Cache Logistics Trust - OCBC Investment 2017-02-28: Capital recycling in motion

Cache Logistics Trust - OCBC Investment 2017-02-28: Capital recycling in motion CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Capital recycling in motion

  • Proposed Melbourne warehouse acquisition.
  • Funded by recent divestment.
  • Gearing largely unchanged.

Increasing its exposure in Australia 

  • Cache Logistics Trust (CACHE) recently proposed to acquire a single-storey warehouse with ancillary office space located in Laverton North, a suburb of Melbourne, Australia, from Challenger Life CDI Nominees Pty Limited. 
  • The purchase consideration is A$22.25m, which translates into an initial NPI yield of 7.4% (property valued at 7.125% cap rate). Total cost including stamp duties and acquisition fees is estimated to be ~A$24.0m. 
  • This freehold warehouse has a GLA of 223,061 sq ft and is currently 100% leased to Spotlight, a leading retail chain selling fabric, craft and homeware items with ~130 outlets across Australia, NZ and Asia. 
  • The remaining lease term is ~4.5 years by NLA (expiring 1 Jul 2021 with two 6+6 years renewal options) and there is a fixed annual rental escalation of 3.25% embedded in the lease. Upon completion, CACHE’s portfolio will comprise seven Australian properties. 
  • We believe CACHE’s continued expansion in Australia makes sense as building up scale will result in better operational efficiencies and also allows management to diversify from the Singapore industrial market which is facing intense supply pressures.

Funded by net proceeds from recent divestment 

  • Recall that CACHE recently completed the divestment of its Changi Districentre 3 property for a sale price of S$25.5m on 23 Jan. This multi-tenanted, two-storey ramp-up warehouse only has a remaining land lease of ~17 years.
  • Net proceeds from this divestment will be used to fund the above-mentioned acquisition. We are positive on this capital recycling move given the favourable attributes of the proposed acquisition, coupled with the fact that it is expected to have minimal impact on CACHE’s gearing ratio (43.1% to 43.2%).

Maintain HOLD 

  • While we appreciate management’s efforts to diversify its income streams and strengthen its tenant base, we remain cautious on the challenging industry conditions, uncertainties over CACHE’s 51 Alps Ave property and its relatively high gearing ratio. 
  • Hence, we maintain our HOLD rating but our fair value estimate is adjusted slightly upwards to S$0.79 (previously S$0.78) as we factor in this latest acquisition in our model. 
  • We believe a more compelling entry point is S$0.75 and below.

Wong Teck Ching Andy CFA OCBC Investment | 2017-02-28
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.790 Up 0.780