Singapore Company Focus

Cache Logistics Trust

Bloomberg: CACHE SP | Reuters: CALT.SI

DBS Group Research . Equity 9 Jun 2010

BUY S$0.95 STI : 2,746.61 Hunting for assets

(Initiating Coverage) • Highest yield protection amongst Sreits
Price Target : 12-Month S$ 1.05
• Competitive edge from synergistic sponsor activities
Reason for Report : Initiating Coverage
Potential Catalyst: Acquisitions
• Low gearing of 26% - debt funded war-chest of $100m
• Initiate with BUY, TP S$1.05 based on DDM
Analyst
Derek TAN +65 6398 7966 Strong yield protection from master lease structure. Cache
derektan@dbsvickers.com
Logistics Trust (CLT) offers investors the highest yield protection
Munyee LOCK + 65 6398 7972 amongst Sreits, backed by a defensive rental income stream
munyee@dbsvickers.com derived from a master lease arrangement on a portfolio of
modern, high quality logistics assets with inbuilt rental escalation
ensuring stable growth. CLT offers good earnings visibility and
Price Relative stability given a weighted average lease expiry of 6.4 years,
S$ R e la t iv e In d e x longer than industrial peers of c5 years.
1 .1 0 219

1 .0 5

1 .0 0
169 Synergistic sponsor interest gives competitive edge. CLT is the
0 .9 5 119
only industrial Sreit with a sponsor whose business operations are
0 .9 0 synergistic with the trust. Its competitive strength lies in its large
0 .8 5
69
presence in the ramp-up logistics warehouse space in Singapore
0 .8 0 19 while sponsor CWT’s ability to offer a complete logistics solutions
package to leading 3PLs in Singapore and Asia Pacific encourages
A p r-1 0

C a c h e L o g is t ic s T r u s t (L H S ) R e la t iv e S T I IN D E X (R H S )
“tenant stickiness” within CLT’s properties. The alliance with
ARA will also add to its financial and capital markets skillset.
Forecasts and Valuation
Assuming S$100m of acquisitions in our forecasts. CLT’s
FY Dec (S$ m) 2010F* 2011F 2012F current gearing of c26% empowers the trust with a debt-funded
Gross Revenue 37 68 69 war-chest of cS$100m to a gearing limit of 35%, given its non-
Net Property Inc 36 67 68 credit rating status. On top of a ready pipeline from sponsor
Total Return 43 47 48 rd
CWT and C&P, the manager is looking at 3 party opportunities.
Distribution Inc 33 52 54
EPU (S cts) 4.2 7.3 7.5 We have assumed an additional S$100m of acquisitions at 8.0%
EPU Gth (%) n.a. 76 3 net property income yields in our numbers contributing from
DPU (S cts) 5.2 8.2 8.4 FY11 onwards.
DPU Gth (%) n.a. 57 3
NAV per shr (S cts) 86.2 84.8 83.4 Initiate with BUY, TP S$1.05 based on DDM. FY10-11F yields
PE (X) 22.8 13.0 12.6
Distribution Yield (%) 8.0** 8.6 8.8
of 8.0-8.6% which offers up to180 bps above the Sreit sector
P/NAV (x) 1.1 1.1 1.1 average of 6.9-7.2% and 560 bps above the 10 year bond yield,
Aggregate Leverage (%) 26.1 35.6 36.2 is attractive considering its sturdy earnings structure with limited
ROAE (%) 9.6 8.6 8.9 earnings downside. Catalysts for re-rating will hinge on CLT
acquiring assets to grow its asset base and earnings.
Consensus DPU (S cts): 6.4 8.4 8.5

* Pro-rated due to recent listing in Apr 2010

** Annualized based on a DPU of 5.2 Scts At A Glance
Issued Capital (m shrs) 632.2
Mkt. Cap (S$m/US$m) 600.4 / 428.9
Major Shareholders
ICB Industry : Financials CWT Limited (%) 12.2
ICB Sector: Real Estate Investment Trust
JP Morgan (%) 10.9
Principal Business: CLT is a REIT which invest primarity in industrial
Morgan Stanley (%) 7.1
assets located in the Pan Pacific region
Free Float (%) 69.8
Source of all data: Company, DBS Vickers, Bloomberg Avg. Daily Vol.(‘000) 10,206

www.dbsvickers.com
Refer to important disclosures at the end of this report
sa: YM
 Company Focus
Cache Logistics Trust
Investment Summary
Initiate with BUY, TP S$ 1.05, offering a total return of 19%.
Cache Logistics Trust (CLT) is a logistics focused REIT with
two key differentiating characteristics. CLT is the only Sreit
that offers investors a highly defensive base yield, backed by
a master lease rental structure derived from a niche portfolio
of modern quality logistics assets. It is also the only industrial
Sreit with a sponsor whose business operations are
synergistic with the trust.
A showcase quality portfolio of logistics properties. Its initial
portfolio comprises 3.86msf GFA valued at S$729.9m,
97.3% of the space comprises ramp-up buildings with an
average age of 2.1 years. An estimated 94.1% of the
portfolio GFA is occupied by end-users, of which 85.2% are
MNCs and come from the consumer, commodities
/chemicals, food and cold storage, aerospace, courier,
healthcare and hospitality sectors. Notable names include
DHL, Schenker, TNT and Nippon Express.
Low beta proxy play in the growing logistics market. The
logistics industry is projected to grow to 13% of Singapore’s
GDP in 2012 from 9% in 2008, with an estimated 8.6-16%
CAGR in the freight forwarding and contract logistics
segments from 2007-2011. CLT is well positioned to benefit
from this projected growth given the good location of its
properties within the major logistics centers situated in
Singapore’s east and west coasts. Simultaneously, the supply
of logistics real estate is expected to expand by a lower
CAGR of 3.5% from 2007-2011, underpinning the positive
outlook on rental rates and capital values of logistics
warehouse space.
Highest yield protection amongst Sreits, backed by a
combination of income stability and growth. CLT offers
strong earnings visibility backed by a triple net master lease
structure with inbuilt step-up rental clauses of 1.5% pa. CLT
has the longest WALE of 6.4 years compared to other
industrial Sreits of up to 5 years, offering investors greater
income stability. Given the secured income stream from the
6.4 years weighted average lease expiry profile in the master
lease agreement, CLT’s revenues are well protected. Hence,
this will provide strong yield protection for investors.
Page 2
Maximum downside protection. Despite its large exposure to
CWT and C&P as master lessees of its properties, tenant risk
is limited given the long 12-month security deposits over the
duration of the lease tenure. There are also 3 separate lease
arrangements for CWT Commodity Hub, in which underlying
lease terms are longer (between 6-10 years) than the master
lease period of 5 years. Moreover, C&P has provided
corporate guarantees for the master leases held by its two
subsidiaries for Schenker Megahub, Hi-Speed Logistics
Centre and C&P Changi Districentre properties.
Acquisition growth opportunities underpinned by well-
defined pipeline, S$100m worth of injections assumed.
Inorganic growth potential is underscored by the right of
first refusals (ROFR) for the sponsor CWT’s, and C&P’s assets.
Based on the existing development pipeline, there is an
estimated pool of 11 properties with a potential to be
developed into an estimated 3msf of GFA or c78% of CLT’s
initial portfolio. This has not taken into account potential
third party assets that could be transacted. With a gearing
level of c26% after acquiring the initial portfolio & without a
credit rating in the near term, Cache’s gearing capacity
would be limited to 35%, implying an additional debt
headroom of S$100 m, which we have assumed to be
utilised for new acquisitions in our numbers.
Offering complete logistics solutions package. CLT stands
out as the only industrial Sreit with a sponsor whose
business operations are synergistic with the trust. CLT will be
able to benefit from CWT’s expertise, experience and
knowledge of the logistics and warehousing market in
Singapore and Asia Pacific as well as leverage on established
networks and relationships with major global logistics service
providers. In addition, the trust can also benefit from ARA’s
broad network across the region. Apart from having a ready
platform to leverage on the rapidly growing logistics sector,
these competitive advantages could provide CLT with a first
mover advantage when assessing real estate solutions for its
tenants, in our view.
Key risks that could impact CLT’s future distributions include
operating risks such as (i) CLT’s ability to maintain current
rentals during renewals given its single asset class exposure
which is facing increasing competition from other
warehouse owners locally and regionally, (ii) its heavy
dependence on its Sponsor when renegotiating its master
lease arrangement due to limited access to end user tenants
and (iii) interest rate volatility, which could result in higher
interest expenses.

