3 Things You Should Know From Cache Logistics Trust’s Management About Its Business Conditions

Last week, Cache Logistics Trust (SGX: K2LU) released its 2017 fourth quarter and full year earnings update. As a quick introduction, Cache Logistics Trust is a REIT that focuses on logistics properties. It currently has 19 logistics warehouse properties in its portfolio which are located in Singapore, Australia, and China.

The Manager of Cache Logistics Trust had given a presentation on the REIT’s latest results. In the presentation deck, I saw three slides on the REIT’s business that I think investors should pay attention to.

The first slide is a high-level summary of Cache Logistics Trust’s income statement for 2017:

Source: Cache Logistics Trust 2017 fourth quarter earnings presentation

We can see that the REIT’s net property income (NPI) in 2017 had declined marginally. This was due to the absence of rental income from Changi Districentre 3 for most of the year (the property was sold in 22 January 2017), and a lower contribution from Changi Districentre 2. The conversion from a triple-net master lease structure in a soft rental market for 40 Alps Ave and 51 Alps Ave also contributed to the decline in NPI.

The aforementioned weak points were partially offset by a rental top-up for 51 Alps Ave, and higher contributions from Cache Cold Centre and DHL Supply Chain Advanced Regional Centre in Singapore, and the Australia portfolio.

The REIT’s lower distribution per unit (DPU) was mainly due to a decline in NPI and a higher unit count on the back of a rights issue that occurred in September 2017.

The next slide I want to discuss shows Cache Logistics Trust’ WALE (weighted average lease expiry):

Source: Cache Logistics Trust 2017 fourth quarter earnings presentation

The WALE profile of a REIT is important, as it can give us clues on the stability of the REIT’s rental income. As of 31 December 2017, Cache Logistics Trust’s WALE was 3.2 years by gross rental income, which is reasonable.

One positive point from the chart just above is the staggered nature of Cache Logistics Trust’s lease expiries. This will reduce the pressure on the REIT of having to renew a large chunk of its leases in a particular year. What’s more, with 39% of its leases expiring only after 2020, the REIT is enjoying some stability in its rental income.

The last slide I want to talk about contained the demand and supply picture for warehouse space in Singapore:

Source: Cache Logistics Trust 2017 fourth quarter earnings presentation

In 2017, 83% of Cache Logistics Trust’s revenue was derived from Singapore. This makes the conditions of the warehouse market here important to track for the REIT. From the chart just above, we can see that the vacancy rate for warehouses in Singapore (represented by the purple line) is at a 10-year high of 12.5% as of the third quarter of 2017.

This high vacancy rate is likely to put significant pressure on Cache Logistics Trust’s operations going forward, especially when it comes to renewing its leases at favourable terms.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.