■ Placing out SGD100m new units at SGD0.941-0.96. Units in issue would expand c.14%.
■ As only SGD37m of proceeds will be for future acquisitions & SGD60m for debt repayment, highly DPU-dilutive.
■ Cut FY15-17 DPU by 4-7% & TP from SGD0.97 to SGD0.95 as we tighten our yield target from 9% to 8.5%. Maintain HOLD. Prefer MINT (MINT SP, TP SGD1.49) for sector exposure.
Cache is placing out SGD100m new units at 94.1-96 Scts each, or 4- 6% discounts to its VWAP the day before, up to the time of its announcement. After deducting SGD3m for issue expenses, SGD37m will be reserved for potential acquisitions in Australia. About SGD60m will be used to repay debt, lowering its aggregate leverage from 39.4% to c.35.5%. As the placement is not connected with any specific acquisition and the money will be largely used for debt repayment, it immediately dilutes DPU. Units in issue will rise c.14%. After factoring in interest savings from reduced debt and extra earnings from an all-debt-funded acquisition in October of a Brisbane warehouse for SGD27.1m (7% NPI yield, 4% pa rental stepup), our FY15-17 DPUs drop by 4-7%.
What’s Our View
Not positive. Apart from dilution, Cache’s pre-placement aggregate leverage was 39.4%, a comfortable distance from REITs’ 45% limit. No debt is expiring until FY17. As such, we don’t see an urgent need for new funds. Its unit price could slip by c.5% to c.SGD0.95 after this announcement, within its placement-price range. This implies an 8.5% yield on our FY16 DPU. As such, we tighten our yield target from 9% to 8.5%, applied to our FY16 DPU, our TP dips to SGD0.95 from SGD0.97. Maintain HOLD. Our yield target for Cache is still at a marked discount to Areit’s 7% and MINT’s 7.25%. (Read Report)