• Lump-sum of S$8.2m received
• FV increases to S$0.81
• Special dividend in 4Q17?

51 Alps Issue Resolved Out of Court

Recall that in May 2016, Cache Logistics Trust (CACHE) received a summons from Schenker seeking the court to declare that the anchor lease tenancy signed between Schenker and C&P Land (CACHE’s former master lessee) is binding on CACHE. Yesterday, CACHE announced that its manager and trustee have reached an amicable resolution of the dispute with Schenker and C&P. The trustee and Schenker have entered into a fresh lease agreement where Schenker will lease 100% of the property for a period of 46 months commencing 1 Nov 2017.

The trustee is due to receive a lump-sum payment of S$8.2m. From what we understand, the lump-sum payment of S$8.2m is meant to comprise of

1. compensation for holding period
2. a top-up for the rent of the new lease and
3. compensation for minor expenses.

Some of the details of the settlement are confidential. On a pro forma basis, 9M17 DPU would have been 6.1% higher at 5.454 S cents instead of 5.141 S cents. The management notes that the court case and subsequent appeals could have extended well into 2018 should they have continued.

Developments Boost Fair Value

In our last report on 26 Oct, we discussed our assumption that Schenker will continue to pay the holding rate of S$0.77 psf/month indefinitely and noted likely upside pending a positive resolution. After updating our model with details from the latest announcement, our fair value increases from S$0.78 to S$0.81. Based on our own estimates, the part of the S$8.2m lumpsum apportioned out as compensation for the holding period is around ~S$4.5m.

We currently assume CACHE will pay out this S$4.5m as a special dividend in 4Q17, which – along with two months under the new lease – would increase our FY17F dividend forecast to 7.3 S cents. We also assume that the effective rental rate of the new lease with Schenker (including the top-up from the lump-sum) is around ~S$1.35 psf per month, and thus our FY18 DPU increases from 6.4 S cents to 6.7 S cents.

Given yesterday’s closing price, these figures translate to a ~8.7% FY17F yield (including the special dividend) and a 7.9% FY18F yield. We maintain HOLD with S$0.81 fair value.

Source: OCBC Research - 2 Nov 2017