Cache Logistics Trust - What are the possible implications with the impending takeover of CWT?
- We expect it to be business as usual for CACHE, unless there is a major restructuring at CWT level.
- In addition, the ROFR pipeline remains intact.
- Now that there is greater clarity over CWT, we expect asset injections to accelerate.
- We also postulate that HNA could inject its assets into CACHE’s platform.
HNA offers to buy CWT for S$1.4bn
- HNA Holding Group (521 HK, Not Rated) has offered to buy CWT (CWT SP, Not Rated) for S$1.4bn or S$2.33/share, representing c.13% premium over the stock’s last trading price on 5 Apr.
- HNA Group is a Chinese conglomerate based in Hainan with businesses ranging from financial services to tourism and aviation. It is also the owner of Hainan Airlines.
- CWT prides itself as Singapore’s largest homegrown logistics provider. Its other businesses include
- commodity marketing,
- financial services and
- engineering services.
- It is also the sponsor of CACHE. Specifically for CACHE, CWT and ARA Asset Management owns 40% and 60% of the REIT manager respectively; and 60% and 40% of the property manager respectively.
Business as usual; asset injections could accelerate
- We expect it to be business as usual for CACHE, unless there is a major restructuring at CWT level. HNA said that it intends to keep CWT’s management team.
- In addition, the ROFR (Rights of First Refusal) pipeline remains intact. There are 16 properties with c.8.2m sq ft of GFA covered by the ROFR. We note that the ROFR shall be granted as long as ARA-CWT Trust Management (Cache) Limited (the REIT manager) remains the manager of CACHE; and CWT remains a controlling shareholder of the manager of CACHE.
- However, now that uncertainty over the future of CWT has lifted, we expect asset injections to accelerate. We believe HNA would undertake capital recycling. We also postulate that HNA could inject its assets into the CACHE platform.
- Amidst the recent talk of a consolidation among small/mid-cap industrial REITs – given that a number of REITs have common shareholders at REIT vehicle, REIT manager or sponsor level – the emergence of HNA is all the more intriguing. But these would have been forethought by the investment bankers. After all, it has disclosed that CWT has been in exclusive talks with HNA for about 12 months.
- Given that CACHE’s gearing as at end-16 stood at 43.1%, a sizeable acquisition would have to be accompanied by equity fund raising. CWT is trading at c.13% above FY16 book.
Reduce maintained with unchanged DDM-based TP
- Pending release of 1QFY17 results on 20 Apr, we maintain our recommendation, target price and forecasts.
- Bottoms up, nothing fundamentally has changed; topdown, we remain cautious on the logistics sector in the near-term due to strong completions in 2017.