SINGAPORE (April 11): CIMB is sticking to its “reduce” call on Cache Logistics Trust with 71 cents target price as it stays cautious on the logistics sector due to strong completions in 2017.

Despite the impending takeover of CWT, CIMB expects it to be business as usual for Cache unless there is a major restructuring at CWT level. But now that there is greater clarity over CWT and ROFR (Rights of First Refusal) pipeline intact, CIMB expects asset injections to accelerate.

“We also postulate that HNA could inject its assets into Cache platform,” says lead analyst Yeo Zhi Bin in a Monday report.

HNA Holding Group has offered to buy CWT for $1.4 billion or $2.33/share, representing c.13% premium over the stock’s last trading price on April 5.

(See alsoCWT gets $2.33 per share offer from HNA; acquisition deal valued at $1.4 bil)

HNA Group is a Chinese conglomerate based in Hainan with businesses ranging from financial services to tourism and aviation. It is also the owner of Hainan Airlines.

CWT is Singapore’s largest homegrown logistics provider. It is also the sponsor of Cache. Specifically, CWT and ARA Asset Management owns 40% and 60% of Cache’s REIT manager respectively; and 60% and 40% of the property manager respectively.

HNA said that it intends to keep CWT’s management team. In addition, the ROFR pipeline remains intact. There are 16 properties with 8.2 million sq ft of GFA covered by the ROFR.

“We note that the ROFR shall be granted as long as ARA-CWT Trust Management (Cache) Limited -- the REIT manager -- remains the manager of Cache; and CWT remains a controlling shareholder of the manager of Cache,” says Yeo.

However, now that uncertainty over the future of CWT has lifted, Yeo expects asset injections to accelerate.

“We believe HNA would undertake capital recycling. We also postulate that HNA could inject its assets into the Cache platform,” adds the analyst.

Given that Cache's gearing as at end-16 stood at 43.1%, a sizeable acquisition would have to be accompanied by equity fund raising. CWT is trading at c.13% above FY16 book.

Units of Cache are trading flat at 88 cents.