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Brokers' take: Cache Logistics' improved gearing soothes concerns

BROKERS seem to agree that a "neutral" call on warehouse owner Cache Logistics Trust (Cache) is appropriate with its improved gearing following a rights issue.

CIMB upgraded its call from "hold" to "reduce" with a target price of S$0.77, while OCBC is keeping a "hold" call on the counter and reviewing its target price. Similarly, Phillip Capital and RHB maintained their "neutral" ratings, with Phillip Capital keeping its target price of S$0.82, and RHB lowering its target price to S$0.84 from S$0.86 previously.

As at 11.29am, Cache was trading 0.6 per cent higher at S$0.845 apiece.

Across the board, analysts agree that Cache's third-quarter results are in line with expectations. The status quo on the 51 Alps Avenue dispute remains a drag on its share price performance, though management is optimistic that a potential outcome is likely by year end.

Cache is in a lease dispute with C&P Land and Schenker on the master lease renewals for the property that expired in August 2016. Under the existing agreement, Cache is receiving rent of S$0.77 per square foot (psf) per month, well below the market rates of S$1.10 to S$1.40 psf. According to RHB, a favourable outcome of the legal proceedings could potentially remove the overhang on the stock.

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With its recent rights issue, Cache raised gross proceeds of S$102.7 million. This was used to repay borrowings, reducing Cache's gearing from 43.6 per cent as at Sept 30, to 35.7 per cent, and providing some balance sheet comfort.

Separately, CIMB also noted that Cache's portfolio occupancy remained strong at 97.3 per cent.

While rental pressure persists, the rate of decline is slowing down, RHB noted. The broker expects warehouse rents to stabilise by the first half of next year, and to pick up from 2019 onwards amid higher demand.

It added that changes at the Reit management level offers growth potential for Cache following HNA group's acquisition of CWT and the privatisation of ARA Asset management.

"Nonetheless, management highlighted that no concrete discussion has yet to take place. We believe the changes would potentially enable Cache to access the huge pipeline of sponsor assets in Asia, and also increase its ability to source and close deals," RHB said.

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