SWOT Analysis
Strengths
• Leveraging on the expertise of ARA and CWT. CLT has the
advantage of being able to leverage on ARA Asset
Management’s Reit management expertise and in having
CWT Limited, one of Asia’s leading integrated logistics
providers as a sponsor, allowing CLT to tap on their
respective networks and relationships to source for potential
acquisition opportunities of logistics properties in the Asia
Pacific.
• Operator-owned warehouses. Being in the logistics business
and as an operator of warehouses, CWT has accumulated
considerable knowledge of logistics users’ requirements and
experience in developing and managing logistics properties.
• Properties are located in key logistic hubs. CLT’s properties
enjoy strong underlying demand from end-users given prime
locations in Penjuru and Changi, which are located in close
proximity to Singapore’s sea and air ports. In addition, the
ability of end users to drive their delivery vehicles into all
floors is a critical selling point given enhanced cost efficiency
and quicker turnaround time.
• Ownership of unique warehouses. CLT is in possession of 2
high quality warehouses in CWT Commodity Hub and CWT
Cold Hub. The former is the largest ramp-up facility in South
East Asia and is an approved warehouse from the London
Metal Exchange (LME), which generates extra demand for
space there. CWT Cold Hub on the other hand, is the only
ramp-up cold storage facility in Singapore, offering unbroken
cold chain access.
• Master lease profile offers no downside to earnings. The
master lease structure of CLT with C&P and CWT is based on
a base + fixed 1.5% annual escalation clause for the first five
years of the initial contracted lease term, which offers no
downside risk to earnings. In addition, the triple net lease
agreement signed with the master lessees means that capital
expenditure will be low over the contracted lease term.
Opportunities
• Visible pipeline for growth. CLT’s sponsor, CWT as well as
C&P have given the Reit Right of First Refusals (ROFR) on 13
properties located in the Asia Pacific region. This translates
into a total net lettable area of over 3msf, which represents
78% of the initial portfolio.
• Development expertise. Through the years, CWT has built
warehouses to meet the incremental demand for space in
the Asia Pacific region. CLT will be able to tap on this
expertise to engage in potential development activities to
further deliver incremental returns to unitholders.
Source: DBS Vickers
Company Focus
Cache Logistics Trust
Weakness
• Tenant concentration risk. Having all its income under the
master lease arrangement with CWT and C&P means that
CLT’s revenues are dependent on CWT and C&P’s ability
to make regular rental payments. However, (i) given the
long operating history of both master lessees and their
leading positions in the logistics industry and (ii) the
recovery of Singapore’s economy points towards an
expansion in trade activities. As such, it is unlikely that the
master lessees will be unable to pay their contracted rents.
Furthermore, the considerable 12-month security deposits
over the duration of the lease tenure provides further
downside protection.
• Single asset class. Having a portfolio comprising primarily
ramp-up logistics warehouses means exposure to
increased volatility and risk in relation to demand from end
users. This compares to a portfolio that consists of other
industrial asset classes which may offer better
diversification.
• Single market exposure. CLT’s properties are located in
Singapore, which puts it at risk to a prolonged downturn
in the economic performance of Singapore.
• Lack of credit rating currently limits gearing to 35%. CLT
will not have a credit rating in the immediate term
meaning it is limited to a gearing of up to 35% (debt/
asset ratio) compared to 60% if it has obtained a rating.
The initial gearing ratio of 25.5% will mean lesser debt
funding capacity to fund future acquisitions.
Threats
• Competitive warehouses and new supply of ramp-up
warehouses. CWT’s warehouses are located in various
logistics hubs in Singapore where there are other
competing warehouses. In addition, with a further 1.5msf
of new inventory to be completed over the next 2 years
resulting in new space, CLT faces the threat of increased
pressure on rental rates.
Page 3
 Company Focus
Cache Logistics Trust

Trust Structure
Logistics focused trust. Cache Logistics Trust is a Singapore
based real estate investment trust (S-Reit) established with
the objective of investing in real estate used for logistics
purposes in Asia-Pacific, as well as real estate-related assets.
Property manager. The property manager of CLT is Cache
Property Management Pte Ltd, which is 40% owned by ARA
and 60% owned by CWT. The property manager provides
property management, lease management and project
management services to the trust.

CLT aims to generate regular and stable distributions to Ownership Structure of Asset Manager and Property
Manager
unitholders and to achieve long-term growth in distributions
per unit (“DPU”) and net asset value per unit, while
Asset Manager
maintaining an appropriate capital structure. 60% 40%

The following diagram illustrates the relationship between

CLT, the Reit Manager, the Property Manager, the Trustee ARAAsset Management CWT Limited
and Unitholders. Limited
40% 60%

Reit manager. The manager of CLT is ARA-CWT Trust Property Manager

Management (Cache) Ltd, which is 60% owned by
Source: Manager, DBS Vickers
ARA Asset Management Limited (ARA) and 40% owned by
CWT Limited (CWT). The manager’s main responsibility is to
Trustee. HSBC Institutional Trust Services (Singapore)
manage CLT’s asset and liabilities for the benefit of
Limited is responsible for safeguarding the rights and the
unitholders. The manager will set the strategic direction of
interests of unitholders.
the Reit and give recommendations to the Trustee on any
acquisition, divestment or asset enhancement opportunities
in accordance with its slated investment policy.

Trust Structure

Unitholders

Distributions Ownership of units

Management
Services Trustee Fee
Manager Trustee
Cache Logistics Trust (CLT)
Management Acts on behalf of
Fee unitholders
Net property income Ownership of assets
Property
Management
Services
Property Properties
Manager
1) CWT Commodity Hub
Property 2) CWT Cold Hub
Management 3) Schenker Megahub
Fee 4) C&P Changi Districentre
5) Hi – Speed Logistics Centre
6) C&P Changi DC II

Source: Manager, DBS Vickers

Page 4
 Company Focus
Cache Logistics Trust

Fee Structure Sreit Manager Fees as a % of Total Property Value

1.5%
Industrial REITs
CLT’s fee structure in line with peers. The fee structure for ART
1.3%
CLT is similar to other S-Reit and includes (i) fees payable to SZREIT
the Manager for their asset management initiatives and (ii) AiT
1.1%
fees to the property manager for their duties towards
Suntec
maintaining the assets operational performance. Based on 0.9%
CRCT Mi-REIT
our estimates, CLT’s fees payable as a component of total FCT K-REIT A-REIT
CIT
property value is at 0.6%, which is at the lower end of the 0.7%
CMT
P-Life MLT
CLT
range compared to what other S-Reit managers are currently CDL HT
SGREIT
FCOT
being paid (ranging 0.6%-1.4%). 0.5%

CCT
0.3%

Source: Various companies, DBS Vickers, Bloomberg

Fee Structure of CLT

Fee Type Payable to Payment Mode Description

Reit Management Manager Units and/ Base Fee: 0.5% p.a. of the value of consolidated assets (defined as total assets)
Fee or Cash Performance Fee: 1.5% p.a. of CLT’s Net Property Income

Acquisition Fee Manager Units and/ 1.0% of acquisition price paid including acquisition costs. To be pro-rated if
or Cash applicable to proportion of CLT’s interest

Divestment Fee Manager Units and/ 0.5% of sale price of any real estate sold or divested. To be pro-rated if
or Cash applicable to the proportion of CLT’s interest.

Property Property Cash For properties located in Singapore:

Management Manager - Property management fee of 2.0% p.a. on gross revenues of each property
Fee - Lease management fee of 1.0% p.a. on gross revenues of each
property
-
# Note that no lease management fee is payable for the initial portfolio for
the first 3 years.

Project Property Cash For redevelopments/ developments, retrofitting and renovation of Singapore
Management Manager properties:
Fee - 3.0% of construction cost if costs are $2.0m or less
- Higher of S$60k or 2.0% of construction cost if costs are between $2.0m to
$20m
- Higher of $400k or 1.5% of construction cost if costs are between $20m to
$50m
- Fees mutually agreed between Manager, Trustee and Property Manager if
construction costs exceed $50m

Trustee Trustee Cash 0.03% p.a. on value of deposited property, subject to a minimum of S$15k per
Fee month and a maximum of 0.25% p.a. of value of deposited property, excluding
out of pocket expenses and GST
One-time inception fee of S$50k
Source: Manager, DBS Vickers

Page 5
 Company Focus
Cache Logistics Trust
Sponsor & ARA
CWT Ltd
CWT is one of Southeast Asia’s largest logistics operators.
Established in 1970, CWT with its customized integrated
logistics capabilities, large scale warehousing facilities and
global distribution network, is one of the region’s leading
logistics players. CWT’s principal businesses comprise
integrated logistics solutions and international freight
forwarding, as well as engineering maintenance and facilities
management services.
“Total logistics” solutions. CWT’s logistics strategy lies in the
group’s holistic approach in providing a comprehensive range
of logistics solutions and complementary logistics services to
other logistics players such as DHL, Fedex, Schenker and
Nippon Express. CWT offers close connectivity to support its
customers’ global operations and supply chain management
requirements, making it a leader in many of the markets in
which it participates whilst at the same time is able to establish
and maintain strong relationships with its clientele
Operator backed REIT. CLT differentiates itself with
competitors with an operator as its sponsor and will be able to
benefit from CWT’s expertise, experience and knowledge of
the logistics and warehousing market in Singapore and Asia
Pacific as well as leverage on established networks and
relationships with major global logistics service providers. As
such, we believe that tenants will tend to be stickier to CLT
assets when compared to other pure space providers
Page 6
ARA Asset Management Ltd
One of largest asset managers in Asia ex-Japan. ARA is an
Asian real estate fund management group listed on the SGX.
Established in July 2002 by ARA Group CEO, John Lim, and
Cheung Kong (Holdings) Limited, ARA’s assets under
management has grown substantially from $0.6 billion as of
31 Dec 2003 to $12.5bn as of 30 Sept 2009.
Manages 5 Reits in 3 countries. ARA has an established track
record of managing publicly-listed Reits in Singapore, Hong
Kong and Malaysia with a diversified portfolio spanning office,
retail and industrial/office sectors. The publicly-listed Reits
currently managed by ARA are Suntec Reit (listed in
Singapore), Fortune Reit (listed in Singapore), Prosperity Reit
(listed in Hong Kong) and AmFIRST Reit (listed in Malaysia).
Leverage on ARA’s capital markets expertise. The trust can also
benefit from ARA’s broad network across the region. Apart
from having a ready platform to leverage on the rapidly
growing logistics sector, these competitive advantages could
provide CLT with a first mover advantage when assessing real
estate solutions for its tenants, in our view
 Company Focus
Cache Logistics Trust

