Is Cache Logistics Trust Worth Investing In Now?
Cache Logistics Trust (SGX: K2LU) is an industrial REIT listed on the Singapore Exchange with a market capitalization of S$794 Million. Cache Logistics Trust is sponsored by CWT Limited (SGX:C14), the current largest private logistic provider in Singapore.
With that, here are 7 things you need to know about Cache Logistics Trust.
Stock Information
TICKER SYMBOL: SGX: C2PU
MARKET CAP: S$790.00million
INDUSTRY: Real Estate Investment Trust
The Business
The REIT now owns a total of 19 industrial properties – 11 in Singapore, 1 in China and 7 in Australia
February 2015 was when Cache Logistics Trust’s love affair with Australian industrial properties started. The REIT purchased three properties for A$70 Million in Australia. Since then the REIT has acquired another three properties in Australia, bringing the total number of industrial properties the REIT owns to six. And it bought its seventh property just recently, earlier this year.
Below is a snapshot of Cache’s portfolio.
Source: Cache Logistics Trust 2Q 2017 presentation slides
Majority of the properties in the portfolio are in Singapore, coming in at 11. Cache’s portfolio occupancy stood at 98.3% at the end of the second quarter of 2017.
Source: Cache Logistics Trust 2Q 2017 presentation slides
The above diagrams shed some light on the Trust’s portfolio diversification. The trust’s properties are 56% leased by single users. This is like having a master lease for these properties. The rest of the properties, 44%, are multi tenanted. These properties are leased by more than one tenant.
As mentioned above the portfolio is geographically diverse. It has properties across 3 countries, which gives its stability in earnings as it is not dependent on the growth of just one country.
Next, let’s have a look at its tenant quality. The trust reported that 78% of the lessees were multi-national companies while the remaining were small-medium enterprises. Having a large base of multi-national companies as it tenant gives the Trust the stability it needs in terms of tenants’ credit quality.
Lastly, the end users of its properties also come from diverse industry sectors. This is beneficial for the trust as it is not reliant only on one sector.
Source: Cache Logistics Trust 2Q 2017 presentation slides
Their Vision
As seen from the diagram above, Cache has planned its next moves for the near future. Of importance is the fact that the manager puts great emphasis on proactive portfolio management and investment pursuits. This indicates that the manager wants to extract maximum value from its current properties and buy new properties. Both strategies should help in stabilising the base earnings of Cache Logistics Trust. Also, the manager is looking for Build-to-Suit developments. These are totally new developments undertaken by the Trust for a specific client. The property is thus built to suit the needs of the client. These specialised buildings might demand a higher rental rate.
Let’s move on to look at the REIT’s key opportunities and risks.
Key Opportunities
Increasing Australia focus
Source: Cache Logistics Trust 2Q 2017 presentation slides
Cache Logistics Trust has been increasing buying more properties in Australia. This attraction to properties in Australia started in 2015 when it purchased its first 3 properties there. Ever since then they have been adding more properties. The reason for the attraction is explained in the diagram above. Properties in Australia come with a longer weighted average lease expiry (WALE) and with a higher yield of 7.6%. Both of these are attractive metrics for a property owner, the first ensures a stable income for a longer duration and the higher yield means a better return on investment for its unitholders.
Strong Sponsor properties
Source: Cache Logistics Trust 2Q 2017 presentation slides
The above diagram sheds light on the properties that Cache has rights of first refusal too. These properties are owned by its sponsor CWT Limited and C&P. The list above shows at least 8 properties which the trust can acquire when the properties are stabilized and ready to be divested by the sponsor. These properties might provide a future growth potential for the Trust.
Key Risks
Excess capacity
Source: Cache Logistics Trust 2Q 2017 presentation slides
The diagram above showed that over the past few years there has been more supply compare to demand when it comes to warehouse space in Singapore. This is a negative for Cache as it means there could be rental rate pressures on the REIT. This is one of the reasons why more properties are moving towards multi tenancy, in the past, a single tenant would lease the build and then sub lease the space as it could make money from doing this. However, increasing single tenants are not interested in leasing the entire space due to difficulty in sub leasing the space. This is a big worry for the REIT as it could lead to rental pressures and higher vacancies.
Economic Slowdown
Warehouse spaces are heavily dependent on how the economy is doing. With the lacklustre growth in the Singapore economy over the past few years, warehouse space has been under pressure. The uncertain business environment and global trade are also affecting the sector. Moreover, rising interest rates will put further pressure on companies. All these factors could potentially be a negative for Cache as it needs to compete for price sensitive customers.
However, over the past few months, there have been improvements in trade data (import & export) in Singapore. If this trend should continue it will be a positive for warehouse owners.
Valuation
Cache Logistics Trust currently trades at a Price to book (P/B) ratio of 1.1 and spots a 8.3% distribution yield for its investors. Both metrics are more attractive than its five-year average of 1.2 P/B ratio and 7.1% distribution yield.
Investor Relations
Investor Relation Material:
Judy Tan
Assistant Director, Investor Relations
judytan@ara.com.hk
ARA-CWT Trust Management (Cache) Limited
6 Temasek Boulevard #16-02
Suntec Tower 4
Singapore 038986
Tel: +65 6835 9232
Top Shareholders (31st December 2016)
- DBS NOMINEES PTE LTD 17.45%
- CITIBANK NOMINEES SINGAPORE PTE LTD 11.33%
- HSBC (SINGAPORE) NOMINEES PTE LTD 7.13%
Financials
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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ketz’s personal capacity. It does not in any way represent those of his employer and other related entities. Ketz does not own any companies mentioned.
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