Cache Logistics Trust - CIMB Research 2017-11-01: Favourable Outcome For 51 Alps Ave

CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - Favourable Outcome For 51 Alps Ave

CACHE, Schenker and C&P have agreed to an amicable resolution to the 51 Alps Ave dispute.
CACHE and Schenker have entered into a fresh lease agreement where Schenker will lease 100% of the property for 46 months from 01 Nov 17 to 31 Aug 21.
CACHE will also receive a lump sum payment of S$8.2m as part of the resolution.

Essentially, it is as if 51 Alps Ave was leased on market rent.
Factoring in this favourable outcome, we raise FY17-19F DPU by 3.2-6.1%. Also, we do not expect material deviation from the property’s current valuation (S$80.9m).
We maintain Hold with a higher DDM-based target price of S$0.79.

CACHE, Schenker and C&P have agreed to an amicable resolution to the 51 Alps Ave dispute. CACHE and Schenker have entered into a fresh lease agreement where Schenker will lease 100% of the property for a period of 46 months, from 01 Nov 2017 to 31 Aug 2021.
CACHE will also receive a lump sum payment of S$8.2m CACHE will also receive a lump sum payment of S$8.2m as part of the resolution. This lump sum will be used to
1. top-up the payment received to market rent during the Holding Arrangement from 01 Sep 2016 to 31 Oct 2016;
2. top-up the rental from 01 Nov 2017 to 31 Aug 2021;
3. and to pay other associated costs.

Essentially, the top-up payment means that unitholders would receive distributions as if 51 Alps Ave was leased on market rent.
On a single-net rent basis (where landlord would have to pay for property tax and land rent), we understand that the market rent for 51 Alps Ave is S$1.30-1.40 psf pm. CACHE has been receiving S$0.77 psf pm (single-net basis) during the Holding Arrangement.

From CACHE’s pro-forma DPU (which incorporated 12 months of top-up from 01 Sep 16 to 30 Sep 17), we estimate additional distributions of S$3m. This implies gross rental top-up of S$0.57 psf pm. Hence, we estimate that CACHE could be receiving the market rent of around S$1.30 psf pm.
It also means that CACHE would be receiving S$0.26 psf pm top-up rent for the fresh lease which is from 01 Nov 17 to 31 Aug 21.

We raise FY17-19F DPU by 3.2-6.1% as we assume that 51 Alps Ave would receive an effective single-net rent of S$1.30 psf pm. FY17F distributions would include 16 months of rent top-up (from 01 Sep 16 to 31 Dec 17).
In addition, we understand that the fresh lease does not include any rental escalations.
We also do not expect material deviation from the property’s current valuation (S$80.9m) as the valuer had incorporated a favourable outcome and factored in market rents of S$1.30-1.40 psf pm for the property.

Our DDM-TP rises on the back of the increase in our DPU estimates. We maintain Hold on CACHE as we project 4.4% total returns in FY18F (3.8% downside and 8.2% FY18F dividend yield).
Upside risk to our call would be accretive acquisitions, especially as the REIT now has the debt capacity.
Downside risk would be lower contributions from CWT Commodity Hub in FY18F.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-11-01

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