Management Team brought in by Economic Development Board of Singapore and

The manager of Cache Logistics Trust is ARA-CWT
Management (Cache) Pte Ltd. The management team
comprise of Mr Daniel Cerf (CEO), Mr Ho Jiann Ching (Head of
Investments), Mr Foo Say Chuang (Head of Asset
Management) and Ms Serina Lim (Finance Manager).
Mr Daniel Cerf is the Chief Executive Officer of the Manager.
He has more than 20 years of experience in real estate in Asia,
working on investment and development ventures in Hong
Kong, Philippines, Singapore, Indonesia, Thailand, Vietnam
and Malaysia. Before joining the Manager, Mr Cerf was the
Deputy Chief Executive Officer of K-REIT Asia Management
Limited, the manager of K-REIT Asia – a Keppel Land Limited
sponsored real estate investment trust listed on the SGX-ST in
April 2006. During Mr Cerf’s tenure, the total assets under
management of K-REIT Asia grew from S$637 million in March
2006 to over S$2.1 billion.
Mr Ho Jiann Ching is the Director & Head of Investment of the
Manager. Mr Ho has more than 16 years experience in real
estate investment, development, asset management and
marketing in regional property markets. Before joining ARA in
2009, Mr Ho spent more than 8 years as the Director of
Business Development in Ayala International Holdings Limited.
Mr Ho began his career in 1993 as a Senior Marketing Officer
with JTC, a statutory board that controls the development and
marketing of major industrial estates in Singapore. His key
responsibilities included pricing evaluation of strategic projects
land-use planning based on specific industry needs.
Mr Foo Say Chuang is the Director & Head of Asset
Management. Mr Foo has more than 25 years of logistics
experience in local and multinational corporations. He was
most recently the Managing Director for CWT Limited in
charge of infrastructure & business development where he
was responsible for the development and expansion of the
Group’s logistics business in Singapore and regional markets,
including Russia, India, Malaysia and Thailand. Prior to that Mr
Foo worked for several years with CWT as a General Manager
where under his helm he helped the group significantly
expand its logistics business.
Ms Serina Lim Lan Hong is the Finance Manager of the REIT
Manager. Ms Lim has more than 18 years of experience in
audit, accounting and finance-related work including group
accounting and reporting, fund management and accounting,
tax and management of treasury operations. Prior to joining
the Manager, she was an Assistant Vice President (Fund
Finance) with RREEF Alternative Investments (Asia Pacific), the
global alternative investment management business of
Deutsche Bank’s Asset Management division.
Ms Lum Yuen May has recently joined CLT as its investor
relations manager and will report directly to the CEO, Mr.
Daniel Cerf.

Organisation Structure of Cache Logistics Trust

Board of Directors
Mr Lim How Teck (Chairman & Non-Executive Director)
Mr Lim Hwee Chiang John (Non-Executive Director)
Mr Liao Chung Lik (Non-Executive Director)
Mr Jimmy Yim Wing Kuen (Non-Executive Director)
Mr Peter Chan Pee Teck (Independent Director)
Ms Stefanie Yuen Thio (Independent Director)
Mr Moses K. Song (Alternate Director to Mr Lim Hwee Chiang John)

Chief Executive Officer

Mr Daniel Cerf

Director & Head of Director & Head of Asset Finance Manager Investor Relations
Investment Management Ms Serina Lim Lan Hong Manager
Mr Ho Jiann Ching Mr Foo Say Chuang Ms Lum Yuen May

Source: Manager

Page 7
 Company Focus
Cache Logistics Trust

CLT’s asset portfolio The largest component of CLT’s portfolio by GFA and value is
CWT Commodity Hub, accounting for 59.5% of portfolio GFA
Quality, well-located property portfolio. CLT stands out with its and 44% of value. CWT Cold Hub makes up 9% of GFA but
good quality, niche portfolio of primarily ramp-up logistics contributes 18% of property value as refrigerated facilities
warehouse properties. The portfolio comprises 6 buildings with typically command higher market values. The remaining 4
3.86msf of GFA. 97.3% of its portfolio by GFA comprises of properties make up 31-38% of GFA and portfolio value.
ramp-up logistics properties. The average age of its properties
is approximately 2.12 years. The buildings are located near the Breakdown of CLT Portfolio by GFA
hub of sea and air logistics activities, which will ensure Schenker
continued demand for their warehouse space. Cold Hub 11% Changi DC
9% 9%
Hi-Speed Log
Property Portfolio
8%

Changi DC II
3%

Commodity
Hub
Source: Manager 60%

Breakdown of CLT Portfolio by Value

Schenker Changi DC
14% 11%

Hi-Speed Log
10%
Cold Hub
18% Changi DC II
3%

Source: Manager

Commodity
Hub
44%
Source: Manager

Property Portfolio
Property CWT Commodity CWT Cold Hub Schenker C&P Changi Hi-Speed Logistics C&P Changi DC Total/
Hub Megahub Districentre Centre II Average
Asset Class Ramp-Up logistics Ramp-up cold Ramp-Up logistics Ramp-Up logistics Ramp-Up logistics Cargo-lift logistics
facility storage logistics facility facility facility facility
facility
Land lease tenure LH 29 yrs from 19 LH 30+30 yrs from LH 30+30yrs from LH 30+30 yrs from LH 30+30 yrs from LH 30+30 yrs
Aug 2006 20 Dec 2005 1 Jun 2005 16 Aug 2005 16 Aug 2005 from 16 Feb 1996
GFA (msf) 2.30 0.34 0.44 0.36 0.31 0.11 3.86
Average Valuation 325.5 129.6 101.0 83.3 70.8 19.8 729.9
($m)
Purchase Price 323.0 122.0 99.0 82.0 69.5 17.7 713.2
(S$m)
Price ($psf) 141 357 225 225 225 167 185
Initial Annual Rent - 28.9 9.8 7.4 6.1 5.2 1.5 58.9
Triple Net ($m)
Initial Yield (%) 9.0% 8.1% 7.5% 7.5% 7.5% 8.6% 8.3%
Lease Term (years) 5 - 10 years 5 years over 6 years 5 years over 6 years 5 years 6.4 years
Occupancy (%) 90.6 94.4 100 100 100 79.4
Source: Manager, DBS Vickers

Page 8
 Company Focus
Cache Logistics Trust

Catching logistics cycle at a low. CLT’s properties are valued at Driving value and growth
$729.9m or an average $189psf of GFA. Excluding CWT Cold
Hub, which carries a higher value of $379psf ($129.6m), the CLT’s business model has two major drivers of growth – from
average cost of the remaining assets is $171psf. organic means as well as through acquisitions. We expect near
term earnings to be organically driven and new acquisitions to
propel medium-term improvement.
In assessing the underlying capital value, we believe another
way of comparing capital values vis a vis other industrial Reits
Inbuilt organic growth from master lease – 1.5% p.a. CLT
would be to look at initial yields. The properties were
differs from other industrial Sreits in terms of its rental
purchased at net initial yields of between 7.5-9.0%, reflecting
structure. It derives income from master leases from its 6
levels during the 2005-2006 era, before the sharp yield
logistics properties. The master lease provides stable income
compression of the 2007-1H08 period.
with an in-built growth component. Under the terms of the
Selected Logistics Property Transactions agreement, CLT will buy and lease back the properties to
Date Property Company Initial yield
sponsors CWT and C&P for a triple net master lease amounting
Sep 05 Senkee Log Hub P1 Areit 7.2% to $58.9m in the first year. There is an annual rental escalation
Oct 05 1 Changi Sth Lane Areit 7.6% of 1.5% over the preceding year’s rent. The weighted average
Oct 05 Logishub@Clementi Areit 8.0% lease expiry profile is 6.4 years.
Nov 05 JEL Centre Areit 7.3%*
Jun 06 Logistics 21 Areit 6.6%*
Jun 06 Sembawang Kimtrans Log Centre Areit 6.9%* CLT Existing Revenue Profile
Oct 06 Jurong Log Hub MLT 6.7%* 70
Dec 07 Goldin Log Hub Areit 6.0%* 60
Mar 08 Sim Siang Choon Bldg Areit 6.1%*
Apr 08 Sealogistics MLT 7.9% 50
Jun 08 Menlo (Boon Lay Way) MLT 7.9% 40
Jun 08 Menlo (Benoi) MLT 8.4%
30
Dec 09 SH Cogent Logistics (Penjuru) MLT 9.0%
Note: * denotes estimated annualised net property income yields derived from 20
deducting estimated property management fees payable from annualised gross
revenue in Yr 1 over purchase price 10

