The outlook is stable. Rental market is expected to be soft, with oversupply of warehouse space in the market and negative reversions in 2018. All things held equal, expect to see two more quarters (1Q18 and 2Q18) of double-digit YoY lower DPU due to the Rights Issue in 4Q17. FY18e DPU also lower due to divestment of 40 Alps Ave. The main domestic hurdle that the manager has to overcome now is the master lease expiry of CWT Commodity Hub (see overleaf). The overarching positive for Cache now is the successful recapitalisation of its balance sheet.
Upgrade to Accumulate (from Neutral); higher target price of $0.92 (previously $0.82)
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. The manager will be in a better position to execute its rebalancing strategy and acquire in Australia. We have raised our terminal growth assumption to 1.0% (from 0%) on account of the better financial position and ability to grow the portfolio inorganically.
Figure 1: Lease expiry profile
Source: Company FY17 results presentation, 18 January 2018
Cache Logistics Trust is under-valued relative to logistics peers in terms of P/NAV multiple. Its above peer-average trailing yield suggests that there is room for yield to compress.