Cache Logistics Trust’s Latest Earnings: A Gloomy Quarter

Cache Logistics Trust (SGX: K2LU) released its fiscal second-quarter earnings yesterday evening for the quarter ended 30 June 2015.

The real estate investment trust has had a busy first half of 2015 with it undertaking a number of major transactions; it had completed the acquisition of three properties located in Australia and sold Kim Heng warehouse to JTC Corporation.

As of 30 June 2015, Cache Logistics Trust’s portfolio comprises 16 logistics warehouse properties that are “strategically located in established logistics clusters in Singapore, Australia and China.” The 16-strong list includes the DHL Supply Chain Advanced Regional Centre which was completed after 30 June 2015.

These properties have a collective value of around S$1.2 billion and have a total gross floor area of 6.7 million square feet.  With these as a backdrop, let’s dive into Cache Logistics Trust’s latest set of results.

Financial highlights

For the second-quarter, gross revenue stepped up by 3.7% year over year from S$20.78 million to S$21.55 million.

But, net property income slipped by 5.4% to S$18.5 million mainly due to the conversion of three buildings from master leases to multi-tenant ones; the conversions had led to a slight increase in vacancy. A soft rental market also caused gross rental increases to lag the rise in property expenses, hence contributing to Cache Logistics Trust’s decrease in net property income.

Despite the setback in its net property income, Cache Logistics Trust managed to eke out a 0.3% year over year rise to S$16.78 million in income available for distribution. But, a larger unit base resulted in a 0.3% decrease in the REIT’s distributions per unit (DPU) from 2.147 Singapore cents a year ago to 2.140 cents.

Changes in a REIT’s balance sheet are also important for investors to watch if only for the simple reason that REITs are often highly levered entities. Here are some important metrics to note regarding Cache Logistics Trust’s balance sheet and financial health:

Cache Logistics Trust's balance sheet details (21 July 2015)

Source: Cache Logistics Trust’s earnings presentations

With reference to the table just above, there have been both progress as well as retreats made in terms of strengthening the REIT’s financial position over the past 12 months.

Cache Logistics Trust had managed to lower the cost of its borrowings (from 3.47% to 3.11%) and lengthened the maturity of its debt, but it had done so at the cost of a higher leverage ratio and lower interest cover. The lower interest cover ratio in particular gives the REIT a smaller margin of safety in servicing its borrowings.

Investors might also want to note that the Monetary Authority of Singapore had recently set a single-tier gearing ratio limit of 45% for REITs in Singapore.

Cache Logistics Trust ended the reporting quarter with a net asset value (NAV) per unit of S$0.973, up slightly by 0.3% from S$0.97 seen a year ago.

Operational highlights and a future outlook

The REIT had a commendable occupancy level of 98.3% on a portfolio-wide basis as at 30 June 2015, though this is a slight regression from the selfsame figure of 99.6% that was achieved a year ago.

It’s interesting to note that the REIT has rental escalations of 1% to 3.50% per year that’s built into its master leases; of the 16 properties in Cache Logistics Trust’s portfolio, nine are currently on master leases.

Cache Logistics Trust ended the reporting quarter with nearly half of its leases (by both net lettable area and gross rental income) expiring from only 2019 and beyond. This led to a weighted average lease to expiry (by gross rental income) of 4.2 years, which is an improvement from the 3.8 years that was seen a year ago.

In its earnings release, Cache Logistics Trust had the following to say regarding its outlook for the year ahead (emphasis mine):

“The industrial property market conditions are expected to remain challenging with significant new incoming supply and government regulations in place. The Manager will continue to focus on maintaining high portfolio occupancy, embark on AEI work where deemed appropriate, seek quality acquisitions and pursue development opportunities, all as part of its growth strategy and to continue creating long term value for unitholders.”


Based on Cache Logistics Trust’s last traded price of S$1.16 on Monday, the REIT is valued at 1.19 times its latest book value. An annualized DPU of 8.58 cents also translates to an attractive distribution yield of 7.4% at that price.

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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 James Yeo doesn’t own shares in any companies mentioned.