0
Source: Various companies, DBS Vickers 10F 11F 12F 13F 14F 15F
Base rent Ann escalation
Source: DBS Vickers
The outlook for the logistics-warehousing sector remains
positive given the strong demand and limited supply outlook. Under the triple net lease structure, the Master Lessee will be
According to URA statistics, in general, multi-user warehouse responsible for ongoing property expenses such as land rent,
capital values had declined 24% from the peak in mid 2008 property tax, insurance, day-to-day maintenance (cleaning,
and are back to 2004 level while rentals have retraced 20% security, utilities, servicing of lifts and other M&E items).
from the peak to early 2007 levels. With the improving CLT’s responsibility would include structural repairs,
economic outlook and the projected strong growth in the replacement of structural parts, replacement of M&E items.
logistics sector, the logistics warehouse property sector has To this end, management expects to spend a capex of
stabilized is poised to remain robust going forward $1.7m over 2010 and 2011.

Warehouse Rental and Occupancy Terms of Master Lease Agreements

94 % S$ psf pm 2.0
Occupancy LHS 1.8
Property Master Lessee Terms of Master Lease
92 Rental RHS
1.6 Agreement
90 1.4 CWT Commodity Hub CWT 5 yrs
1.2 CWT Cold Hub CWT 5 yrs
88
1.0 Schenker Megahub C&P Land Pte Ltd Over 6 yrs, expiring
86
0.8 31/08/2016
84 0.6 C&P Changi C&P Distribution 5 yrs
0.4 Districentre Pte Ltd
82
0.2 Hi-Speed Logistics C&P Distribution Over 6 yrs, expiring
80 - Centre Pte Ltd 15/10/2016
1998Q4 2000Q2 2001Q4 2003Q2 2004Q4 2006Q2 2007Q4 2009Q2 C&P Changi DC II C&P 5 yrs
Source: URA, DBS Vickers Source: Manager, DBS Vickers

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 Company Focus
Cache Logistics Trust

Mitigating tenant concentration risk. Although CWT and Master Lessees’ Direct Counterparty as % of Occupied GFA
C&P are the master lessees with CLT, there is minimal risk of
CWT related
overexposure to these two entities. In terms of tenants, an entities
estimated 94.1% of CLT occupied portfolio area is leased by 21%

end users with the top 5 end users accounting for 56.5% of
the occupied GFA. These tenants are in a variety of trade
sectors including industrials/ consumer, commodities/ 3PLs
54%
chemicals, food/ cold storage, healthcare, courier and
hospitality. 3rd party end-
users
25%
Breakdown of Tenants by Trade Sector
Food and cold
storage
8%
Source: Manager
Aerospace
6%
Courier To minimise income volatility risk at CWT Commodity Hub,
2%
given its significant share of the trust income, CWT has in place
Heathcare
4% 3 separate lease agreements in relation to the property in the
Hospitality
Industrial/consumer 4%
event that the Master lease Agreement is not renewed after 5
53% years. The terms of the 3 leases will range from 1-5 years.

Comodities/chemical
23%
Source: Manager

CLT’s tenants also have good credit profiles as they comprise

largely MNCs (85.2%), SMEs and government entities. Major
tenants include well-known names such as DHL, Schenker,
Nippon Express and TNT.

Breakdown of End Users by Business Segment

MNCs
85%
SMEs
9%

Govt Agencies
6%

Source: Manager

A look at the breakdown in counterparty exposure provides

further assurance of income security. Direct counterparties of
the Master Lessees comprise 3PLs, third party end users and
CWT related entities, which have in turn been fully
contracted for use by third party end users.

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 Company Focus
Cache Logistics Trust

Acquisition growth – matter of time Impact of New Acquisition as a % FY11 distributable income
Initial NPI Yield (%)
Acquisition ($m) 7% 7.5% 8% 8.5%
Rights of first refusal (ROFR). CLT has a clear and visible 100 1.6% 3.0% 5.1% 6.5%
acquisition growth strategy through its right of first refusal
Source: DBS Vickers
(ROFR) for its sponsor CWT’s as well as C&P’s assets. The
ROFR applies to 13 assets located in regional logistics hub
Development activities
consisting of a total gross floor area (GFA) of 3msf, c78 % of
the total GFA of the initial portfolio.
CLT’s sponsor, CWT, pioneered the development of ramp-up
logistics warehouses in Singapore and currently owns about
Assets in Sponsor’s ROFR
a quarter of the ramp up warehouse stock in Singapore. The
Sponsor assets Location GFA (sf) Est Completion
CWT ROFR
experience and expertise generated from these
CWT Hub 3 S’pore 834,480 2011 developments is expected to benefit CLT in its future
CWT Hub 1 S’pore 375,233 2007 development activities. As such, we believe CLT would be
Jinshan Districentre China 145,816 2007 able to leverage and benefit from this skill set and optimise
CWT Tianjin Logistics Hub China 84,668 2010 returns should it undertake any development activities in the
Others Regional 811,892
future.
2,252,089
C&P Hldgs ROFR
30 Penjuru Lane 47,492 Completed An important part of CWT’s success lies in developing strong
C&P Hub 3 723,151 Completed relationships with the global 3PLs and to focus on providing
770,643 complementary logistics services as an enabler for their
Total 3,022,732
respective businesses. In our view, the ability to work closely
Source: Manager, DBS Vickers
with the global logistics players, understanding their needs
Assuming S$100m of acquisitions by end FY10/ beginning and business trends would allow CWT and CLT to provide
FY11 in our forward estimates. CLT’s current aggregate the required services and real estate solutions, thus allowing
leverage (gearing) is at c26% and based on a 35% gearing CLT to have a competitive advantage in this market segment
limit (for REITs without a credit rating), would translate to a over an independent landlord.
further c$100m of debt that the trust can take on.

Judging from the sponsor’s pipeline of completed assets, our

S$100m injection will assume by the injection of C&P Hub 3,
which is a 723,000 sqft property priced at S$150 psf (similar
to Commodity hub), which we think is reasonable given that
the asset has already been completed and is in the process
of being filled at the moment.

Our base case scenario assumes an initial NPI yield of 8.0%,

which is similar to Commodity Hub when first injected
during IPO, and in line with latest transactions in the market
for industrial assets in Singapore. We also note that the
higher the entry yield for new portfolio additions, the more
accretive it is to CLT’s net property income & distributable
income.

The table below shows the impact of new acquisitions based

on the various initial entry yields

Impact of New Acquisition as a % FY11 NPI

Initial NPI Yield (%)
Acquisition ($m) 7% 7.5% 8% 8.5%
100 12% 13% 13% 14%

Source: DBS Vickers

Page 11
 Company Focus
Cache Logistics Trust

Accessibility is key. A majority of warehouses are situated

Logistics property market looking positive near the Western (ranging the Tuas, Pioneer and Penjuru
and Toh Tuck region) and Eastern part (Changi, ALPS and
73.8m sqft of logistics space in Singapore. The current total Paya Lebar regions) of Singapore, along the Ayer Rajah
stock of logistics or warehouse space stands at c73.8m sf, Expressway (AYE) that runs along the southern part of
which is roughly 19% of Singapore’s total industrial space Singapore. Warehouses located in these 2 regions
as of 1Q10. Given the regular movement of goods in and represent approximately 68% of the total supply.
out of these properties, warehouses in Singapore are
usually accessible to major transportation nodes (eg High occupancy levels. Good connectivity and accessibility
expressways) and located within the vicinity of major are key attributes for a location or property to enjoy higher
seaports and/or airports. than average occupancy levels. (Western and Eastern parts
of Singapore enjoy higher than average occupancy rates at
Breakdown of Singapore’s Logistics Space
c. 93%).
Central
20%
Warehouse Occupancy by Region (%) as at 3Q09
94 % 93.3
92.9
93
91.8
East 92
West 13% 91 90.1
56% 90
North East 89 88.2
North 5% 88
87.1
6% 87
Source: URA, DBS Vickers 86
85
84
Central East North East North West Island
Source: URA, DBS Vickers

Key Logistics Locations in Singapore

Source: Colliers, DBS Vickers

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 Company Focus
Cache Logistics Trust

Steady increase in supply. The warehouse industry has seen an
average steady growth in total supply of 3% since 2000. The
eastern, western and northern regions of Singapore saw higher
growth largely driven by excellent connectivity and proximity to
expressways, ports and airports and their status as logistics hubs
in Singapore.
Demand - little speculative activity. The Singapore logistics
sector historically does not face much speculative building
activity largely due to government planning and site restrictions.
Therefore, fluctuations in demand and supply for warehouse
space hinge largely on Singapore’s GDP growth and the state of
global trade.

