Cache Logistics Trust - Divests Cache Changi Districentre 3
- Proposed divestment of Cache Changi Districentre 3 for S$25.5 million.
- Relatively short land lease of 17 years remaining.
- In line with strategy to recycle capital and retire debt.
- Expected completion of transaction by end of December 2016.
- Cache Changi Districentre 3, which is located at 6 Changi North Way, was one of two maiden acquisitions for Cache after its listing in April 2010. The two maiden acquisitions were for 6 Changi North Way and 4 Penjuru Lane (Kim Heng Warehouse), which has since been divested in June 2015.
- Cache Changi Districentre 3 was valued at S$32.0 million on February 28, 2011 and purchased for S$30.9 million on March 31, 2011 through a sale and leaseback agreement with APC Distributors (Pte) Ltd.
- The property was originally listed in the portfolio as APC Distrihub, until it was renamed Cache Changi Districentre 3 in FY15.
How Do We View This?
No impact to FY16e GRI and impact to FY17e GRI is not material
- The property contributed 3.7% of total portfolio gross rental income (GRI) in FY15, but this is overstated due to partial contributions from the Australia properties that were acquired in 1Q and 4Q FY15.
- On a full year basis, Cache Changi Districentre 3 contributes just below 3% of portfolio GRI in FY16e and FY17e, by our estimates.
- There will be no impact to FY16e, as the transaction is expected to be completed by the end of December 2016; we view the 3% impact to annual GRI as being not material.
S$600,000 divestment/revaluation loss to be recognised for the property in 4Q FY16
- The property was valued at S$26.1 million at the end of FY15 and it is now being sold for S$25.5 million, in line with its November 30, 2016 valuation. Overall, the property is now being sold for S$5.4 million less than the original purchase consideration of S$30.9 million.
NPI yield has been much closer to 5% instead of 8% at the time of acquisition
- At the time of acquisition, it was announced on March 14, 2011 that the pair of properties (6 Changi North Way and 4 Penjuru Lane) would have "a combined net property income (NPI) yield of approximately 8.0%".
- Using that 8.0% NPI yield as a baseline and assuming a holding period of 5.75 years (March 31, 2011 to December 31, 2016) for the property, we account for the S$5.4 million difference between the original acquisition consideration and the divestment price to derive an NPI yield of 5% for the holding period.
Modest -2.3% revaluation should not be across the board for end-of-year valuations
- We think that the modest downward revaluation for Cache Changi Districentre 3 for the 11 months between December 31, 2015 and November 30, 2016 is not reflective of what all the properties in the portfolio will encounter at end of the year.
- Specifically, it would not come as a surprise to us if Hi-Speed Logistics Hub, which has been converted to multi-tenancy lease in 4Q FY16, were to be revalued downwards by more than 10%.
Maintain "Neutral" rating with lower DDM valuation of S$0.78 (previous: S$0.81)
- The divestment organically shrinks the portfolio and our lower DDM valuation reflects the absence of the cash flow from this property from January 1, 2017 onwards.
- Our forecast has the cash proceeds retained on the balance sheet, as we await clarity on the use of the divestment proceeds.
- Management will have to weigh between utilising divestment proceeds to
- make capital distribution to smooth out volatility in DPU,
- repay debt to lower aggregate leverage, or
- make new acquisition.
Peer relative valuation
- Cache Logistics Trust is approximately on par with its nearest peer in terms of trailing P/NAV multiple, and has a higher 12M trailing yield.