• Trading at 7.2% FY18F yield
• FV increases to S$0.85
• Gearing to increase to 39.3%

Acquiring Nine Warehouses in Australia

Cache Logistics Trust (CACHE) announced yesterday that it is acquiring a portfolio of nine warehouses in Australia for A$177.6m (approx. S$188.3m). These freehold logistics assets have a WALE of 5.0 years and a strong occupancy of 98.1%. In terms of organic growth, the portfolio has an in-built rental escalation of between 2.0% and 3.5%. Legal completion is expected by end Feb 2018. By valuation, 66% of the assets are located in Victoria, while the remainder is split between New South Wales and Queensland.

Funded by Unsecured Term Loan and Perpetual Securities

The initial net property yield is 6.4%, though net of taxes, this would fall to ~5.5% to 5.7%. The acquisition is to be funded by a 5-year unsecured term loan facility of S$110.0m and a S$100.0m non-call 5-year perpetual security issued under the MTN program, offering a 5.5% rate. Aggregate leverage will increase from 36.3% to 39.3% post acquisition. On a pro forma basis, FY17 DPU would have increased by 1% to 6.822 S cents.

Positive on the Capital Rebalancing

We are positive on the acquisition and see it in terms of an improved portfolio profile for the REIT. After the acquisition is completed, Australia’s proportion in the portfolio will increase from 17% to 28%. To reflect what we consider a better portfolio diversification, we decrease our cost of equity from 8.5% to 8.3%.

As at 1 Feb’s closing price, CACHE is trading at a 7.2% FY18F yield. Taking into account the pro forma NAV per unit at 81.0 S cents (including the divestment of 40 Alps Ave), CACHE is trading at around 1.1x P/B. After the announcement by Viva Industrial Trust (VIT) and ESR-REIT on their proposed merger, there has been some excitement over the possibility of other small industrial REITs such as CACHE and Soilbuild Business Space REIT being acquired.

For now, we choose not to integrate any of such assumptions in our parameters. After adjustments for the acquisition, our fair value rises from S$0.81 to S$0.85.

Source: OCBC Research - 2 Feb 2018