Occupancy levels trending up since 2006. Average occupancy Using historical performance as a guide, over the past decade,
levels have been on a steady up-trend since 2006 from a low of we note that changes in demand and supply track closely the
86% and have remained relatively stable at 92-94% levels growth/contraction of Singapore’s GDP.
despite the global economic crisis in 2008-2009.
Demand/ Supply of Warehouse Space vs GDP
Stock of Warehouse Space - Islandwide 6.0
mil sq f t % G row t h Y oY
12%
Annual Supply
80 94%
Annual Demand 10%
5.0 GDP Growth RHS
70 92%
8%
60
90% 4.0
6%
50
88%
m sqft

40 3.0 4%
86%
30 2%
84% 2.0
20
0%

10 82%
1.0
-2%
- 80%
2000Q1 2001Q3 2003Q1 2004Q3 2006Q1 2007Q3 2009Q1 - -4%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009F 2010F 2011F
WH Space Occ
Source: URA, DBS Vickers
Source: URA, DBS Vickers
Further new supply – largely pre-committed. A total of 6.2msf
Global recession in 2008-2009: weakness in rents/occupancy.
of warehouse space (8% increase in warehouse inventory) is
Weakness in average warehouse occupancy and rental rates
expected to complete over the next few years. Out of this
observed in recent quarters (starting from 4Q08 – 3Q09), can
supply, we estimate that 70-75% of this space could be
be largely attributed to weaker trade demand attributable to
potentially pre-committed or demand driven. This is based on
the global financial crisis.
the assumption that spaces termed as “single user” warehouse
development is driven by demand for more space and fully
Warehouse Capital Value and Rental Index vs GDP
taken up by its user.
140 20%
(X)
Projected Total New Supply of Warehouse Space
120 15%
Total Space New supply % of Current
msf) (msf) supply 100 10%
Warehouse 73.8 6.2 8%
80 5%
Source: URA, Areit, DBS Vickers
60 0%
Selected Major New Warehouse Space
Total Space (msf) % of new supply 40 -5%
Big Box at Jurong East by TT
Intl (some delay expected) 1.0 16% 20 -10%
Warehouse at Jurong Pier by
Yang Kee Holdings 0.9 15% 0 -15%
Warehouse at Jurong Pier by 1998Q4 2000Q2 2001Q4 2003Q2 2004Q4 2006Q2 2007Q4 2009Q2
C&P holdings 0.7 11% WH Price Index WH Rental Index GDP Growth YoY RHS
Warehouse at Mandai Estate 0.5 8% Source: URA, MTI, DBS Vickers
Mixed Development at Mandai
Estate – CMM Marketing
Mgmt Pte Ltd 0.3 5%
Warehouse at Simei by
Storhub Self Storage 0.3 5%

Source: URA, DBS Vickers

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 Company Focus
Cache Logistics Trust

Driving up all the way in all weather conditions. The distinctive

Uptrend in rentals and capital values. On the back of recovering feature of ramp-up warehouse is in its ramp that allows two-
GDP and improving trade conditions, rentals for and capital way access for 45-foot container trucks to deliver/load goods to
values for warehouse spaces have remained stable and inched warehouse facilities at every floor in all weather conditions. This
up slightly in 1Q10. We expect rental and occupancy levels for is significantly different from conventional cargo-lift warehouses
warehouse facilities to remain relatively resilient moving where trucks will have to queue and wait for available lift space
forward. to send their goods up to their dedicated section of the
warehouse.
Warehouse Rental and Occupancy
94 % S$ psf pm 2.0 Schenker Megahub (CLT portfolio)
Occupancy LHS 1.8
92 Rental RHS
1.6
90 1.4
1.2
88
1.0
86
0.8

84 0.6
0.4
82
0.2
80 -
1998Q4 2000Q2 2001Q4 2003Q2 2004Q4 2006Q2 2007Q4 2009Q2

Source: URA, DBS Vickers Source: Company, DBS Vickers

Limited in supply – 3.8% of total industrial space. The total

Ramp-up warehouses – Unique specs space of ramp-up warehouse in Singapore is estimated at about
15.3m sqft, which constitutes only 19% of total warehouse
inventory and 3.8% of the total industrial supply in Singapore.
Ramp-up warehouses are also primarily located in major
What are ramp up warehouses? Ramp-up warehouses are
logistics zones near the sea/airports at the Western and Eastern
similar to conventional multi-storey warehouse developments
part of Singapore – at Airport Logistics Park of Singapore (ALPS)
but with a ramp that allows direct vehicular access to all
near Changi Airport, and in Penjuru area near the Jurong Port
warehouse units at each level. One of the earlier ramp-up
so as to expedite the ease and efficiency of transport.
warehouse developments in Singapore was the Jurong logistics
Hub at Jalan Buroh (near Jurong Port). This asset currently Breakdown of Industrial Space Supply by Type
resides within Mapletree Logistics Trust portfolio.
Multiple User Factory
Jurong Logistics Hub (Mapletree Logistics Trust) 23%
Ramp-up
21%
Warehouses
19%
Other
warehouse
Business Parks 79%
3%

Single User Factory

55%

Source: URA, Colliers, DTZ, DBS Vickers

Source: MLT website, DBS Vickers

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 Company Focus
Cache Logistics Trust

Major Locations of Ramp-up Warehouses Average Warehouse Occupancy as of 3Q09

Estimated Ramp-up
warehouse stock as of 3Q09 100%
(msf)
East 95%
Airport Logistics Park of Singapore
(ALPS) 3.2
Civil Aviation Authority of Singapore 90%
(CAAS) Megaplex 0.3
Changi North 0.8
Changi South and Changi Lane 0.6 85%

West
Jalan Nuroh 1.8 80%
Penjuru 6.4 Islandwide Changi Jurong Tuas Ramp-up
Tuas 2.0
Source: Colliers, DBS Vickers
Toh Tuck 0.2
Total Stock 15.3
Source; DBS Vickers, Colliers Ramp-up warehouses demonstrated resilience. These
warehouses also enjoyed relative resilience through the recent
Limited new supply. The relatively large size and shape crisis in 2008-2009. This was reflected in Jurong Logistics Hub
requirement of each property development is both its selling performance (in the portfolio of publicly listed Mapletree
and limiting factor. While the size allows for the storage of large Logistics Trust (MLT) since 2006) over the period with
and bulky items, the need to have large land parcels of a occupancy levels trending upwards and rents remaining stable.
specific shape in order to construct these properties in land-
scarce Singapore limits the development of future ramp-up Case Study: Jurong Logistics Hub operational performance
Occupancy Revenues Average Rent ($
warehouse.
(%) ($m) psf/mth)
2006 96.4% 2.8* 1.05
According to property consultant Colliers, new supply of ramp-
2007 99.8% 14.7 1.03
up facilities entering the market in the next 3 years is estimated
2008 99.7% 16.5 1.03
at about 1.5 msf (or c10% of current supply) at 2 locations.
2009 96.6% 17.3 1.04
* Note: Partial recognition (purchased in Oct 06)
Resilient demand from end users for ramp-up developments. Source: MLT annual reports, DBS Vickers
Users, especially logistics service providers and manufacturers
have accepted the ramp-up warehouse concept, given the Sustained demand for ramp-up warehouse facilities. Looking
attractiveness of having direct vehicular access to the ahead, with an improved economic outlook and global trade
warehouse. This modern feature translates to more efficient use environment, we believe that demand for warehouse space will
of various floors of space, ease of delivering goods straight to continue to be strong. In addition to this, the operational
specific loading docks at respective warehouse units, allowing efficiencies of ramp-up warehouses stand out and we believe
fast and efficient loading, resulting in improved operational this will translate to strong demand for such space.
efficiency, effective allocation of manpower and resources, and
cost and time savings. In addition, given the lack of significant competition from new
supply and the lack of large land parcels allocated for such use,
Strong utilization rates of 98%. Utilization levels at ramp-up it is expected that occupancy levels and rentals for ramp up
warehouses are relatively high, evidenced by the better than logistics warehouses will be sustainable in 2010.
average occupancies of c98% as of 3Q09 amongst ramp-up
warehouses. This is higher than the average occupancy of
average warehouse properties in Jurong and Tuas.

