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Cache Logistic Trust’s Distribution Per Unit Falls, What Investors Need To Know

Cache Logistics Trust (SGX: K2LU) is a real estate investment trust (REIT) that focuses on the logistics sector in China and Singapore. It is sponsored by CWT Limited (SGX: C14), one of the largest logistics and supply chain solutions provider in Asia. The trust released its third-quarter result this week.

Revenue increased 3.3% year on year for the first three quarters of 2014 to S$62.2 million. This translated to a 2.4% growth year on year for its net property income to S$58.6 million. More importantly its distribution income also increased 2.3% year on year to S$50.1 million for the first nine months of this year. Yet, its distribution per unit, which is what unitholders are most concerned about, fell 1.2% year on year to 6.427 cent per unit.

So what happened?

Even though the company has been improving its performance on an absolute basis, the growth is not enough to offset the dilution faced by the unitholders. For example, back in March 2013, the trust raised a private placement of 70 million new units, diluting existing unitholders by about 10%. Together with the management’s fees that are paid in units, these contributes to the dilution of existing unitholders. To do justice to existing unitholders, manager of the trust need to ensure that whatever increase in earnings and revenue would benefit the unit holders on a per unit basis and not on an absolute basis. Using such a yardstick, we can see that the manager of Cache Logistic Trust has failed its unitholders for this year.

However, the trust continues to be in a good position for the longer term. Its aggregate leverage ratio is at 35%, a still acceptable level. It has an interest cover ratio of more than 6.3 times. Its largest development currently is the DHL Supply Chain Advanced Regional Center (DSC ARC). The project is 36% completed and expected to be online by the second half of 2015. The property would boost Cache Logistic Trust’s investment asset by 12% and its gross floor area by about 19%. It seems the trust is betting a lot on the success of this new property.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.