Cache Logistics Trust - Phillip Securities 2017-09-13: Rights Issue To Pare Down Debt

Cache Logistics Trust - Phillip Securities 2017-09-13: Rights Issue To Pare Down Debt CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Rights Issue To Pare Down Debt

  • Launch of 18-for-100 Rights Issue to raise S$102.7mn at 63.2 cents per Rights Unit.
  • Proceeds are to pare down debt, as current 43.4% leverage is close to statutory limit.
  • Higher distributable income on lower interest expense, but DPU lower by 10.9% due to the larger unit base.
  • No acquisition has been announced in conjunction with the Rights Issue.
  • Maintain Neutral, lower target price of $0.82 (previously $0.86).

What Is The News?

  • Cache Logistics Trust (Cache) has launch an underwritten and renounceable 18-for-100 Rights Issue to raise S$102.7mn. 162,565,716 new units will be created in the Rights Issue.
  • Pro forma distribution per unit (DPU) is 10.9% lower, due to the enlarged unit base.

How Do We View This?

Balance sheet significantly strengthened, debt headroom improved 

  • The bulk of the proceeds will be used to pare down debt. Aggregate leverage is expected to reduce to 35.5% from 43.4% (as at 2Q 2017). 
  • We estimate debt headroom of S$238mn after the Rights Issue (assuming 45% target aggregate leverage), compared to existing portfolio value of S$1.24 bn (as at 2Q 2017).

Rights Issue is a pre-emptive move as there is no impending significant debt maturing 

  • Cache does not have any debt maturing in 2017. For 2018, there is A$30.0mn and S$192.0mn of debt maturing. We infer that the bulk of it should be in 2H 2018, as there is only S$6.73mn of current debt reflected in the latest 2Q FY17 balance sheet.
  • Hence, there is no major debt maturing within the next 12 months. There was also no acquisition announced in conjunction with the Rights Issue.
  • In our recent Industrial REITs Sector Report (18 August 2017), we highlighted the negative impact of year-end property valuations on aggregate leverage. We think the Rights Issue could be a pre-emptive move by Cache: either before its aggregate leverage exceeds the statutory limit of 45%, or that the manger is already considering a pipeline of properties for acquisition.

Maintain Neutral; lower target price of $0.82 (previously $0.86) 

  • Changes to our FY17e/FY18e forecast are 6.8%/18.6% lower interest expense, 2.0%/5.3% higher distributable income and larger unit base from the Rights Issue. The net effect is 5.7%/10.5% lower FY17e/FY18e DPU forecast from previous. 
  • Our target price represents an implied FY17e forward P/NAV multiple of 1.09x, which compares against the FTSE REIT Index forward 12-months P/NAV multiple of 1.05x.
  • We also raised our terminal growth assumption to 0.0% from -0.5% due to the execution of the Rights Issue. The lower aggregate leverage results in an improved debt headroom to support inorganic growth.

Relative valuation 

  • Cache is under-valued relative to logistics peers in terms of trailing P/NAV multiple.

Performance Measures of Industrial S-REITs 

  • Cache has the highest aggregate leverage among the Industrial REITs (as at 30 June 2017) and was the only one with an aggregate leverage greater than 40%.

Richard Leow cFTE Phillip Securities | http://www.poems.com.sg/ 2017-09-13
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.82 Down 0.860