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 Company Focus
Cache Logistics Trust

Financials – Income Statement • Interest cost assumed at 4.5%. Interest cost is

expected to remain relatively stable. CLT has secured
• Steady 1.5% growth in topline. CLT’s rental income is financing facilities at an average all in rate of 4.5% pa
expected to grow by 1.5% annually due to an annual (inclusive of upfront fee capitalized at 0.8% pa and margin).
escalation clause built into its master lease arrangements. This
will provide secure organic growth for CLT over the next five As the majority of CLT’s operational expenses are fixed,
years. It is to be noted that for FY10F, we have pro-rated the variability in earnings and distributable income will hinge on
earnings to 8 months given that CLT was listed back in April changes in borrowing costs. In our analysis, every 25 bps
2010. increase/decline in borrowing costs will decrease/increase
distributable income by c1.0-1.1%.
• Contribution from S$100m acquisition assumption in
FY11. We have included in our forecasts contribution from a Sensitivity of Interest Rate Changes on Distribution Income
S$100m sized acquisition pegged to a net property income FY10* Chg FY11 Chg FY12 Chg
yield of 8.0%. This will boost CLT net property income by -50bps 33.8 2.1% 53.0 2.1% 54.8 2.1%
13% (compared against FY10F annualized income of S$59m) -25bps 33.4 1.0% 52.5 1.1% 54.2 1.0%
Base 33.1 NA 52.0 NA 53.7 NA
+25 bps 32.8 -1.0% 51.5 -1.1% 53.2 -1.0%
• Net property income margins of 97%. Due to the
+50 bps 32.4 -2.1% 51.0 -2.1% 52.6 -2.1%
triple net lease arrangements with the respective master
* pro-rated as listing is in April 2010.
lessees, CLT will only need to incur the property management
Source: DBS Vickers
fees accruing to the property manager. These fees, will
consist mainly of (i) property management fees – which is
• Distribution income – 100% till 2011. CLT’s
based on 2% of gross rental of its property and (ii) lease
distribution policy is to distribute 100% of its taxable income
management fees, which is based on 1% of the gross rental
and tax-exempt income up to 31 Dec 2011. There after, CLT
of its property and (iii) reimbursable expenses. The manager
will distribute at least 90% of its taxable and tax-exempt
has waived the lease management fee in relation to the initial
income. We have assumed CLT to maintain a 100% payout in
portfolio for a period of 3 years.
our forward forecasts post 2011.

Statement of Total Return (S$ m)

FY Dec 2010F* 2011F 2012F

Gross revenue 37 68 69
Property expenses (1) (1) (1)
Net Property Income 36 67 68
Other Operating expenses (4) (7) (6)
Other Non Opg (Exp)/Inc 0 0 0
Net Interest (Exp)/Inc (6) (13) (13)
Exceptional Gain/(Loss) 0 0 0
Net Income 26 47 48
Tax 0 0 0
Minority Interest 0 0 0
Preference Dividend 0 0 0
Net Income After Tax 26 47 48
Total Return 43 47 48
Non-tax deductible Items (10) 5 6
Net Inc available for Dist. 33 52 54

Revenue Gth (%) N/A 84.8 1.5

N Property Inc Gth (%) N/A 84.8 1.5
Net Inc Gth (%) N/A 76.7 3.5
Dist. Payout Ratio (%) 100.0 100.0 100.0

* Pro-rated , taking into account listing in Apr 2010

Source: Company, DBS Vickers

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 Company Focus
Cache Logistics Trust

Financials –Balance Sheet
• Property value of $729.9m. Our FY10 balance sheet,
includes the following assumptions: i) CLT will purchase the
initial portfolio at $713.2m, representing a c2% discount to
independent valuations, ii) CLT to revalue the properties up to
its independent valuations (as of latest date) iii) inclusive of
capitalized acquisition costs, total property value works out to
be $730.7m.
• Loan facilities lined up. We would like to note that CLT
has in place a loan commitment from Macquarie Bank Ltd,
Standard Chartered Bank and DBS Bank secured over the
properties totaling c$225.2m (consisting of a TLF of up to
$200.3m and a RCF of $25m) and will mature 4 years from
the date of the first draw-down.
CLT has drawn down S$191m of its current existing facilities,
and we have assumed an all in cost of 4.5% in our models.

• Total loan of $191m. We have assumed that CLT will • Asset acquisition of S$100m in FY11F. We have assumed
draw down $191m as part consideration to purchase the a S$100m debt funded acquisition in our forward estimates.
initial portfolio inclusive of upfront costs. This is expected to bring gearing up to 35% level.

Balance Sheet (S$ m)

FY Dec 2010F 2011F 2012F

Investment Properties 731 832 832

Other LT Assets 0 0 0
Cash & ST Invts 9 9 8
Inventory 0 0 0
Debtors 1 1 1
Other Current Assets 0 0 0
Total Assets 740 842 841

ST Debt 0 100 100

Other Current Liabilities 3 5 5
LT Debt 191 196 201
Other LT Liabilities 0 0 0
Unit holders’ funds 546 541 535
Minority Interests 0 0 0
Total Funds & Liabilities 740 842 841

Non-Cash Wkg. Capital (2) (4) (4)

Net Cash/(Debt) (182) (287) (293)

Source: Company, DBS Vickers

Page 17
 Company Focus
Cache Logistics Trust

and wear and tear. We have also assumed a further $1m

Financials – Cash flow Statement capex in year 10 for additional replacement of capital
equipment.
• Capex requirement. CLT will be responsible for the
structural repairs/replacement of structural parts of the • Distributions – up to 112% of operating CF.
buildings and the replacement of electrical and mechanical Distributions amount to approximately 112% of net income
items. Given that the buildings are relatively new and that as part of the manager’s fees are payable in units.
the lease terms are on a triple-net basis, capital expenditure
is expected to be minimal, and forecasted to be c$1.7m
over the next 2 years. In addition, we have assumed an
annual capital expenditure of S$0.6m for structural M&E

Cash Flow Statement (S$ m)

FY Dec 2010F 2011F 2012F

Pre-Tax Income 26 47 48
Dep. & Amort. 0 0 0
Tax Paid 0 0 0
Associates &JV Inc/(Loss) 0 0 0
Chg in Wkg.Cap. 2 2 0
Other Operating CF 0 0 0
Net Operating CF 28 48 48

Net Invt in Properties (714) (101) (1)

Other Invts (net) 0 0 0
Invts in Assoc. & JV 0 0 0
Div from Assoc. & JVs 0 0 0
Other Investing CF 0 0 0
Net Investing CF (714) (101) (1)

Distribution Paid (33) (52) (54)

Chg in Gross Debt 191 105 5
New units issued 536 0 0
Other Financing CF 0 0 0
Net Financing CF 694 53 (49)
Net Cashflow 9 0 (1)

Source: Company, DBS Vickers

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 Company Focus
Cache Logistics Trust

Financials – ROE Drivers

• High operating income margins of 98% in FY10-11F.
As CLT’s rental income are on a triple-net basis, net
operating income margins is expected to remain high at
98% going forward ( less of fee payable to property
manager).
• Interest cover of over 4.5x. Interest cover is expected to
remain well over 4.5x in forward years even after assuming
S$100m worth of added acquisitions, indicating strong
financial health of CLT with minimal stress on debt
covenants going forward.

• Gearing assumed to head towards 35%. CLT’s current

gearing level of 26% is low compared to S-REIT peers
average of 32%, it is projected to head up towards c35%
level in FY11F post acquisitions.

Rates & Ratio

FY Dec 2010F 2011F 2012F

Net Prop Inc Margins (%) 98.0 98.0 98.0

Net Income Margins (%) 71.4 68.3 69.6
Dist to revenue (%) 89.3 76.3 77.8
Managers & Trustee’s fees 10.4 10.2 9.0
to sales (%)
ROAE (%) 9.6 8.6 8.9
ROA (%) 7.1 5.9 5.7
ROCE (%) 8.8 7.6 7.4
Int. Cover (x) 5.4 4.5 4.6
Current Ratio (x) 3.7 0.1 0.1
Quick ratio (x) 3.7 0.1 0.1
Aggregate Leverage (%) 26.1 35.6 35.2
Operating CFPS (S cts) 4.2 7.3 7.5
Free CFPS (S cts) (108.3) (8.3) 7.4

Source: Company, DBS Vickers

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 Company Focus
Cache Logistics Trust

Valuation
Initiate with BUY, TP S$1.05 based on DDM. We initiate
coverage on CLT with a target price of S$1.05 based the
dividend discount method (DDM). We believe that DDM is
an appropriate valuation metric as its distribution income is
projected to be steady and as such, readily quantified.
Distributions amount to approximately 112% of net income
as part of the manager’s fees are payable in units.
Our base case DDM model uses distribution payment
forecasted for the next 10 years, 100% payout ratio and is
discounted by a cost of equity of 8.48% (Risk free rate
assumption of 3.25%, beta of 0.85x).
Total return of 19%. Our target price of S$1.05 offers a
total return of 19% from last closing price of S$0.95 backed
by a solid FY10F -11F dividend yield of annualised 8.0-8.6%

Dividend Discount Model

FYE Dec ($m) 10F 11F 12F 13F 14F 15F 16F 17F 18F 19F Terminal
Value
Dist inc 33.4 52.0 53.7 53.7 54.5 55.2 55.7 56.1 56.6 57.0 796.5
Discounted dist inc 30.7 44.2 42.0 38.8 36.3 33.9 31.5 29.3 27.2 25.3 352.1

Number of units (m) 634.4 638.3 642.1 646.0 649.9 653.8 657.8 661.7 665.6 669.6 669.6

