Cache Logistics Trust warehouse acquisition holds great promise: OCBC

It will be earnings accretive.

Here's more from OCBC:

Acquires ramp-up warehouse from third party. Cache Logistics Trust (CACHE) has signed an option agreement to acquire a three-storey fully ramp-up warehouse known as Precise Two from Precise Development Pte Ltd (PDPL) for S$55.2m, or S$194 psf GFA. The purchase price includes the upfront land premium amount of S$6.2m based on JTC posted land premium rate and adjusted for the duration of the remaining land lease. The transaction is expected to complete in Apr, subject to JTC approval. Upon completion, PDPL will enter into a master lease arrangement to lease the whole building for six years with an option to renew for another six years. A built-in rental escalation every two years is expected to be incorporated, but the quantum will be only disclosed after the deal is finalised.

Investment to be earnings accretive. Precise Two is strategically located in the Jurong Industrial Precinct at 15 Gul Way and has modern and attractive technical specifications such as heavy floor loading, making it attractive for end-users who require storage space for heavy products and equipment. The property has just received its TOP on 12 Dec 2012 (land lease tenure of 30 years starting from 1 Oct 2003). According to management, the initial NPI yield is ~8.7%, higher than CACHE’s FY12 implied portfolio yield of 7.1%. Hence, we expect the acquisition to be earnings accretive. The acquisition will increase its market share of ramp-up warehouses in Singapore (currently at 22.9%) and bring its portfolio
asset value above S$1.0b.

Increased flexibility with new credit rating. CACHE also announced that it has received its maiden corporate family rating from Moody’s Investors Service (Baa3 with stable outlook). We have previously anticipated CACHE to fund any sizeable investment opportunities using debt and equity. However, with this development, we believe CACHE may finance the acquisition wholly by debt, since it is now able to exceed its previous regulatory debt ceiling of 35%. Based on our estimates, the new asset is likely to contribute 0.23 S cents (+2.7%) to its FY13 DPU. We raise our fair value to S$1.34 from S$1.32 after factoring in the investment. Maintain BUY.