What is the news?
Cache Logistics Trust announced the conversion of CWT Commodity Hub from a master lease to a multi-tenancy lease structure. The property is located at located at 24 Penjuru Road and was leased to CWT Pte. Limited (CWT) on a master lease. CWT continues to occupy 61% of the property after the conversion. Some of the original underlying tenants have been effectively transferred over to Cache as the landlord.
How do we view this?
Maintain Accumulate; lower target price of $0.91 (previously $0.93)
We have lowered our FY18e/FY19e revenue assumption by 1.0%/1.1%, and DPU assumption by 1.5%/1.4%, as committed occupancy turned out slightly lower than expected. Gearing remains comfortable at 36.3% (as at 4Q17). And gearing is set to lower further, as divestment proceeds from Hi-Speed Logistics Centre (40 Alps Ave) will be used to pare down debt. (Proposed divestment was announced in January 2018.) We estimate gearing to be lowered even further to 32.4%, and new headroom of almost $270mn (based on 45% limit) after the divestment proceeds from 40 Alps Ave is used to repay debt.
Cache Logistics Trust is fairly valued relative to logistics peers in terms of P/NAV multiple. But it has a higher than average trailing yield, which suggests that there is room for yield to compress.