What is the news?
Cache Logistics Trust has announced a favourable resolution to the 51 Alps Avenue rental dispute with its Tenant, Schenker Singapore Pte Ltd (“Schenker”). The $8.23 mn lump-sum payment will be used to make good associated costs, top-up to market rent the payment received “under protest” during the holding period arrangement (1 September 2016 to 31 October 2017) and to top-up to market rent the rental received for the new lease signed (1 November 2017 to 31 August 2021).
How do we view this?
Certain aspects of the disclosure remains confidential, such as the identity of the party that will be making the $8.23 mn lump-sum payment. Nonetheless, unitholders can take comfort knowing that the shortfall in DPU over the holding period will be made good; and 51 Alps Avenue will be income-producing at market rent.
Maintain Neutral; unchanged target price of $0.82
We now estimate a one-off payment of $2.8 mn in 4Q17, which translates to 0.31 cents DPU boost. Our previous assumption was for $4.5 mn top-up in FY18, mainly due to a higher rental assumption and 15-months holding period assumption (instead of 14-months actual). We had also previously assumed a higher rent post-resolution and this causes us to lower our revenue forecast from FY18e onwards. Our FY17e/FY18e revenue estimate is now +0.5%/-0.4% from previous, and DPU forecast +4.8%/-5.3% from previous.
The significant change in estimated DPU from previous is mainly due to the one-off payment being brought forward to 4Q17.
Our target price represents an implied FY17e P/NAV multiple of 1.09x.
Cache Logistics Trust is slightly under-valued relative to logistics peers in terms of P/NAV multiple. We believe a reason for the lower relative valuation is due to Cache’s smaller portfolio (market capitalisation) and larger exposure to the Singapore market which is facing an over-supply situation into 2018.