1) Competitive Position
Their clients are mostly blue chip eg: Singtel, Daikin, etc
According to their 08 Annual report, they have:
- 42% share of the hi-tech industrial space in Singapore
- 33% of Business & Science Park space in Singapore
- 11% of Logistics & Distribution space in Singapore
2) Cyclical factors
A report by CIMB says that:
- There is a 18-24 month lag time from the business slowdown to a pinch on real-estate demand. (The recession started 6 months ago, lets assume we'll see this).
- Default payments were 1.8% of gross revenue in the 2004 recession.
3) Financing. When it is due?
Has 1.5bn dollars of debt, due at different stages. From their FY07 AR, showing when their debt is due:
This consists of:
- 238m short term loans (revolving credit facility) - due within 2009 (SOR + margin)
- 279m Transferable loan facility : due Jan-Mar 2010 (SOR + margin)
- 300m notes due Aug 09 (SOR + 0.325). Related IR swap fixed at 2.9% until Sept 2012. Have 'firm commitment' to refinance 200m.
- 350m notes due May 2012 (SOR + 0.265)
- 395m notes due May 2014 (SOR + 0.200)
"As at 30 September 2008, A-REIT has 76.7% of its debt hedged into fixed rate for the next
3.93 years.". Unlike Cambridge, the hedging seems to be tied to the loans, and is not separate from loan renewal:
"The nearest refinancing requirement (excluding existing short term borrowings) is the Commercial Mortgage Backed Security (CMBS) of S$300 million due in August 2009. The Manager has fixed the interest rate at an all-in rate of 2.9% at the start of its issuance. The related interest rate swap contracts have a remaining weighted average term to maturity of 3.04 years as at 30 September 2008."
I am not sure if all their outstanding loans are tied to interest rate swap contracts, but for now will assume it so.
4) The numbers:
After reducing their revenue by 4% (190m - 7.6m), and increasing doubling their (non-hedged) finance costs (Add 6.2m to 27m), their 1H08 profit would drop by 13%. Their annualized DPU (15.3c) currently yielding 10% would drop to 8.7% (at a price of $1.50). This is good, but not irresistible... TODO: take a look at their growth prospects, to help determine target price.
[Updated 14th Nov] Based on the above, set my buy target price at $1.33. This is a projected 10% yield, in the bad case scenario