• Expanding reach into Adelaide
• Raised S$100m from private placement
• Lower FV but maintain HOLD

Proposed warehouse acquisition in Adelaide, Australia

Cache Logistics Trust (CACHE) announced that it has entered into a sale and purchase agreement to acquire a distribution warehouse facility located at 404 - 450 Findon Road, Kidman Park, Adelaide, South Australia. The purchase consideration is A$57.3m (~S$57.4m), and is expected to generate a NPI yield of ~8.9% in the first year. The asset sits on freehold land, has a gross lettable area of 58,795 sqm and comprised of four single-storey warehouses, a cold store and freezer warehouse and an administrative office block. Upon completion of the acquisition, the property will be fully master-leased to Metcash Trading Ltd on a triple net lease structure, with an annual rental escalation pegged to CPI (rent not to fall at any review).

Metcash Trading is an ASX 100 public company with headquarters in Sydney. Its business operations include servicing its customers in supermarkets, convenience stores as well as wholesale and retail hardware and automotive parts. This marks CACHE’s fifth warehouse acquisition in Australia, making up close to a fifth of its portfolio lettable area.

Partial funding from recent private placement exercise

As a recap, CACHE recently completed a private placement exercise, whereby it issued 106.27m new units at an issue price of S$0.941, thus raising total gross proceeds of S$100m. CACHE’s unit base was enlarged by ~13.5% as a result of this issuance. The aforementioned acquisition would be funded partially by proceeds raised from this equity fund raising exercise, with the remainder to be debt-funded.

Maintain HOLD

Taking into account this proposed acquisition and dilution caused by the private placement exercise, we pare our FY15 and FY16 DPU forecasts by 1.6% and 5.5%, respectively. We also adopt a higher cost of equity assumption of 9.3% (previously 8.9%) to take into account the increased market volatility and CACHE’s higher overseas exposure which we believe increases its FX and regulatory risks. Consequently, our DDM derived fair value estimate on CACHE is lowered from S$1.00 to S$0.90. Maintain HOLD.

Source: OCBC Research - 17 Nov 2015