Date: March 6, 2019
For architect Daniel Cerf, there are few things in life more enjoyable than appreciating a work of art.
“It’s all about you and the art piece – whether it’s noticing the play of contrasts, or thinking about the elements in the composition, or feeling the range of emotions evoked by the artist,” said the Chief Executive Officer of ARA Trust Management (Cache), which manages SGX-listed warehouse owner Cache Logistics Trust.
Unsurprisingly, Cerf, who has spent over three decades of his career in real estate investment and development as well as management consulting services, gets a high from innovative design.
“I get really excited when everything comes together perfectly and works well,” said the architectural graduate from the University of Oklahoma.
“I’m a QC kind of guy,” he added, referring to quality control, a process by which businesses seek to ensure product quality is maintained or improved with reduced or zero errors.
And it is this careful attention to detail and commitment to excellence that Cerf brings to his current role in Cache, which he assumed in 2010.
Prior to joining the manager of Cache Logistics Trust, he was the Deputy CEO of the manager of Keppel REIT from 2006 to 2009, and worked in Hong Kong’s First Pacific Land in the 1990s.
Listed on SGX Mainboard since April 2010, Cache Logistics Trust is a real estate investment trust (REIT) that invests in real estate assets and income-producing real estate used for logistics purposes in Asia Pacific.
Cache’s portfolio comprises 26 high-quality logistics warehouse properties strategically located in Singapore and Australia. The portfolio has a total gross floor area of approximately 8.6 million square feet, and was valued at about S$1.3 billion at the end of 2018.
Well-Insulated
The REIT has a high committed portfolio occupancy of 95.0%, compared with Singapore’s average warehouse occupancy rate of 89.5%. Tenants comprise mainly high-quality multinational businesses in the logistics/supply chain, fast-moving consumer goods (FCMG), transportation and construction sectors. It also enjoys a high degree of predictability and stability in its cashflows and earnings, given its Weighted Average Lease to Expiry (WALE) by net lettable area of 3.2 years.
In an environment of rising interest rates, Cache remains fairly well-insulated. Following a refinancing exercise in the last quarter of 2018, the Trust has hedged 75.2% of its debt with fixed rates for the next three years, while its aggregate leverage ratio is 36.2%, well below the maximum 45% level mandated by Singapore’s central bank. About 84% of Cache’s total borrowings is unsecured, and it has a well-staggered debt maturity profile with an extended average debt maturity of 3.9 years.
In the 2019 year-to-date, Cache Logistics Trust has generated a total return of 5.8%, compared with total returns of 6.4% and 6.8% for the benchmark Straits Times Index (STI) and the broader FTSE ST All-Share Index respectively.
Thanks to his architectural training, Cerf has developed more creative ways of problem-solving. “Architecture is a profession that focuses a lot on lateral thinking – you need to think more broadly and longer term about what makes a good building,” he noted.
“Apart from design, there’s also the issue of sustainability.”
And Cerf’s primary mission is to develop Cache Logistics Trust into a more sustainable REIT. “REITs in general are really for annuity investors,” he said.
“We aim to deliver solid returns consistently, protect or improve NAV and DPU, by actively managing our portfolio through asset divestment, capital recycling and new acquisitions,” he added, referring to the key industry metrics of net asset value and distribution per unit.
Since its listing nearly nine years ago with just six logistics warehouses in Singapore, Cache Logistics Trust has successfully diversified into Australia, with a total of 16 strategically located warehouses in the country. Cerf believes this is a key contributor to improving the REIT’s sustainability.
“Our foray into Australia began in early 2015, where we were the first logistics S-REIT to purchase and manage logistics warehouses Down Under,” Cerf noted.
Watchful Eye
And this geographical expansion is far from over. Another potential market is South Korea, given its predominantly freehold properties and strong trade flows with the region.
“Trade flows between China and South Korea are enormous, while Korea’s e-commerce business is growing exponentially – as fast as China’s e-commerce market,” he pointed out.
As for China, prudence remains the watchword. “Previously, we owned a chemical warehouse in Shanghai, but with forex risks, cash traps and the potential for increased tax exposure in the country, we thought we’d take a step back for a while,” Cerf said.
“One cannot, however, ignore that market altogether. We need to be prudent – as a REIT instrument, we need to measure, price and manage risk to limit volatility.”
Simply put, Cache seeks yield-accretive assets in markets that offer as good returns and attributes as those in Singapore and Australia. “We will continue to diversify to achieve and grow returns for our unit holders over time,” he noted.
With Singapore as Cache’s home market, the Manager remains keen to acquire assets in the city-state, as long as they are well-located, of generic design, have good tenants, and can be priced right, based on the WALE and remaining lease tenure.
