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

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.



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 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.


It is as if 51 Alps Ave was leased on market rent… 

  • 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.


… which we agree based on some backward calculation 

  • 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.


Increase FY17F-19F DPU by 3.2-6.1% 

  • 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.


Maintain Hold with higher target price 

  • 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
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.790 Up 0.770



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