• Cost of equity lowered to 9.1%
• Cum-rights FV of S$0.81
• Ex-rights FV of S$0.78

18 Rights Units for Every 100 Existing Units

The manager of Cache Logistics Trust (CACHE) is undertaking an underwritten and renounceable rights issue of 162.6m new units to raise gross proceeds of S$102.7m. Rights units will be offered at a rights ratio of 18 rights units for every 100 existing units with a rights issue price of S$0.632 per rights unit. On a pro forma basis, FY16 DPU would decrease by 10.9% from 7.725 S cents to 6.882 S cents. Similarly, pro forma FY16 NAV per unit would decrease by 3.3% from S$0.779 to S$0.753. The rights units will rank pari passu to the existing units, and will include the right to distributions which have accrued for 3Q17.

Gearing to Decrease to 35.5%

The bulk of the gross proceeds will be used to partially repay CACHE’s existing borrowings to reduce aggregate leverage and create additional debt headroom for future growth. This will reduce CACHE’s gearing from 43.4% as at 30 Jun 2017 to 35.5%. Against the regulatory gearing limit of 45%, Cache will have an enlarged debt headroom of S$281.1m for potential acquisitions as well as asset enhancement initiatives.

Upgrade to HOLD

We are positive on the dramatic decrease in leverage. Given the reduction in gearing, we lower our cost of equity from 9.6% to 9.1% and lower our interest burden accordingly. After adjusting for the enlarged unit base, our cum-rights fair value comes to S$0.81 while our ex-rights fair value comes to S$0.78. If our cost of equity had stayed at 9.6%, our cum-rights fair value would have been S$0.75 while our exrights fair value would have been S$0.73.

Note that the last day of cum-rights trading is 7 Sept, Thu (tomorrow). All the financial figures in the tables below are ex-rights. While we are positive on this change in capital structure, we believe that current unit prices could be more attractive for investors. Since we downgraded CACHE from Hold to Sell on 24 Jul, the REIT’s unit price has come off 4%.

We upgrade CACHE to a HOLD with a cum-rights fair value of S$0.81 and an ex-rights fair value of S$0.78.

Source: OCBC Research - 6 Sept 2017