PV of dist inc 339.2

PV of terminal value 352.1
Total 691.3

Ave no of units 654.9

DDM/unit 1.05

Assumptions
Risk free rate 3.25%
Mkt risk premium 6.2%
Beta 0.85x
Cost of equity 8.5%
Debt / Equity ratio 30/70
Cost of debt 4.5%
Terminal Growth 1%
Source: DBS Vickers

Page 20
 Company Focus
Cache Logistics Trust

S-REIT peer valuation

Share Rec'd Target Upside DPU Yield (%) P/Bk NAV
Price Price
($) (S$) (%) FY09 FY10 FY11 (x)
@
Office 09/06/10
Frasers Commercial Trust 0.14 HOLD 0.16 14% 4.3% 7.9% 8.6% 0.52
CapitaCommercial Trust 1.15 HOLD 1.24 8% 6.2% 6.1% 5.8% 0.84
K-REIT 1.08 HOLD 1.17 8% 8.1% 6.4% 6.1% 0.73
Office Sector Average 6.2% 6.8% 6.8% 0.70

Retail/Mixed
CapitaMall Trust 1.82 BUY 2.02 10% 4.8% 5.1% 5.2% 1.19
CapitaRetail China Trust 1.20 HOLD 1.20 0% 6.7% 7.0% 7.1% 1.09
Frasers Centrepoint Trust 1.31 BUY 1.63 24% 5.8% 6.2% 6.4% 1.06
Starhill Global Reit 0.54 BUY 0.73 35% 10.4% 7.4% 8.1% 0.66
Suntec REIT 1.31 BUY 1.47 12% 9.0% 7.4% 7.1% 0.73
Retail/Mixed Average 7.3% 6.6% 6.8% 0.95

Industrial
A-REIT + 1.82 HOLD 2.11 16% 7.1% 7.5% 7.8% 1.17
Ascendas India Trust + 0.93 BUY 1.14 23% 8.1% 8.6% 9.3% 1.03
Mapletree Logistics Trust 0.83 BUY 0.93 13% 7.3% 7.4% 7.8% 0.93
Cambridge Ind Trust 0.48 BUY 0.54 13% 10.9% 10.5% 10.3% 0.81
Industrial Average 8.4% 8.5% 8.8% 0.98

Hospitality
Ascott Residence Trust 1.09 BUY 1.44 32% 6.6% 6.9% 7.7% 0.83
CDL Hospitality Trust 1.71 BUY 2.20 29% 5.0% 6.7% 7.3% 1.20
Hospitality Average 5.8% 6.8% 7.5% 1.01

Healthcare
Parkway Life 1.36 BUY 1.51 12% 5.7% 6.0% 6.1% 0.99

S-REIT Sector 6.7% 6.9% 7.2% 0.92

Cache Logistics Trust 0.95 BUY 1.05 11% - 8.0%* 8.6% 1.08

+ DPU estimates for Areit and Ascendas India is based on FY10/FY11/FY12

* Annualized based on a DPU of 5.2 Scts
Source: DBS Vickers, Companies

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Cache Logistics Trust
Appendix A: List of CLT’s directors
Board of Directors
Name
Mr Lim How Teck
Mr Lim Hwee Chiang John
Mr Liao Chung Lik
Mr Jimmy Yim Wing Kuen
Ms Stefanie Yuen Thio
Mr Moses K. Song
Source: Manager, DBS Vickers
Page 22
Appointment Current Occupation
Chairman and Independent Mr Lim is the Chairman of Certis CISCO Security Pte. Ltd., Deputy Chairman of Tuas
Director Power Ltd and an Independent Non-Executive Director of ARA, Eng Kong Holdings
Limited, IFS Capital Limited, Lasseters International Holdings Limited and Mermaid
Maritime Public Company Limited. In addition, he is an Independent Non-Executive
Director of M&C REIT Management Limited (manager of CDL Hospitality REIT), M&C
Business Management Limited (trustee-manager of CDL Hospitality Business Trust),
MacarthurCook Investment Managers (Asia) Limited (manager of MacarthurCook
Industrial REIT), Rickmers Trust Management Pte. Ltd. (trustee-manager of Rickmers
Maritime) and a governor of the Foundation for Development Cooperation.
Non-Executive Director Mr Lim is the Group Chief Executive Officer and an Executive Director of ARA. He is
also a Director of ARA Asset Management (Singapore) Limited (manager of Fortune
REIT), ARA Trust Management (Suntec) Limited (manager of Suntec REIT), ARA Asset
Management (Prosperity) Limited (manager of Prosperity REIT listed in Hong Kong) and
Am ARA REIT Managers Sdn. Bhd. (manager of AmFIRST REIT listed in Malaysia) and
Chairman of APM Property Management Pte. Ltd. and Suntec Singapore International
Convention & Exhibition Services Pte. Ltd.
Mr Lim brings to the board more than 28 years of experience in real estate. Prior to
founding ARA, from 1997 to 2002, he was an Executive Director of GRA (Singapore)
Pte. Ltd., a wholly-owned subsidiary of Prudential (US) Real Estate Investors.
Non-Executive Director Mr Liao is a Director of CWT Limited and a number of private companies. He is
currently the Deputy Group Managing Director of C&P Holdings Pte Ltd, in charge of
the Group’s finance and assisting the Group Managing Director in overseeing the
activities of the Group. In 1994, Mr Liao was promoted to Deputy Managing Director
of the C&P Group to assist the Managing Director of the C&P Group in the day-to-day
running of the C&P Group. In October 2004, Mr Liao assisted the Managing Director
of the C&P Group in the successful acquisition of CWT Limited.
Independent Director Mr Yim sits on the Boards of Concord Energy Pte Ltd, CWT Limited, Twentieth Century
Fox Film (East) Pte Ltd, Alife Ltd, Low Keng Huat (Singapore) Ltd and Singapore
Medical Group Limited. He is currently the Managing Director of the Litigation &
Dispute Resolution Department of Drew & Napier LLC, a leading legal practice in
Singapore, established since 1889. He was admitted to the Singapore Bar in 1983 and
is one of the earliest batches of Senior Counsel being appointed in January 1998. His
practice covers a range of civil and commercial law, criminal law and international
commercial arbitrations.
Independent Director Ms Thio is the joint managing director of TSMP Law Corporation and is the head of its
corporate practice. She was admitted to the Singapore Bar in 1994 and her areas of
expertise include mergers and acquisitions, equity capital markets, corporate
transactions and regulatory advice. Her clients have included logistics companies, real
estate investment trusts and real estate investment trust managers. Prior to joining
TSMP Law Corporation in 1998 when it was established, she practised law at Khattar
Wong & Partners from 1994 to 1996, and thereafter at Yeo Wee Kiong & Partners
from 1996 to 1998. Ms Thio graduated from the National University of Singapore with
an LLB (Hons) degree in 1993.
Non-Executive Director Mr Moses K. Song has extensive experience in Asian real estate both in a principal
investing and legal advisory capacity. He is currently the Director, Corporate Business
Development of ARA, responsible for leading the business development efforts of the
ARA Group.Prior to joining ARA in 2009, Mr Song was a Principal and served as the
Chief Operating Officer of Lubert-Adler Asia Advisors Pte. Ltd., the Asia investment
platform of US-based real estate private equity firm Lubert-Adler Partners, L.P., where
he was responsible for North Asia investment opportunities.
 Company Focus
Cache Logistics Trust

Appendix B: Portfolio Property Descriptions

CWT Commodity Hub
CWT Commodity Hub

One giant in Penjuru. CWT Commodity Hub is located

within the Penjuru / Pandan area in the Jurong Industrial
Estate, one of Singapore’s key logistics clusters within the
Jurong Industrial Precinct. It is in close proximity to the PSA
Terminals, Jurong Port, Jurong Island and is well served by
major roads, expressways and the public transport system.

CWT Commodity Hub is the largest and newest warehouse

in Singapore and one of the largest in Southeast Asia,
spanning close to 2.3 m sq ft of GFA over 5 levels in 2
adjoining warehouse buildings served by a vehicular ramp in Source: Manager, DBS Vickers
the center. The integrated warehouse complex includes
CWT Commodity Hub Location
ramp-up warehouses with mezzanine offices and office
annex, as well as a 120k sq ft ancillary container yard.

The property has an average floor plate of 448,000msf GFA

per storey, allowing users greater efficiencies in
consolidating and stacking their goods in one area.
Jurong Port CWT
Commodity
LME approved space. Approximately 100,000msf of GFA is Hub

licensed as LME approved warehouse space for metals.

CWT’s subsidiary, CWT Commodities (Metals) Pte Ltd is one
of a total of 26 LME licensed operators globally, most of
which are in Europe as at 30 Sept 2009.

