Cache Logistics Trust - OCBC Investment 2017-11-02: 51 Alps Issue Finally Resolved

Cache Logistics Trust - OCBC Investment 2017-11-02: 51 Alps Issue Finally Resolved CACHE LOGISTICS TRUST K2LU.SI

Cache Logistics Trust - 51 Alps Issue Finally Resolved

  • Lump-sum of S$8.2m received.
  • FV increases to S$0.81.
  • Special dividend in 4Q17? 

51 Alps issue resolved out of court 

  • Recall that in May 2016, Cache Logistics Trust (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. 
  • Yesterday, CACHE announced that its manager and trustee have reached an amicable resolution of the dispute with Schenker and C&P.
  • The trustee and Schenker have entered into a fresh lease agreement where Schenker will lease 100% of the property for a period of 46 months commencing 1 Nov 2017. The trustee is due to receive a lump-sum payment of S$8.2m. From what we understand, the lump-sum payment of S$8.2m is meant to comprise of
    1. compensation for holding period
    2. a top-up for the rent of the new lease and
    3. compensation for minor expenses. 
  • Some of the details of the settlement are confidential. On a pro forma basis, 9M17 DPU would have been 6.1% higher at 5.454 S cents instead of 5.141 S cents. 
  • The management notes that the court case and subsequent appeals could have extended well into 2018 should they have continued.

Developments boost fair value 

  • In our last report on 26 Oct, we discussed our assumption that Schenker will continue to pay the holding rate of S$0.77 psf/month indefinitely and noted likely upside pending a positive resolution. After updating our model with details from the latest announcement, our fair value increases from S$0.78 to S$0.81. 
  • Based on our own estimates, the part of the S$8.2m lump sum apportioned out as compensation for the holding period is around ~S$4.5m. We currently assume CACHE will pay out this S$4.5m as a special dividend in 4Q17, which – along with two months under the new lease – would increase our FY17F dividend forecast to 7.3 S cents. 
  • We also assume that the effective rental rate of the new lease with Schenker (including the top-up from the lump-sum) is around ~S$1.35 psf per month, and thus our FY18 DPU increases from 6.4 S cents to 6.7 S cents. 
  • Given yesterday’s closing price, these figures translate to a ~8.7% FY17F yield (including the special dividend) and a 7.9% FY18F yield. We maintain HOLD with S$0.81 fair value.

Deborah Ong OCBC Investment | 2017-11-02
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.81 Up 0.780