SINGAPORE (Jan 22): RHB and Phillip Capital have upgraded their calls on Cache Logistics Trust (CacheLog) to “buy” and “accumulate” from “neutral”, with higher target prices of 96 cents and 92 cents, respectively.
This comes after the trust’s manager last Thursday declared a distribution per unit (DPU) of 1.597 cents for the 4Q17 ended Dec, while also announcing in a separate filing its intention to divest Hi-Speed Logistics Centre at 40 Alps Avenue for $73.8 million.
See: CacheLog reports lower 4Q DPU of 1.597 cents on rights issue; divesting Hi-Speed Logistics Centre for $73.8 mil
In a Monday report, RHB analyst Vijay Natarajan says he views CacheLog’s divestment move favourably given 40 Alps Avenue’s lower occupancy of 74% compared to the trust’s portfolio average of 96.6%, while the consideration sum of $73.8 million represents a 7% premium to the property’s valuation.
After using the divestment proceeds to pare down debt and factoring in the trust’s Sept 2017 rights issue, Natarajan estimates CacheLog’s gearing to fall to 32.4% assuming 40% levels.
This in turn implies “comfortable headroom” of about $160 million for further acquisitions, says the analyst, with the manager’s preference for the Australian market due to its attractive yields, freehold land tenure and long weighted average lease expiry (WALE) profile .
As such, the RHB’s forecasts for CacheLog’s FY18-19 DPU have been revised upwards by 2-4% to factor in interest cost savings and higher rents, while cost of equity (CoE) assumptiosn have been lowered to 8% from 8.7% to better reflect a low-interest rate environment.
“While consensus remains concerned about near-term rent pressures, we believe the negatives are well priced-in. Upside surprises could come from lower interest costs and tax exemptions for rental top-up income,” notes Natarajan.
In a separate report last Friday, Phillip Capital analyst Richard Leow foresees new headroom of almost $270 million based on a 45% limit post the divestment.
The research has consequently raised its terminal growth assumption for CacheLog to 1% from 0% previously on the account of its better financial position and ability to grow its portfolio inorganically.
Looking ahead, Leow believes the trust’s manager will be in a better position to execute its rebalancing strategy and make acquisitions in Australia, where the manager anticipates yields will remain stable over the next six months with long run growth in industrial property values within the Eastern Seaboard states.
Meanwhile, OCBC Investment Research is maintaining its “hold” call on CacheLog with an unchanged fair value of 81 cents, despite being positive on the trust’s lower gearing and the resultant financial flexibility for future acquisitions.
In a Monday flash note, OCBC analyst Deborah Ong says she nonetheless expects rental reversions to remain negative and volatile through 2018, with some stabilisation towards the end of this year.
“Our cost of equity drops 9.1% to 8.5% to reflect the lower gearing and resolution of the 51 Alps issue. After adjustments, our fair value remains at 81 cents. As at last Friday’s closing price, CacheLog is trading at a 7.2% FY18 yield,” notes Ong.
As at 11am, units of CacheLog are trading 0.6% lower at 88 cents.
