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Cache Logistics Trust’s Latest Earnings: What Investors Need To Know

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

The real estate investment trust (REIT) owns logistics-related real estate. It is sponsored by CWT Ltd (SGX: C14), a logistics and supply chain solutions provider in Asia, and is managed by ARA Asset Management Limited (SGX: D1R), a real estate fund management company.

As of 30 September2015, Cache Logistics Trust’s portfolio consists of 16 logistics warehouse properties that are “strategically located in established logistics clusters in Singapore, Australia and China.” The properties have a collective value of S$1.25 billion (as of 31 December 2014) and have a total gross floor area of 6.66 million square feet.

With these as a backdrop, let’s dive into Cache Logistics Trust’s latest set of results.

Financial highlights

Gross revenue for the quarter climbed by 11.3% to S$23.1 million on a year-on-year basis, driven by a full quarter’s worth of contribution from three Australian properties that were acquired only in February 2015.

Unfortunately, the REIT’s Net Property Income (“NPI”) had declined by 3.6% to S$18.8 million as compared to the previous year. The conversion from master leases to multi-tenancies at a number of the REIT’s properties had led to a “slight increase” in vacancy and property expenses, in turn resulting in the lower NPI.

The bottom-line picture was a little better as Cache Logistics Trust managed to squeeze out a 0.6% increase in income available for distribution from S$16.71 million to S$16.81 million. But because of a slightly higher unit count, the REIT’s distribution per unit (DPU) was kept constant at 2.140 Singapore cents compared to a year ago.

Changes in a REIT’s financial strength 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:

Cache Logistics Trust balance sheet (22 October 2015)

Source: Cache Logistics Trust’s earnings presentations

We can observe from the table that there have been both progress as well as retreats made. The REIT’s higher weighted average debt to maturity and lower all-in financing cost would belong to the former category. Meanwhile, the higher aggregate leverage ratio and total debt, as well as lower interest cover ratio, would all be in the latter category.

The REIT ended the quarter with a net asset value of S$0.969 per unit, down slightly from the figure of S$0.97 seen a year ago.

Business highlights

Cache Logistics Trust ended the reporting quarter with an occupancy level of 95.2%, a considerable decline from the selfsame figure of 99.5% achieved a year ago.

It’s not all bad news for the REIT. 97% of lease expiries in FY2015 have been renewed or replaced. Nearly half of Cache Logistics Trust’s leases (by both net lettable area and gross rental income) would expire from 2019 and beyond.

Cache Logistics Trust had proposed an acquisition of a A$27 million (around S$27.1 million) property in Australia earlier this month. This will be the REIT’s fourth acquisition of a warehouse in Australia. The property in question is a modern single-storey 13,363 square metres warehouse. It is fully-leased till August 2023 with annual rental escalation of 4%.

In the earnings release, Cache Logistics Trust gave some insights on the outlook for its market:

The industrial property market conditions are expected to remain challenging in view of the imbalance in the supply and demand of industrial space, uncertain macroeconomic developments and government regulations in place.”

Based on Cache Logistics Trust’s last traded price of S$1.025 on Wednesday, the REIT is valued at 1.06 times its latest book value. An annualized DPU of 8.49 Singapore cents translates to a distribution yield of 8.29% 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.