Cache Logistics Trust - CIMB Research 2017-09-05: Would It Be A Case Of Déjà Vu?

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Would It Be A Case Of Déjà Vu?

CACHE has announced a rights issue to raise gross proceeds of S$102.7m.
Proceeds would be used to pare down debt.
We expect gearing to decrease to 35.3%. Factoring in S$3.5m interest cost savings p.a. plus the rights issue, we cut our FY17F-19F DPU forecasts by 3.5-10.5%.

Judging from its previous equity fund raising in 2015, we would not be surprised if CACHE acquires Australian assets in the next couple of months.
In the near-term, we expect unit price to come under pressure from this pre-emptive rights issue. Maintain Reduce with a lower DDM-based target price.

CACHE has announced an underwritten and renounceable rights issue of 162.6m new units to raise gross proceeds of S$102.7m (net proceeds of S$2.8m). The rights will be offered at the ratio of 18 rights for every 100 units at S$0.632/right (24.9% discount to theoretical ex-right price).
Both ARA and CWT have provided irrevocable undertakings to subscribe for their respective allotment of rights, which represents 7.3% of the right units.
Ex-date is on 08 Sep 2017.

Proceeds from the rights issue would be used to pare down debt. We note that S$192m of S$-debt would be due in 2019.
Post-completion of the rights, we estimate CACHE’s gearing to decrease to 35.3% (2QFY17: 43.4%). Factoring in S$3.5m interest cost savings p.a. plus the rights issue, we cut our FY17F-19F DPU forecasts by 3.5-10.5%.
We calculate NAV to drop to S$0.743/unit at end-FY17 (2QFY17: S$0.77/unit).

We previously thought the manager could divest its non-core Singapore assets to bring down gearing.
In addition, while we understand that it could be difficult to control timing/ circumstances, we are of the view that accompanying acquisitions with equity fund raising would be more palatable for the market.

Nonetheless, CACHE is continuing its portfolio rebalancing and growth strategy with a focus in Australia. We note that in 2015, CACHE acquired two additional warehouses in Australia within a month or so after its S$100m private placement in Nov.
In its latest acquisition of the Spotlight warehouse in Australia (Feb 17), it managed to time/fund the acquisition with proceeds from the divestment of Cache Changi Districentre 3 in Nov 16.

Judging from its previous equity fund raising, we would not be surprised if CACHE acquires further Australian assets in the next few months to make up for the DPU-dilution from the rights issue.
In the near-term, we expect unit price to come under pressure from this pre-emptive rights issue.
We keep our Reduce call, with a lower DDM-based target price of S$0.76 (on the back of DPU downgrades).
Upside risks to our call would be further accretive-acquisitions and faster recovery in the Singapore logistics market.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-09-05

CIMB Research SGX Stock Analyst Report REDUCE Maintain REDUCE 0.76 Down 0.840