Cache Logistics Trust - DBS Research 2017-01-24: Net Asset Value Down, Gearing Up

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Net Asset Value Down, Gearing Up

FY16 DPU 7.73Scts missed expectations; down 9% y-o-y due to lower rents and enlarged unit base.
NAV fell 11.4%, lifting gearing to 43.1%.
Divestment of DC3 to repay debt and potential equity fund raising to address high gearing.
TP revised down to S$0.77 from S$0.93, and DPU forecast trimmed by 3-5%.
Maintain HOLD.

We maintain our HOLD call due to the uncertainty of the outcome regarding the Schenker dispute, potential revaluation loss, and possible equity fund raising to address its high gearing.
We have also trimmed DPU estimates for the next two years by 3-5% mainly due to the divestment of Cache Changi Districentre 3 (DC3).
Our DPU estimate for FY17F is 7.26Scts (vs 7.51Scts previously). We think NAV could decline further.
While yields are attractive at above 9%, we believe that uncertainties owing to the oversupply in the overall Singapore warehouse market and more pressure on Cache’s organic growth outlook will cap re-rating opportunities.

We expect pressure on earnings arising from the holding arrangement with Schenker in relation to 51 Alps Avenue until the Court’s final judgement of the dispute.
In the interim, Cache has agreed to receive in “protest” Schenker’s rent of S$0.77 per square foot per month until further resolution. Under the worst-case scenario, FY17F DPU could drop by 4.0% to 7.0Scts.

As anticipated, further property write offs led to NAV being slashed by 11.4% in FY16, and this pushed gearing up to 43.1% (vs 45% regulatory cap).
Assuming sales proceeds from DC3 is used to pay off debts, gearing would have only moderated to c.42% which is still above management’s comfortable level of 35-40%. We believe that the Manager will undertake an equity fund raising and/or divest more assets to pare down its gearing. Depending on the strategy, DPU dilution is possible, and is factored in our model.

Our DCF-based TP was revised down to S$0.77 (0.99x P/NAV) from S$0.93 (1.12x P/NAV).
FY17-18F DPU trimmed by 3-5%.

Schenker’s rent dispute. The rent dispute is pending the Court’s resolution. Further price pressure ahead if the Court rules to settle the rent significantly below market price.

Singapore Research Team DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2017-01-24

DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.77 Down 0.930