SINGAPORE (July 24): RHB, Religare and OCBC have issued reports with differing views on Cache Logistics Trust after its manager last Friday reported a 9.5% fall in 2Q distribution per unit (DPU) to 1.8 cent, which is in line with all three research houses’ expectations.
In their respective reports on Monday, both OCBC and RHB have highlighted the absence of progress made on the ongoing lease disputes with Cache’s tenant Schenker over Schenker Megahub at 51AA, while adding that the trust’s high portfolio gearing of 42.4% remain a key concern.
OCBC downgrades to “sell”
OCBC has downgraded its call on the trust to “sell” from “hold” previously as the REIT is currently trading at 7.6% FY16F yield, which its lead analyst Deborah Ong considers to be unattractively low.
The research house has nevertheless raised its fair value estimate to 82 cents from 79 cents previously after adjusting for a slightly lower cost of equity, but expresses concerns about the challenging industry outlook for industrial REITs in general.
“While Cache has minimal renewal risk for the 2H17, ~21% of leases by gross rental income is up for renewal in 2018. We also note Cache’s high gearing ratio of 43.4% as at 30 Jun 2017, though we believe that the management is committed to decreasing the ratio to <40% over time,” says Ong.
While OCBC believes it “reasonable” to expect the trust’s legal dispute with Schenker to be settled by end-2017 in its favour, it continues to forecast contributions according to the lower rental rate received under the protest for the asset.
See: Cache Logistics accepts DB Schenker’s holding arrangement pending legal resolution
RHB remains “neutral”
Meanwhile, RHB is maintaining its “neutral” rating on Cache Logistics Trust (CLT) with an unchanged price target of 86 cents on expectations of its rent reversions to remain negative – in particular for warehouse rental rates – for the rest of the year.
Nevertheless, the research house believes Cache to offer a relatively high yield of 7.6%, which it believes should limit downside to the REIT. It also has factored in a potential resolution for the Schenker Megahub leasing dispute by the end of the year.
See: Cache Logistics Trust DPU falls 9.5% to 1.8 cent on higher expenses
Religare to review rating
In Religare analyst Tata Goeyardi’s view, Cache’s 2Q results demonstrate stability with marginal improvement in its portfolio occupancy. Like RHB and OCBC, Goeyardi has underscored a favourable resolution in Cache’s court case with Schenker as a key re-rating catalyst.
As of now, Religare has a “buy” rating on the trust with a price target of 95 cents.
The research house is currently reviewing its rating on Cache to weigh on the 21.4% of leases by gross rental income (GRI) due for renewal in FY18, as well as its high leverage against the potential upside from the Schenker court case.
As at 11:49am, units in Cache are down 4 cents at 90 cents.
