Cache Logistics Trust offers most attractive yields of 8%

• Earnings stability, high yields and acquisition growth. Cache offers one of the most attractive and defensive yields in our coverage, with CY12 DPU yields of 8.0%. In the event of an economic downturn, a potential flight to yields could provide support for its share price, we believe. Further, we like its earnings stability, low gearing and acquisition pipeline from its strong sponsor, CWT. We maintain our earnings estimates and DDM-based target price of S$1.15 (discount rate 8.6%), anticipating re-rating catalysts from lower financing costs and accretive acquisitions.

• Earnings stability in a downturn. CWT is Cache’s main sponsor and master tenant for the bulk of its portfolio. With triple net master leases and rental escalation for all its warehouses, Cache’s earnings are largely guaranteed.

• Low gearing with no immediate refinancing pressure. Cache has one of the lowest gearing ratios among peers. Near-term refinancing risks are low, as no major refinancing is expected until 2014.

• Growth from acquisitions and lower financing costs. We believe sponsor CWT could monetise one of its warehouses in 2012, offering acquisition opportunities to Cache. We also expect a near-term DPU uplift as management attempts to lower its all-in financing costs.