Wheelock: updated

Updated previous post on Wheelock... many mistakes.

Aim was to project Wheelock's net cash (and the likelihood of it actually receiving that cash), to determine at what price I would buy. I expect the property market to fall further - unlike the stock market which drops like a stone falling off a cliff, property falls slowly like honey running downhill. If/when property stocks get battered again, what price do I want to stick out my hand to catch the falling knives?

Ascendas Reit: Accounting for recession

Following the previous post, I estimate their yield after adjusting their revenue downwards to account for the recession. Aim is to see if we take assume a conservative scenario, do we still have a margin of saftey.

I get a DPU of 10.9c. At Friday's price of $1.27, this is an 8.6% yield.

If they had not issued the shares, and instead taken out a loan for the 400M at 7% (like Cambridge did) giving an additional 28M interest payments a year (added to the 57M), and we still had the same revenue cuts as below, then their DPU would have been about 10.8c per share. About the same I guess.

Assumptions and calculations for downward revising of revenue are below. Analysts call this a 'stress test'. I call it some 'calculations on the back of an envelope'.

How much should I decrease their revenue by?

• Firstly, some tenants may go bust. A report by CIMB says that in the 2004 recession, defaults were 1.8%.
• I'm going to use 4%.
  
• Most of their larger tenants are make up 2% of their revenue, so the above represents two tenants going belly up (and AReit being unable to re-rent out their buildings for 1 year).

• Secondly, rentals may be revised downwards. But most of their tenants are on long leases. See the green bars for the lease expiry as of Mar 08:

• 16% and 15% of their lease revenue expires in 09/10 respectively (total of 31% over 2 years). I'm going to conservatively assume that to keep their customers, they cut the rent 20% for them. This would mean that by 2010, rend is reduced by 7%.
• So we have an 11% discount in total (4% + 7%).

What effect does this have on DPU?

Using the final calculations from the previous post:

Revenue: 363 (reduced by 11%)
Interest costs: 45
Non-Interest costs: 135
Profit for distribution: 183 (divided by 1679 shares gives DPU of 10.9c).

Ascendas REIT: raising capital

AREIT's announced a capital raising exercise announced on 15th Jan with their 3Q results. If their rental revenue remains constant, this will reduce DPU from 16c to 13.5c.

Calculations are below.

Capital Raising Details:

• Total of 354m new shares. 292m being sold by private placement (to institutions), 108m by a rights issue to existing shareholders (1 for 15).
  
• With 1325M units currently issued (from Annual Repport), that is a dilution of 26%. Fuck!
• They are raising approximately $400M.
• New number of shares is 1679M
  
• The new capital only covers the additional debt raised since March 08. Debt increased from 1.5B then to 1.9B now. It does not cover the short term debt issues under review by Moodys.

How does the recapitalisation affect their projected DPU?

Look at the benefits to their finance costs, as well as model some defaulting tennants. To do this, I need to know their revenues, interest costs and non-interest costs:

• 3Q08 revenue was 102M (from the press release). Annualize to 408M.
  
• Interest costs for the 3Q YTD are 43M (from 3Q results). Don't know the costs for 3Q alone. As an estimate, annualise the 43M (times 4/3) to 57M. May understate it a bit.
  
• 54M is availiable for distribution in 3Q (press release). Annualize to 216M.
• Therefore, non-interest costs were 408 minus 216 minus 57 gives 135M.

Therefore, before the capitalisation, we get an income statement of (in millions):

Revenue: 408
Interest costs: 57
Non-Interest costs: 135
Profit for distribution: 216

What effect does the 400M cash injection have on their interest payments?

• Borrowings will decrease from 1.9B to 1.5B (from the 3Q results balance sheet), or 21%. We could estimate that interest payments drop in proportion from 57M to 45M.
• Another way to estimate: In the March 08 (Annual Rpt), interest payments were 42M for a debt of 1.5B. This is the same 1.5B that Ascendas will have after the capital raising - in other words - no change the time in Mar 08 the time after the capital is raised. 72% of that debt was fixed, 28% was variable (or abt 11M of the interest payments). Depending on what variable rates thay are paying now, their interest could range from 42M to 53M. I'll ignore this for now....

Going back to the income statement, after the capitalisation:

Revenue: 408
Interest costs: 45 (down because 400M debt paid off)
Non-Interest costs: 135
Profit for distribution: 228 (increase of 12M or 5.5%).

Their profit is up 5.5%. But per unit, we must reduce by 26% for the new shares issued. Hence ~20% reduction in DPU (to 13.5c).

Later on I'll see how their revenue could be affected by a recession.

Sold Li Heng and Midas

Sold Li Heng at 27c and midas at 52c this week.

For all 3 stocks (Midas, Li Heng, Wilmar), lost $1550 (including brokerage).

Lesson learnt: Buy in dips, not on breakout. At least until we have a clear bull market.

US market: 1st half Jan: Doubts over rally

Year started with a distribution day (Jan 5th), but I would ignore that because vol is being compared to the quiet Christmas trading period. Also ignore the slight distribution on Jan 8th as due to Walmart. IBD signalled end to rally on the 12th, mostly due to the action of leading stocksas show on chart. But after this, the last two days have seen bullish action, though, by both indexes and leading stocks.

No clear trend. Dow is bouncing between 8000 and 9000, around the 50 SMA.

The bear market rally may or may not continue. From 20th Nov to 6th Jan the Dow is up 19.6%. Previous US bear market rallies in 1929-1933 generally lasted 1 or 2 month for 20-30% gain. The market was so oversold in Nov, that we could get a bigger one (5 months --> 48% gain, that one was also over Christmas).

Dunno what will happen, moved to 80% cash.

Previous bear markets in 1929 to 1933:
11/13/1929 - 04/17/1930, 198.69 -> 294.07, 48% (5 months and 48%. Abnormally large).
12/29/1930 - 02/24/1931, 160.16 -> 194.36, 21%
06/02/1931 - 07/03/1931, 121.17 -> 155.26, 28%
10/05/1931 - 11/09/1931, 86.48 -> 116.79, 35%
01/05/1932 - 03/08/1932, 71.24 -> 88.78, 25%

US market: Quiet over Christmas

Dow was quiet in the three weeks leading up to Christmas. 2 distribution days, but one on low volume.
In the first week, generally days ended higher were on higher volume, with one distribution day. The next two weeks up to Christmas on low volume can be ignored. This period ended bullish, as the rally is still continuing.

Sold Wilmar

@2.96 on Fri 2nd Jan... just before it shot up. Stock may still be in an uptrend.