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Better Buy: Mapletree Logistics Trust vs Cache Logistics Trust

Mapletree Logistics Trust (SGX: M44U) and Cache Logistics Trust (SGX: K2LU) are both real estate investment trusts (REITs) in Singapore’s stock market that focus on logistics properties.

But over the past five years, the two REITs have given their investors very different experiences. In that time, Mapletree Logistics Trust’s shares have produced a dividend-adjusted return of 80% and significantly outperformed Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), which climbed by 12% after including gains from dividends. Meanwhile, Cache Logistics Trust’s shares have delivered a 5% loss.

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Will Mapletree Logistics Trust continue to be the better investment compared to Cache Logistics Trust for the next five years? Let’s take a look.

Business basics

As of 30 June 2019, Mapletree Logistics Trust’s property portfolio was worth S$7.9 billion and consisted of 137 logistics assets across the Asia Pacific Region. Its three largest geographical markets are Singapore (33% of property value), Hong Kong (32%), and Japan (10%).

Cache Logistics Trust, on the other hand, had 27 properties in its portfolio at the end of June 2019. The properties are all logistics warehouses and they have a total valuation of S$1.3 billion. Singapore and Australia are the only two geographical markets for the REIT, and they accounted for 69% and 31% of the REIT’s portfolio-value, respectively.  

Historical growth and current financial strength

Two key gauges of the underlying economic value of REITs are the NAV (net asset value) per unit and DPU (distribution per unit). On both fronts, Mapletree Logistics Trust is the clear winner.

Over the past five years, Mapletree Logistics Trust’s NAV per unit grew by 3.0% per year from S$1.111 to S$1.285, according to S&P Global Market Intelligence’s data. Meanwhile, the REIT’s DPU increased at an annual rate of 1.5% from S$0.0745 to S$0.0801. For Cache Logistics Trust, its NAV per unit and DPU both fell over the same period, from S$0.976 to S$0.743, and from S$0.0855 to S$0.0581, respectively.

Coming to financial strength, the gearing ratio (ratio of debt to assets) is a useful metric, and I generally want to see a low ratio. It’s worth noting that REITs in Singapore are required by the Monetary Authority of Singapore to keep their gearing ratio below 45%. As of 30 June 2019, Mapletree Logistics Trust’s gearing ratio of 36.8% is slightly lower than Cache Logistics Trust’s 37.9%.

Winner: Mapletree Logistics Trust

Future growth opportunities

According to the Brookings Institution, Asia is forecasted to house more than two-thirds of the world’s middle-class population by 2030, up from 46% in 2015. Global middle-class consumption is also expected to nearly double from around US$35 trillion in 2015 to around US$65 trillion in 2030, with Asia accounting for over 80% of the higher spending. This growing affluence in Asia is a tailwind for both Mapletree Logistics Trust and Cache Logistics Trust, since it results in demand for consumer goods and thus, warehouse space.

Meanwhile, e-commerce retail sales in the Asia-Pacific region is expected to triple from US$1.05 trillion in 2016 to US$3.0 trillion by 2021. The rise of e-commerce is driving demand for modern logistics facilities with features that are better-suited for the requirements of online retail, such as ramp-up, cross-docking, and flexible and sizeable warehouse space. Mapletree Logistics Trust has already been making asset enhancement and investment decisions with these factors in mind. Cache Logistics Trust does have some modern logistics properties in its portfolio, but it’s unclear whether the REIT has focused on such properties.

Mapletree Logistics Trust also has a well-diversified property portfolio, a well-staggered lease expiry profile (not more than 28.9% of its leases are expiring in any given year), and a well-distributed debt maturity profile (not more than 24% of its debt comes due in any given year). These traits give the REIT a strong foundation for growth. Unfortunately, the same can’t be said for Cache Logistics Trust. It has 27 properties in its portfolio, which is fairly diversified, and no more than 26.8% of its leases will expire in any given year. But 45% of the REIT’s total debt of S$506.8 million will come due in 2024.

Winner: Mapletree Logistics Trust

Valuation

Given the importance of the NAV per unit and DPU in gauging the underlying economic values of REITs, two useful valuation metrics for Mapletree Logistics Trust and Cache Logistics Trust are the price-to-book (P/B) ratio and the distribution yield.

At the time of writing, Mapletree Logistics Trust’s share price of S$1.54 gives it a P/B ratio of 1.2, and a trailing distribution yield of 5.2%. Cache Logistics Trust’s share price of S$0.72 results in a much lower P/B ratio of 1.0 and a much more attractive distribution yield of 8.1%.

Winner: Cache Logistics Trust

Final call

Both Mapletree Logistics Trust and Cache Logistics Trust enjoy strong tailwinds which suggests room for more growth ahead. Cache Logistics Trust may have lower valuations, but Mapletree Logistics Trust has the more robust foundation for growth and the better track record. So I think Mapletree Logistics Trust should be able to beat both Cache Logistics Trust and the Singapore stock market comfortably over the next five years. 

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of Mapletree Logistics Trust. The Motley Fool Singapore writer Chong Ser Jing owns shares in Mapletree Logistics Trust.