Is Cache Logistics Trust (SGX: K2LU) Share Price at S$0.46 Considered a Steal?
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Is Cache Logistics Trust (SGX: K2LU) Share Price at S$0.46 Considered a Steal?

Sudhan P
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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%.

cache logistics trust valuation -- Seedly REITs tool

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.

How to pick the best REITs

As a summary, here are the 10 steps I use to pick the best Singapore REITs:

  1. Growth in Gross Revenue and Net Property Income
  2. Growth in Distribution Per Unit
  3. Property Yield of Between 5% and 9%
  4. Gearing Ratio of Below 40%
  5. Interest Coverage Ratio of Above 5x
  6. Healthy Portfolio Occupancy Rate
  7. Positive Rental Reversions
  8. Presence of Growth Prospects
  9. Acceptable Price-to-Book Ratio
  10. 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:

Cache Logistics Trust portfolio statistics
Source: Cache Logistics Trust investor presentation

The following shows where Cache Logistics Trust‘s Singapore properties are located:

Cache Logistics Trust -- Singapore portfolio
Source: Cache Logistics Trust investor presentation

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: 

 FY2015FY2016FY2017FY2018FY2019Compound annual growth rate (CAGR)
Gross revenue
(S$' million)
89.72111.27111.96121.54113.566.1%
Net property income
(S$' million)
76.1688.0187.2990.9285.843.0%

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.

 FY2015FY2016FY2017FY2018FY2019CAGR
Distribution per unit (Singapore cents)
8.5007.7256.5835.9035.523-10.2%

In terms of a longer-term DPU trend, this is how it has been since Cache Logistics Trust’s IPO:

Cache Logistics Trust DPU from 2010 to 2019
Source: Cache Logistics Trust investor presentation

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%. 

Cache Logistics Trust balance sheet highlights (as of 31 Dec 2019)
Source: Cache Logistics Trust investor presentation

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. 

Cache Logistics Trust interest cover (as of 31 Dec 2019)
Source: Cache Logistics Trust investor presentation

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%.  

Cache Logistics Trust portfolio occupancy (as of 31 Dec 2019)
Source: Cache Logistics Trust investor presentation

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.

Cache Logistics Trust rental reversion for 2019
Source: Cache Logistics Trust investor presentation

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: 

Cache Logistics Trust growth plans
Source: Cache Logistics Trust investor presentation

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:

Cache Logistics Trust Logos partnership
Source: Cache Logistics Trust investor presentation

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:

  1. Growing gross revenue and NPI;
  2. High property yield and occupancy rate; and
  3. 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?

Come discuss your thoughts and more in our Seedly Community under a page specifically dedicated to  Cache Logistics Trust (SGX: K2LU).

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. 

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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