Source: Manager, DBS Vickers

Selected property information

(1)
Occupancy by end-users 90.6%
Property Type Ramp-up logistics facility
Lease Tenure JTC leasehold of 29 years from 19 August 2006
Land Area 918,399 sf
(2)
Gross Floor Area 2,295,994 sf
Container Yard Area 120,000 sf
Valuation by CBRE $324.9 m
Valuation by Knight Frank $326.1 m
Average Valuation $325.5 m
Purchase Price $323.0 m
Note:
(1) This does not include the part of Phase 2 of CWT Commodity Hub which received the temporary occupation permit on 28 September 2009 and 19 October 2009
(2) The GFA does not include CWT Commodity Hub’s total container yard area of 120,000 sq ft.
Source: Manager, DBS Vickers

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CWT Cold Hub

CWT Cold Hub

Only one in Singapore. CWT Cold Hub is located within a

food zone that is close to the Fishery Port (with close
proximity to food processing facilities), the PSA Terminals
and Jurong Port. It is also well connected to major
expressways (AYE and the Jurong East MRT station).

The 2-storey ramp up facility is also equipped with a modern

cold storage facility with variable temperature control for a
variety of food usages. The combination of having such a
modern cold store facility in close proximity to sea ports is
extremely rare in Singapore due to land zoning constraints
and high barriers to entry due to construction costs. Source: Manager, DBS Vickers

Unbroken cold chain access. CWT Cold Hub offers users CWT Cold Hub location
unbroken cold chain access (i.e. goods being moved are not
exposed to ambient temperatures) while moving goods in CWT Cold H ub

and out of the warehouse, resulting in a significant

competitive advantage for the storage and distribution of
frozen goods.

Additional space available for conversion to cold storage.

CWT Cold Hub also has 117,664 sf of ambient warehouse
space, which can be easily converted to cold storage space Jurong Port

when given suitable demand.

Source: Manager, DBS Vickers

Selected property information

Occupancy by end-users 94.4%
Property Type Ramp-up cold storage logistics facility
Lease Tenure JTC Leasehold of 30 + 30 years from 20 December 2005
Land Area 254,904 sf
Gross Floor Area 341,944 sf
Cold Room: 158,882 sf
Ambient Warehouse: 117,664 sf
Ancillary Office and Service Area: 65,398 sf
Valuation by CBRE $130.0 m
Valuation by Knight Frank $129.1 m
Average Valuation $129.6 m
Purchase Price $122.0 m
Source: Manager, DBS Vickers

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Cache Logistics Trust

Schenker Megahub
Schenker Megahub

Single User 3PL facility. Schenker Megahub, located at 51

ALPS Avenue, is the largest freight and logistics property
located at the ALPS, a 26 hectare Free Trade Zone (FTZ)
adjacent to Changi Airport. ALS offers a location where 3PLs
and international freight forwarders can leverage on the
proximity and connectivity to Changi Airport for a quick
turnaround of value-added logistics and regional distribution
activities. Schenker Megahub houses Schenker’s Asia- Pacific
headquarters.

Mixed development. Schenker Megahub is a purpose-built

eight-storey ramp-up logistics facility comprising four levels
Source: Manager, DBS Vickers
of warehouses and an eight-storey office block. The building
offers temperature and humidity controlled facilities Schenker Megahub location
including pharmaceutical, nutritional storage rooms and
cold rooms.

Schenker Megahub caters to the handling of pharmaceutical

and healthcare products and ground floor warehouse space
with grade-level loading bays specifically designed for the
warehousing and supply chain needs of the aerospace
sector in Singapore.

Limited supply in ALPS. The ALPS is almost fully occupied by

3PLs and has limited potential for incumbent competing Schenker Me gahub
supply with only one unallocated plot of 2.57 hectare
remaining. This piece of land is triangular in shape, and
Source: Manager, DBS Vickers
represents 9.9% of total land area at ALPS.

Selected property information

Occupancy by end-users 100%
Property Type Ramp-up logistics facility
Lease Tenure JTC Leasehold of 30 + 30 years from 1 June 2005
Land Area 220,143 sf
Gross Floor Area 439,956 sf
Valuation by CBRE $100.8 m
Valuation by Knight Frank $101.2 m
Average Valuation $101.0 m
Purchase Price $99.0 m
Source: Manager, DBS Vickers

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Cache Logistics Trust

C&P Changi Districentre

C&P Changi Districentre

Located in Eastern logistics hub. C&P Changi Districentre

is located along Changi South Lane and is approximately
15 km from the city centre. It is situated within the
Changi International LogisPark (South), which is one of
Singapore’s most established logistics clusters.

Located near Changi international airport. This logistics

cluster is strategically located near Changi Airport and
is dedicated to logistics companies that require
connectivity and proximity to the airport and is a
choice location for internationally-renowned logistics
specialists. Developments in the vicinity comprise Source: Manager, DBS Vickers
purpose-built warehouses and factory buildings that C&P Changi Districentre location
are generally engaged in the air-freight logistics/
distribution trade.

It is well served by expressways/ major roads such as

the East Coast Parkway (“ECP”), Pan-Island
Expressway (“PIE”), Xilin Avenue and Upper Changi
Road and is within close proximity to Changi Airport.

There is no additional potential supply at Changi

LogisPark (South) expected because all the land plots
have been fully allocated.

Highly functional warehouse. C&P Changi Districentre

is a modern six-storey ramp-up warehouse facility with
modern specifications and is one of the only two Source: Manager, DBS Vickers
ramp-up warehouses in Changi International LogisPark
(South). It comprises a warehouse, 53 covered loading
bays and associated mezzanine offices from its first to
fifth storey and one whole level of office space at its
sixth storey. It is a highly functional warehouse facility.

Selected property information

Occupancy by end-users 100%
Property Type Ramp-up logistics facility
Lease Tenure JTC Leasehold of 30 + 30 years from 16 August 2005
Land Area 145,750 sf
Gross Floor Area 364,278 sf
Valuation by CBRE $83.4 m
Valuation by Knight Frank $83.2 m
Average Valuation $83.3 m
Purchase Price $82.0 m
Source: Manager, DBS Vickers

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Hi-Speed Logistics Centre

Hi-Speed Logistic Centre

Location in a FTZ near Changi Airport. Hi-Speed Logistics

Centre is located at 40 ALPS Avenue, a 26 hectare Free
Trade Zone (FTZ) adjacent to Changi Airport. ALS offers a
location where 3PLs and international freight forwarders can
leverage on the proximity and connectivity to Changi Airport
for quick turnaround of value-added logistics and regional
distribution activities.

Highly functional. The warehouse comprises of four levels of

warehouse space and seven levels of office space. The
warehouse floors are vertically accessed via a combination
of ramp and cargo lift facilities. Source: Manager, DBS Vickers

Home to Nippon Express. Hi-Speed Logistics Centre is the Hi-Speed Logistics Centre location
national head office and air cargo branch of Nippon
Express (Singapore) Pte Ltd whose operations include
warehousing, international freight transportation,
inventory management, trade facilitation, regional
transhipment, vendor-managed inventory and hubbing
solution concepts are conducted.

Limited supply in ALPS. The ALPS is almost fully occupied by

3PLs and has limited potential new competing supply with
only one unallocated plot of 2.57 hectare remaining. This
piece of land is triangular in shape, and represents 9.9% of
total land area at ALPS.
Source: Manager, DBS Vickers

Selected property information

Occupancy by end-users 100%
Property Type Ramp-up logistics facility
Lease Tenure JTC Leasehold of 30 + 30 years from 16 August 2005
Land Area 161,459 sf
Gross Floor Area 308,626 sf
Valuation by CBRE $70.7 m
Valuation by Knight Frank $70.9 m
Average Valuation $70.8 m
Purchase Price $69.5 m
Source: Manager, DBS Vickers

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Cache Logistics Trust

C&P Changi DC II
C&P Changi Districentre II

Located in Eastern logistics hub. C&P Changi DC II, which is

located at 3 Changi South Street, is a highly functional
cargo lift logistics facility comprising three levels of
warehouse and a four-storey ancillary office building.
Located within the Changi International LogisPark (South),
which is a 43-hecture hub and one of Singapore’s most
established logistics clusters.

Choice location – near the international airport. This

logistics cluster is strategically located near Changi Airport
and is dedicated to logistics companies that require
connectivity and proximity to the airport and is a choice Source: Manager, DBS Vickers
location for internationally-renown logistics specialists. It is
well served by expressways/ major roads such as the East C&P Changi DC II location
Coast Parkway (ECP), Pan-Island Expressway (PIE), Xilin
Avenue and Upper Changi Road and is within close
proximity to Changi Airport.

There is no additional potential supply at Changi LogisPark

(South) expected because all the land plots have been fully
allocated.

C&P Changi DC II

Source: Manager, DBS Vickers

Selected property information

Occupancy by end-users 79.4%
Property Type Cargo-lift logistics facility
Lease Tenure JTC Leasehold of 30 + 30 years from 16 February 1996
Land Area 65,762 sf
Gross Floor Area 105,945 sf
Valuation by CBRE $19.7 m
Valuation by Knight Frank $19.8 m
Average Valuation $19.8 m
Purchase Price $17.7 m
Source: Manager, DBS Vickers

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Cache Logistics Trust

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10 to +15% total return over the next 12 months for small caps, -10 to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

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 Company Focus
Cache Logistics Trust

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