Latest Earnings From Cache Logistics Trust: Challenging Times Ahead?

Cache Logistics Trust (SGX: K2LU) has announced its results for the year, as well as the quarter ending 31 December 2015.

As of the reporting period, the real estate investment trust (REIT) owns a total of 19 properties in three countries, namely, Singapore (12), Australia (six), and China (one). The properties have a carrying value and gross floor area of approximately S$1.3 billion and 7.51 million square feet.

The REIT saw its gross revenue for the year come in at S$89.7 million, up 8.3% from 2014. For the quarter, the REIT reported revenue of S$24 million, which was 16.6% higher than the same period a year ago.

But, net property income (NPI) for the REIT in 2015 had declined by 2.4% to S$76 million. It was a similar story for the quarter, as NPI had slipped by 1% year-on-year to S$19.2 million.

Cache Logistics Trust had seen a decrease in its NPI (for both the year and quarter) due mainly to a decline in occupancy rates and an increase in expenses as a result of the conversion of some master leases to multi-tenanted leases. These were partially offset by contributions from the REIT’s six Australian properties, which had been acquired only during the reporting year.

The lower NPI led to a decrease in the REIT’s distribution per unit (DPU) for 2015, which came in at 8.5 Singapore cents, down 0.9% from the 8.573 cents seen in 2014. For the reporting quarter, the REIT reported a DPU of 2.074 cents, a year-on-year decline of 3.4%.

Higher finance costs for the year (a 14.4% increase to S$14.1 million) had also played a role in the lower DPU.

The increase in finance costs could perhaps be attributed to the REIT’s aforementioned purchase of its Australian properties and financing expenses for a newly completed property in Singapore (the DHL Supply Chain Advances Regional Centre).

Changing gears to the balance sheet, Cache Logistic Trust’s aggregate leverage ratio at end-2015 was 39.8%, an increase from the 31.2% seen a year ago. Meanwhile, the interest cover ratio had also taken a step backward, from 6.8 times at end-2014 to 4.8 times.

But, there are still some bright spots. Cache Logistics Trust has approximately 62% of its debt hedged for the next 2.5 years, which should provide some stability in terms of finance costs. The all-in interest rate on its debt also came in at 3.25%, a slight improvement from the 3.3% seen at end-2014.

Cache Logistics Trust’s net asset value (NAV) per unit had decreased significantly from S$0.98 in 2014 to S$0.88 in 2015.  The decline in the NAV was largely due to dilution, as a result of a private placement exercise carried out by the REIT towards the end of 2015.

The REIT warned that “the Singapore industrial property market condition will remain challenging over the next 12 months.” It added that an “imbalance of supply and demand of industrial space, slowing global growth and government regulations” continues to have a negative impact on its market.

Australia appears to provide a better picture for Cache Logistics Trust. The REIT commented:

The Australian economy is improving, with growth currently at around 2.5%. The lower Australian dollar is positive for the non-mining sectors of the economy, particularly tourism and education. The economic outlook remains cautious due to, amongst others, uncertainty in commodity prices and the slowing Chinese economy. Nevertheless, the WALE for Cache’s Australian warehouses average 6.8 years, which enables Cache to ride on the long term growth in Australia.”

At its closing price of S$0.87 yesterday, Cache Logistics Trust trades at a price-to-book ratio of 1 and offers a trailing distribution yield of 9.8%.

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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 Esjay owns units in Cache Logistics Trust.