Saturday, October 18, 2008

Ascendas REIT

Quick notes. Got my attention with a trailing yield of 10%.

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.
I will model 4% for defaults.

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)
Not sure how to interpret this: potentially 817m needs to be refinanced by early 2010.

"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

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