 23 January 2017. Upon completion of the acquisition, CLT's aggregate leverage will rise to 43.2% from 43.1%.

Our thoughts.

  • In our view, the use of proceeds towards income producing assets is a more efficient way to deploy capital and will help to compensate for the income vacuum from the divestment of Changi Districentre 3. This means that DPUs are likely to remain fairly stable.
  • We understand that this property is Spotlight’s only major distribution centre in Melbourne. This means that it is likely to continue operating on the property in the medium term.
  • Our estimates and HOLD call is maintained, pending resolution of the dispute with Schenker at 6 Changi North Way. TP stays at S$0.77.

Singapore Research Team DBS Vickers | Derek Tan DBS Vickers | Mervin SONG CFA DBS Vickers | 2017-02-23
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.77 Same 0.77