SINGAPORE (June 17): RHB Research is maintaining Cache Logistics Trust at “buy” with a higher target price of $0.83, representing 8% upside with 8% yield.

With tax transparency granted on the 51 Alps Avenue (51AA) settlement sum, CacheLog will pay a retained lump sum of $2.9 million in 2Q, which should boost DPU.

Market concerns over CacheLog master leases are also overdone, says RHB.

“Valuations remain attractive, with a FY19F dividend yield of 8%, about 200 bps higher than S-REITs average, and P/BV of 1.1x,” Vijay Natarajan in a Monday report.

In April, CacheLog announced that the Inland Revenue Authority of Singapore (IRAS) granted tax transparency on $7.4 million out of the total $8.2 million settlement sum it received from CWT Pte Ltd (CWT) over lease disputes on 51AA.

Of this sum, CacheLog will pay out some $2.9 million, which is the rental shortfall that it has retained since 4Q16.

The balance will then be evenly distributed -- $0.5 million per quarter -- over the remaining period until Aug 2021. The above top-up amount will result in a one-off 2Q DPU uplift of $0.0025 or 16% of 1Q19 DPU.

“We lift FY19-21F DPU by 1-4%, factoring in rental top-up payments from 51AA leases,” adds Natarajan.

Recently, CacheLog has also strengthened its exposure in Australia with the acquisition of a warehouse in Victoria for A$8.8 million ($8.3 million). Rental contributions should kick in from 2Q19. Cache is also said to be eyeing ARA Asset Management’s Korean logistics assets.

CWT International, the parent of CWT, defaulted on its interest payments in April. This prompted investor concerns over CWT’s ability to fulfil its master lease agreement with Cache. However, RHB believes the leasing risks are manageable.

First, the master lease space has been fully taken by end users and clients, with whom Cache has been engaging with over time. Second, CWT has not defaulted on its rental payments so far, and Cache holds three months of rental as a security deposit. Third, the weighted average lease expiry of CWT leases is less than a year.

Units in CacheLog are up 1 cent at 78 cents, implying 7.9% FY20F dividend yield.