Up to S$150m worth of acquisitions ahead for Cache Logistics Trust in FY11-12

Steady quarter
3Q was steady with no major surprises. Offering one of the most attractive and resilient yields in our universe, we continue to like Cache for its earnings stability, low gearing and acquisition pipeline from its sponsor, CWT. 3Q11/9M11 DPU matches our estimates and consensus, at 26%/76% of FY11.

Boost from acquisitions
Cache’s portfolio should continue to benefit from rental step-ups and acquisitions. 3Q11 distributable profit grew 9% yoy on 11% NPI growth, backed by its recent acquisitions and in-built rental step-ups.

Costs of funding nudged lower
Costs of funding could drift down with the draw down of cheap debt for acquisitions. All-in financing costs went down to 3.8% (2Q: 3.9%) after the issuance of an unsecured S$35m 3.5% 5-year MTN to fund its recent acquisitions.

Uplift from accretive acquisitions
We continue to expect accretion from debt-funded acquisitions. Cache still has ROFR to 2.3m sf of warehouses from its sponsor and assets from third parties. We factor in S$100m and S$150m of acquisitions for FY11-12. Cache has met more than 60% of our FY11 acquisition forecast so far.

Of resilience and growth
Resilience remains a key draw for Cache with its portfolio 100% occupied, including multi-tenanted premises. Substantially leased on long-term triple net leases (WALE: 4.9 years) with annual rental escalation, its portfolio provides growth potential even in an economic slowdown. Given this resilience, balance-sheet strength and potential upside from debt-funded acquisitions, we find forward yields of 8% attractive.