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?
The Positives
The Negatives
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.
Relative valuation
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.
Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.
He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.