What You Should Know About Cache Logistics Trust (SGX: K2LU) At Its Share Price of S$0.46
Sudhan P●
At Cache Logistics Trust‘s (SGX: K2LU) share price (technically known as unit price for REITs) of $0.46, it has a price-to-book (PB) ratio of 0.78 and a distribution yield of 12%.
Is it worth investing in Cache Logistics Trust at its current price and valuation?
Let’s explore using my 10-step guide to pick the best Singapore REITs.
As a summary, here are the 10 steps I use to pick the best Singapore REITs:
- Growth in Gross Revenue and Net Property Income
- Growth in Distribution Per Unit
- Property Yield of Between 5% and 9%
- Gearing Ratio of Below 40%
- Interest Coverage Ratio of Above 5x
- Healthy Portfolio Occupancy Rate
- Positive Rental Reversions
- Presence of Growth Prospects
- Acceptable Price-to-Book Ratio
- Distribution Yield of Above 5%
Business Background
Cache Logistics Trust is an industrial REIT that was listed in Singapore on 12 April 2010.
As of 31 December 2019, Cache Logistics Trust’s portfolio comprised 27 logistics warehouse properties located in established logistics areas of Singapore and Australia.
The portfolio has a total gross floor area of around 9.0 million square feet valued at a cool S$1.26 billion.
Below’s a list of all 27 properties owned by Cache Logistics Trust:
The following shows where Cache Logistics Trust‘s Singapore properties are located:
Cache Logistics Trust is managed by ARA Trust Management (Cache) Limited, a wholly-owned subsidiary of ARA Asset Management Limited.
1. Gross Revenue and Net Property Income (NPI) Check
Check for: Increasing gross revenue and NPI
Cache Logistics Trust has a financial year that ends on 31 December each year.
Here, let’s take a look at Cache Logistics Trust’s gross revenue and NPI performance from 2015 to 2019:
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | Compound annual growth rate (CAGR) | |
|---|---|---|---|---|---|---|
| Gross revenue (S$' million) | 89.72 | 111.27 | 111.96 | 121.54 | 113.56 | 6.1% |
| Net property income (S$' million) | 76.16 | 88.01 | 87.29 | 90.92 | 85.84 | 3.0% |
Overall, Cache Logistics Trust’s gross revenue and NPI have been increasing over the past five years.
Verdict: Pass
2. Distribution Per Unit (DPU) Check
Check for: Increasing DPU
Next, let’s check on Cache Logistics Trust’s DPU performance.
Even though the REIT’s top-line has grown as seen earlier, its DPU has been decreasing over the last five years.
| FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | CAGR | |
|---|---|---|---|---|---|---|
| Distribution per unit (Singapore cents) | 8.500 | 7.725 | 6.583 | 5.903 | 5.523 | -10.2% |
In terms of a longer-term DPU trend, this is how it has been since Cache Logistics Trust’s IPO:
The REIT’s DPU since 2010 has certainly shown a lack of growth.
Verdict: Fail
3. Property Yield Check
Check for: Property yield of between 5% and 9%
Now, let’s look at Cache Logistics Trust’s property yield.
For 2019, Cache Logistics Trust had an NPI of S$85.8 million while its valuation of investment properties was S$$1.26 billion. This translates to a property yield of 6.8%, which is well within the range I’m looking for.
Verdict: Pass
4. Gearing Ratio Check
Check for: Gearing ratio below 40%
As of 31 December 2019, Cache Logistics Trust had a gearing ratio (also known as “aggregate leverage ratio”) of 40.1%.
The gearing ratio slightly exceeds my threshold and is also close to the regulatory limit of 45%.
Cache Logistics Trust’s latest gearing ratio is up from that of 2018, which stood at 36.2%.
In 2019, the REIT’s Singapore portfolio valuation was 6% lower year-on-year mainly due to lower market rent and rental growth assumption by the valuer, as well as the inherent shorter land lease tenure. If there is no change in the portfolio make-up, the lease tenure will only get shorter as the years go by.
The REIT would be in a precarious situation if its property valuation were to fall drastically in 2020, especially given the current economic headwinds.
Verdict: Fail
5. Interest Coverage Ratio Check
Check for: Interest coverage ratio above 5 times
Cache Logistics Trust’s interest coverage ratio, for 2019, stands at around 3.8x, which misses my threshold of above 5x.
Verdict: Fail
6. Portfolio Occupancy Rate Check
Check for: Healthy portfolio occupancy rate
As of 31 December 2019, the committed occupancy for the portfolio was a strong 95.3%.
The latest occupancy is also a slight increase from end-2018’s figure of 95%.
Verdict: Pass
7. Rental Reversion Check
Check for: Positive rental reversions
Cache Logistics Trust had an overall negative rental reversion of 0.3% at the end of 2019.
Even though the 2019 rental reversion was better than that of 2018 (at -4.5%), it is still a downer.
Verdict: Fail
8. Growth Prospects Check
Cache Logistics Trust plans to grow using a three-pronged approach of asset management, acquisitions, and focused development:
On this front, late last year, ARA Asset Management and Logos Group announced a strategic venture to establish a “best-in-class logistics and real-estate development and investment partnership within the Asia-Pacific region”.
ARA will be transferring its entire shareholdings in Cache Logistics Trust and its manager to Logos as part of the transaction. Having said that, ARA will continue to retain control of the manager through Logos.
The main benefits of the partnership, which was sealed in March 2020, is highlighted below:
The strategic partnership brings to the table a robust deal pipeline for Cache Logistics Trust.
However, with a gearing ratio that is near the regulatory limit, the REIT may have to undertake equity fundraising to fund any future acquisitions.
It remains to be seen if the venture with Logos will help to grow DPU and net asset value (NAV) per unit for the REIT.
On top of the falling DPU over the years, as seen earlier, Cache Logistics Trust’s NAV per unit has also tumbled from S$0.88 in 2015 to S$0.59 in 2019.
Going by past track record, I’m not too optimistic on the growth-front.
Verdict: Fail
9. Price-to-Book Ratio Check
Check for: Acceptable price-to-book ratio
At Cache Logistics Trust’s current unit price of S$0.46, it has a PB ratio of 0.78x against a five-year average of 1.0x.
Verdict: Pass
10. Distribution Yield Check
Check for: Distribution yield to be above 5%
At Cache Logistics Trust’s current unit price of S$0.46, its distribution yield stands at 12%.
Verdict: Pass
The Final Verdict
Cache Logistics Trust has a final score of 5/10.
The REIT has the following positives:
- Growing gross revenue and NPI;
- High property yield and occupancy rate; and
- Low valuations.
However, Cache Logistics Trust’s DPU and NAV per unit has been trending down over the years. I’m not too optimistic about its growth plans either.
Therefore, even though Cache Logistics Trust looks cheap, I wouldn’t invest in it.
Would You Invest In Cache Logistics Trust?
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.
