Cache Changi Districentre 3, which is located at 6 Changi North Way, was one of two maiden acquisitions for Cache after its listing in April 2010. The two maiden acquisitions were for 6 Changi North Way and 4 Penjuru Lane (Kim Heng Warehouse), which has since been divested in June 2015. Cache Changi Districentre 3 was valued at S$32.0 million on February 28, 2011 and purchased for S$30.9 million on March 31, 2011 through a sale and leaseback agreement with APC Distributors (Pte) Ltd. The property was originally listed in the portfolio as APC Distrihub, until it was renamed Cache Changi Districentre 3 in FY15.
How do we view this?
No impact to FY16e GRI and impact to FY17e GRI is not material
The property contributed 3.7% of total portfolio gross rental income (GRI) in FY15, but this is overstated due to partial contributions from the Australia properties that were acquired in 1Q and 4Q FY15. On a full year basis, Cache Changi Districentre 3 contributes just below 3% of portfolio GRI in FY16e and FY17e, by our estimates. There will be no impact to FY16e, as the transaction is expected to be completed by the end of December 2016; we view the 3% impact to annual GRI as being not material.
S$600,000 divestment/revaluation loss to be recognised for the property in 4Q FY16
The property was valued at S$26.1 million at the end of FY15 and it is now being sold for S$25.5 million, in line with its November 30, 2016 valuation. Overall, the property is now being sold for S$5.4 million less than the original purchase consideration of S$30.9 million.
NPI yield has been much closer to 5% instead of 8% at the time of acquisition
At the time of acquisition, it was announced on March 14, 2011 that the pair of properties (6 Changi North Way and 4 Penjuru Lane) would have “a combined net property income (NPI) yield of approximately 8.0%”. Using that 8.0% NPI yield as a baseline and assuming a holding period of 5.75 years (March 31, 2011 to December 31, 2016) for the property, we account for the S$5.4 million difference between the original acquisition consideration and the divestment price to derive an NPI yield of 5% for the holding period.
Modest -2.3% revaluation should not be across the board for end-of-year valuations
We think that the modest downward revaluation for Cache Changi Districentre 3 for the 11 months between December 31, 2015 and November 30, 2016 is not reflective of what all the properties in the portfolio will encounter at end of the year. Specifically, it would not come as a surprise to us if Hi-Speed Logistics Hub, which has been converted to multi-tenancy lease in 4Q FY16, were to be revalued downwards by more than 10%.
Maintain “Neutral” rating with lower DDM valuation of S$0.78 (previous: S$0.81)
The divestment organically shrinks the portfolio and our lower DDM valuation reflects the absence of the cash flow from this property from January 1, 2017 onwards. Our forecast has the cash proceeds retained on the balance sheet, as we await clarity on the use of the divestment proceeds. Management will have to weigh between utilising divestment proceeds to (1) make capital distribution to smooth out volatility in DPU, (2) repay debt to lower aggregate leverage, or (3) make new acquisition.
Peer relative valuation
Cache Logistics Trust is approximately on par with its nearest peer in terms of trailing P/NAV multiple, and has a higher 12M trailing yield.