What is the news?
Cache Logistics Trust has announced the proposed acquisition of a portfolio of nine logistics properties with a gross lettable area of 142,103 sqm on the eastern seaboard of Australia for A$177.6mn (S$188.3mn) at an initial net property income (NPI) yield of 6.4%. The logistics properties are in Melbourne, Victoria (6 properties), Sydney, New South Wales (1 property) and Brisbane, Queensland (2 properties). The acquisition is expected to be 0.33 cents DPU accretive on a pro-forma basis over FY17’s DPU, after factoring the divestment of 40 Alps Ave. (Proposed divestment of 40 Alps Ave was announced on 18 January.)
How do we view this?
The choice of acquiring in Australia (instead of Singapore) does not come as a surprise, as the manager had repeatedly articulated its portfolio rebalancing strategy of acquiring in Australia. In our recent results report on 19 January, we had also opined that the manager is now in a better position to execute that strategy, following the recapitalisation of the balance sheet.
Maintain Accumulate; slightly higher target price of $0.93 (previously $0.92)
We have raised our FY18e/FY19e revenue assumption by 10.8%/12.4%, and DPU assumption by 1.4%/1.7%. Our FY18e DPU assumption is still -6.8% YoY despite the acquisition, due to the combined effects of the larger unit base from the 18-for-100 Rights Issue in 4Q17, absence of income due to the divestment of 40 Alps Ave, conversion of CWT Commodity Hub to multi-tenancy lease, and negative reversions along the backdrop of ongoing softness in the Singapore rental market.
Cache Logistics Trust is under-valued relative to logistics peers in terms of P/NAV multiple. Its above peer-average trailing yield suggests that there is room for yield to compress.
Figure 1: Transaction overview
Figure 2: Transaction effects on Cache’s portfolio
Figure 3: Transaction effects on portfolio’s operational metrics
Source: Company presentation, 31 January 2018