vested
Cache Logistics Trust: Buy S$1.135 CACHE SP
New income stream from DHL
Price Target : 12-Month S$ 1.29 (Prev S$ 1.31)
• Developing a built-to-suit facility for DHL
• Strong earnings visibility from long-term lease with a top-notch client
• Maintain BUY, TP S$1.29
Built to suit facility for DHL. Cache Logistics Trust (Cache) will develop a built-to-suit (BTS facility) for DHL at Tampines LogisPark, a newly established logistics park located in the east of Singapore. The property will comprise two ramp-up warehouse blocks with a combined NLA of 928,000 sqft on a new land site allocated by JTC. The development is expected to cost S$105.1m (before transaction costs of S$18.1m) and is projected to be completed in 2H15. Cache has engaged Precise Development Pte Ltd to construct the property, thus eliminating any development risk for this project.
Strong earnings visibility from a top-notch client. This BTS Facility will further diversify Cache’s earnings base with a stream of recurring revenues from DHL, a strong tenant with superior credit standing. Upon completion, DHL will commit to a long-term lease of 10 years (for 78% of the NLA or block 1) with incremental commitments for the remaining space over 3-5 years. We expect Cache to utilise proceeds from its previous equity fund raising and new debt for this project and estimate a 75% debt/25% equity funding ratio. Based on an initial yield of 6.75%, our estimates are tweaked slightly ( up to -2% for FY14-15, +1% in FY16), as we had previously accounted for a S$100m acquisition in our estimates by end-2014.
Maintain BUY, TP revised to S$1.29. FY14-15F yields are attractive at c.7.6% to 8.0%. With DHL as a key tenant, in the medium term, we see Cache emerging as a stronger REIT, offering better earnings diversity and visibility. Maintain BUY
Source: DBS