Cache Logistics Trust (CACHE SP) - DBS Research 2017-11-01: Favourable Resolution To Schenker Lease

Cache Logistics Trust (CACHE SP) - DBS Vickers 2017-11-01: Favourable Resolution To Schenker Lease CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust (CACHE SP) - Favourable Resolution To Schenker Lease

  • Resolution reached; Schenker to extend lease for another 46 months.
  • Cache to receive S$8.2m from top up of Schenker lease to market rate.
  • Stock overhang from uncertainty arising from the Schenker lease now removed.

What’s New 

Schenker to lease 51 Alp Avenue for another 46 months at market rates 

  • Cache Logistics Trust (Cache) announced that together with Schenker, C&P Pte Ltd and C&P Holdings Pte Ltd, it has amicably resolved their dispute in relation to Schenker’s lease at 51 Alps Avenue.
  • Following the resolution and with the approval of JTC Corporation, Schenker has entered into a new lease agreement whereby Schenker will lease 100% of the property for a period of 46-months commencing from 1 November 2017 until 31 August 2021.
  • As part of the agreement, Cache will receive a lump-sum payment (“relevant sum”) of S$8,233,334. This relevant sum represents a topup to market rent during the Holding Agreement from 1 September 2016 to 31 October 2017, new lease from 1 November 2017 to 31 August 2021, and to pay other associated costs.
  • Based on Cache’s estimates, assuming the relevant sum was in place from 1 January 2017, DPU from 1 January 2017 to 30 September would be 5.454 Scts, 6.1% higher than reported DPU of 5.141Scts.
  • As a way of background, the original dispute arose at the end of Schenker’s prior lease, when Schenker, the underlying tenant for the property, believed it had the right to extend its lease at the prevailing rent, which was below market. However, C&P which had a master lease agreement with Cache for the property, would have received less from Schenker than what it paid Cache. Thus, there was a disagreement over whether Schenker was able to extend its lease at below market rent, and whether C&P could stop paying Cache market rent. 

Overhang removed 

  • The uncertainty over the Schenker lease has been an overhang over Cache’s share price for the past year resulting in Cache’s trading at an elevated yield. Thus, we believe the market will react positively to this new development given the overhang has now been removed. 
  • In addition, with Schenker entering into a 46- month lease at effective market rents, this provides c.6% upside to our near term DPU as we had assumed that Cache would continue to receive below market rents. 
  • For now, we maintain our HOLD recommendation with a TP of S$0.83.

Derek Tan DBS Vickers | Mervin SONG CFA DBS Vickers | 2017-11-01
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.830 Same 0.830