SINGAPORE (Nov 1): DBS Vickers is maintaining its “hold” recommendation on Cache Logistics Trust with a target price of 83 cents now that the uncertainty over the Schenker lease has been removed.
“We believe the market will react positively to this new development given the overhang has now been removed,” says lead analyst Derek Tan in a Wednesday report.
See: Cache Logistics says Schenker Megahub dispute settled amicably
Meanwhile, RHB has put its “neutral” rating and 84 cents target price under review, pending further details.
While the resolution removes the overhang on the stock surrounding the Schenker leases, RHB says the oversupply situation in Singapore’s warehouse market is likely to put pressure on the rents in the near-term.
“The stock currently offers FY18F yield of 7.7% which is likely to offer some downside protection,” says analyst Vijay Natarajan.
To recap, the dispute arose at the end of Schenker’s former lease, when Schenker, the underlying tenant for the property, believed it had the right to extend its lease at the prevailing rent, which was below market.
However, C&P which had a master lease agreement with Cache for the property, would have received less from Schenker than what it paid Cache.
Thus, there was a disagreement over whether Schenker was able to extend its lease at below market rent, and whether C&P could stop paying Cache market rent.
On Tuesday night, Cache announced that together with Schenker, C&P and C&P Holdings, have amicably resolved their dispute in relation to Schenker’s lease at 51 Alps Avenue.
Following the resolution and with the approval ofJTC Corporation, Schenker has entered into a new lease agreement whereby Schenker will lease 100% of the property for a period of 46 months starting from Nov 1 2017 until Aug 31 2021.
As part of the agreement, Cache will receive a lump-sum payment of $8.2 million. The sum represents a top-up to market rent during the holding agreement from Sept 1 2016 to Oct 31, new lease from Nov 1 to Aug 31, and to pay other associated costs.
Based on Cache’s estimates, assuming the sum was in place from Jan 1, DPU from Jan 1 to Sept 30 would be 5.454 cents, 6.1% higher than reported DPU of 5.141 cents.