Cache Logistics Trust - OCBC Investment 2017-10-26: Will 51 Alps Be Resolved By Year-end?

Cache Logistics Trust - OCBC Investment 2017-10-26: Will 51 Alps Be Resolved By Year-end? CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Will 51 Alps Be Resolved By Year-end?

  • Results within expectations.
  • A look at the 51 Alps issue.
  • FV remains at S$0.78.

3Q revenue falls 2.2% YoY 

  • Cache Logistics Trust’s (CACHE) 3Q17 results were in line with expectations. 
  • Revenue fell 2.2% YoY, due to the divestment of Cache Changi Districentre 3 and lower income from 51 Alps Avenue which was partially offset by higher contributions from DHL Supply Chain Advanced Regional Centre, Cache Cold Centre and the Australia portfolio. Similarly, NPI fell 3.3% YoY to S$21.3m. 3Q17 DPU from operations and capital fell 12.8% YoY to 1.541 S cents or 23.0% of our full-year forecast, mainly due to the enlarged unit base after recent rights issue. 
  • The sum of 3Q17 DPU post-rights and 1H17 DPU (unadjusted for bonus element) make up ~76.6% of our full-year forecast.

51 Alps issue expected to be resolved by year-end 

  • After adjustments, our fair value remains unchanged at S$0.78. 
  • Recall that in May 2016, CACHE received a summons from Schenker seeking the court to declare that the anchor lease tenancy signed between Schenker and C&P Land (CACHE’s former master lessee) is binding on CACHE. CACHE has since filed a writ against C&P for damages. CACHE’s management currently expects the 51 Alps issue to be resolved by year-end. 
  • We note potential upside to our fair value should the ruling be in CACHE’s favour, as we currently assume that Schenker will continue to pay the holding rate of S$0.77 psf/month indefinitely. Should the ruling be in CACHE’s favour, we estimate that our FY18F DPU from operations forecast would be 6.9 S cents instead of 6.4 S cents and our fair value would increase to ~S$0.83.

Maintain HOLD 

  • In other corporate updates, we are positive on the recently reduced gearing (35.7% as of end- 3Q17) but believe unit prices could be more compelling given that the REIT still faces challenges ahead. 
  • We expect the industrial space to bottom only late 2018 or early 2019, though we note that the recent declines in rental reversions seem to have moderated. 
  • Against yesterday’s closing price of S$0.845, CACHE is trading at around ~7.6% FY18F yield. Maintain HOLD with S$0.78 fair value.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-10-26
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.780 Same 0.780