First, outlook from S&P downgraded from 'positive' to 'stable'. Dependent upon:
"(1) CIT’s strong business profile; (2) the expected strong support from the local banking community; (3) adequate liquidity in the domestic credit market; and (3) the significant progress that CIT has made in achieving Sharia-compliant status, which would further diversify its refinancing sources."
Basically no effect. But everything depends on them obtaining credit.
Second, 3Q DPUs were down because management took their fees in cash, instead of shares. I should have accounted for this when calculating the yield in my previous post. The new calculations for 3Q08 are:
Rental revenue: 18.3m
Non-finance costs: 3.8m (includes the new management fees)
Borrowing costs: 3.1m
Operating Profit 11.4m
Excludes profits/loss from revaluation and interest rate swaps, as this is not counted in DPUs.
After cutting revenue by 10% (due to SMEs going bust in a recession) and doubling the future finance costs (to 6.2%, due to credit crisis), we get 6.5m. Annualise (times 4) to get 26m. Divided by 800m units issued, gives 3.25c per share.
At a price of 22c, thats almost a 15% yield.
The assumptions are very conservative:
- 1 in 10 businesses going bust: even if it does happen, they should be able to rent the buildings out again.
- Doubling the interest rate (to 6.2) is also on the high side. A 14th Nov Phillip's report has estimated their interest rate cost at 4.78%. From an Oct report by DMG on Fraser's CT looking for financing: "management cited spreads of 200 – 250 bps over SIBOR", which in Sept (the height of the credit crisis) was 5.5-6%.