What is the news?
Cache has entered into a facility agreement of a five-year, S$90.0mn unsecured term loan facility. The S$90.0mn will be used to: (1) refinance an existing S$97.0mn 3.5-year secured term loan facility, of which S$73.0mn has been drawn to date, (2) repayment of an existing S$12.0mn drawn from revolving credit facilities of S$65.0mn and (3) other working capital requirements.
Figure 1. Debt maturity profile as at 30 November 2016
Source: Company Press Release, 30 November 2016
Weighted average debt maturity extended to 2.9 years as at 30 November 2016
Weighted average debt maturity has been extended from 2.4 years as at 30 September 2016 (3Q FY16). S$73.0mn term loan due in 2017 and S$12.0mn revolving credit due in 2018 will be repaid using the new term loan facility due in 2021. There will not be any refinancing requirements in 2017 and the next refinancing for any Singapore-dollar borrowings will be in 2H 2018.
Lower all-in financing cost, but higher aggregate leverage
As disclosed, all-in financing cost will be lower by 14bps to 3.48% per annum. However, aggregate leverage is now higher, since there is a net increase in borrowings by $5.0mn. On a pro forma basis, aggregate leverage as at 30 November 2016 gets nudged up by about 40bps to 41.6%, by our estimate, from the aggregate leverage as at 30 September 2016.
Scope for aggregate leverage to rise at the end of the year
In line with our recent report on the Industrial sub-sector (11 November 2016), we are cautioning on possible downward revaluation of properties within the Cache portfolio. This would have a negative impact of driving aggregate leverage up. A potential property for such a downward revaluation would be Hi-Speed Logistics Hub, which has been converted to multi-tenancy lease in 4Q FY16.
Upgrading to “Neutral” rating with unchanged DDM valuation of S$0.81
Our rating upgrade is on valuation grounds, as Unit price had already corrected some 9% since our last results report (24 October 2016) where we maintained our “Reduce” rating on Cache. Current high aggregate leverage inhibits acquisition opportunities. Further downside which we are unable to quantify at this point, relates to the intent to rebalance the portfolio by recycling lower yielding properties and retire debt. It has the immediate effect of organically shrinking the portfolio.
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.