“Although we keep a watchful eye out for good investment opportunities, we have to be mindful of the market, following changes in JTC policies over the recent years,” he added, referring to Jurong Town Corporation, the city-state’s largest industrial landlord.
“There is also a lot of deal flow in the region that I believe could serve us well if priced right. We need to strike a balance between value and risk,” Cerf said.
“Our first principle is: choose the right asset – in terms of location, lease tenure and tenant quality. Second, if not more important than the first, is to price the risk appropriately – what is the property really worth? If we have to move on without concluding the deal, then so be it.”
One key prong of the REIT’s strategy involves rebalancing its portfolio – in particular, the divestment or redevelopment of lesser performing assets. The Trust also aims to achieve a better balance between multi-tenanted and single-user lease structures, as well as a wider spread of high-credit, quality tenants.
This proactive capital recycling strategy, which began four years ago, involves divesting short-term leasehold assets and re-investing in freehold properties with sustainable earnings and longer leases.
In light of this, in 2018, Cache strategically acquired a nine-property warehouse portfolio in Australia and divested two assets – Hi-Speed Logistics Centre in Singapore and Jinshan Chemical Warehouse in China.
On the Brink
Looking ahead, Cerf believes the Singapore logistics market could be poised on a cusp of a rebound.
“We can see small improvements in vacancy levels, but the issue is getting to the point of equilibrium – where the market is flat and no longer heading south. We had expected to reach this point at the end of 2018, but it will take a bit longer, depending on demand and growth,” he said.
“After we reach that point, the real question is how long will it be before we see real growth? That requires some crystal-ball gazing, but I think by mid- to late 2019, we should see a meaningful reduction in vacancies.”
One good reason for this is US-Sino trade tensions, which appear to have created a distortion in the market.
“But there’s also the question of real impact. At the moment, we’re not seeing a huge hit – the US is growing about 2% to 3%, and China still has 6% growth, while the EU is experiencing growth it hasn’t seen for quite some time,” he added.
And for markets characteristically driven by re-trade and logistics flows – such as Hong Kong, Shenzhen and Singapore – signs of a pickup in demand have emerged.
“We’re seeing intrinsic growth on a small scale, and it will take time to impact vacancies and rentals. Right now, the vacancies are driving landlords to continue cutting rentals,” Cerf noted.
However, for the Australian market, the outlook is fairly upbeat. Despite the trade tensions, business conditions have remained positive, and non-mining investments are expected to grow, with gross domestic product forecast to expand an average 3.5% in 2019, according to the Reserve Bank of Australia.
Sustained demand for industrial space in the country is also supported by massive investment in infrastructure, as well as rising private consumption. Against this backdrop of robust fundamentals, investor demand for industrial assets has remained buoyant, Colliers International noted in a recent report.
Outside of work, Cerf is a family man at heart, raising his 17-year-old daughter in Singapore. His son, 25, lives in Rotterdam. The 61-year-old also enjoys exploring art galleries and listening to a wide variety of music, particularly jazz.
“I make it a point to teach my kids the fundamentals of right and wrong, to have good heart, work hard, and not only look after yourself, but to look after others as well,” he said.
“Basically, life comes in many different forms, just like a brilliant concept for a piece of art or music, and you need to be able to tackle it head on.”
Outlook & Risks
- The outlook for the global economy remains uncertain as rising trade tensions and geopolitics continue to weigh in.
- Singapore’s economy grew slower at 2.2% on a YoY basis in 4Q 2018, due to a softening manufacturing sector, according to Ministry of Trade and Industry data.
- JTC’s rental indices showed a continuing rental decline for single-user factory and warehouse space, although the rate of decrease has moderated. Industrial factory and warehouse rents are forecasted to change -0.5% to +0.5% in 2019, according to Savills data.
- In Australia, the economy is performing well, although GDP growth is forecasted to average around 3.5% in 2019, before slowing in 2020, due to forecasted slower growth in resource exports, according to the Reserve Bank of Australia.
Cache Logistics Trust
Listed on Singapore Exchange on 12 April 2010, Cache Logistics Trust is a real estate investment trust (REIT) that invests in quality income-producing industrial real estate used for logistics purposes, as well as real estate-related assets, in Asia Pacific. As at 31 December 2018, Cache’s portfolio comprised 26 high quality logistics warehouse properties strategically located in Singapore, Australia and China. The portfolio has a total gross floor area of approximately 8.6 million square feet, valued at approximately S$1.3 billion.
The company website is: cache.listedcompany.com
Click here for the company’s StockFacts page.
For the three months ended 31 December 2018 financial results, click here.
First published on SGX website on 28 Feb 2019
About kopi-C: the Company brew
Text: Jennifer LH Tan
Photo: Company file
kopi-C is a regular column on SGX’s My Gateway website that features C-level executives of leading companies listed on the Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.
For previous editions of kopi-C: the Company brew, please click here.
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