“We previously thought the manager could divest its non-core Singapore assets to bring down gearing,” analyst Yeo Zhi Bin says in a Tuesday report.
“While we understand that it could be difficult to control timing/circumstances, we are of the view that accompanying acquisitions with equity fund raising would be more palatable for the market,” adds Yeo.
CacheLog is undertaking an underwritten and renounceable rights issue of 162.6 million new units.
Both ARA and CWT have provided irrevocable undertakings to subscribe for their respective allotment of rights, which represents 7.3% of the right units.
Nevertheless, Yeo notes that CacheLog is continuing its portfolio rebalancing and growth strategy with a focus in Australia.
Yeo notes that in 2015, CacheLog acquired two additional warehouses in Australia within a month or so after its $100 million private placement in Nov.
In its latest acquisition of the Spotlight warehouse in Australia, it also managed to time and fund the acquisition with proceeds from the divestment of Cache Changi Districentre 3 in Nov 16.
Yeo notes CacheLog has $192 million of debt is due in 2019. Post-completion of the rights, he estimates the REIT’s gearing to decrease to 35.3% from 43.4% in 2Q17.
Factoring in $3.5 million interest cost savings p.a. plus the rights issue, CIMB is cutting its FY17F-19F DPU forecasts by 3.5-10.5%.
“We calculate NAV to drop to $0.743/unit at end FY17 from $0.77/unit at 2Q17,” says Yeo.
In the near term, CIMB expects unit price to come under pressure from this pre-emptive rights issue.
“We keep our ‘reduce’ call, with a 9.5% lower DDM-based target price of 76 cents on the back of DPU downgrades,” says Yeo.
As at 12.58pm, units in CacheLog are trading 4 cents lower at 82 cents.
