And here's the "whys" in case you are wondering why did it fall into my radar in the first place:
1) NAV of $1.477 is some 9.41% higher than current market price of $1.35.
2) Yield of 8.31%
3) Relatively low gearing at 34.6%
4) A portfolio of well designed, well located and sector-specific (logistic, industrial) properties; with higher than average occupancy.
With the above factors establish, I shall delve into the nitty-gritty and boring process of studying it now:(
#noworknomoney #nomoneynohoney
Financial Analysis
1) Is the Purchase price lower or equal to Net Asset Value Per Share (NAVPS)?
Remarks: Purchase Price=$1.36, NAVPS=$1.477, Discount=9.41%
2) Is the Gearing below 36%?
Remarks: Gearing ratio = 34.6%
3) Loan profile. (No. and types of lenders, loan maturity, interest cover ratio, loan denominated in which currency, etc)
Remarks: Total Borrowing of S$518.6 mil. S$130.1mil due in FY2018, S$208.5mil due in FY2019, S$80mil due in FY2020 and the balance S$100mil due beyond FY2021.
S$90.3mil uncommitted revolving credit facilities (RCF) available.
Interest Cover Ratio of 5.1 times.
It appears that current cash and equivalent of $8.9mil will be sorely insufficient to cover the upcoming repayment of S$130.1mil due in FY2018 (Nov'17) and there are no news on the refinancing options as of now.
4) Yield Per Year?
Remarks: Based on purchase price of $1.35 and FY2017 DPU of $0.1103, Yield = 8.17%
5) Any financial engineering involved to boost income?
Remarks: I did not manage to uncovered any financial engineering (income support etc.).
6)Are the foreign currency risk sufficiently hedged?
Remarks: Received incomes in both SGD and AUD, as well as possessing loans that are denominated in both AUD and SGD also.
Nonetheless, it is not a big cause of concern as the exchange rate between AUD and SGD have remained relatively stable over the last couple of years.
With the above factors establish, I shall delve into the nitty-gritty and boring process of studying it now:(
#noworknomoney #nomoneynohoney
REIT Analysis Checklist
Stockcode: O5RU.SI
Financial Analysis
1) Is the Purchase price lower or equal to Net Asset Value Per Share (NAVPS)?
Remarks: Purchase Price=$1.36, NAVPS=$1.477, Discount=9.41%
50% lower than NAVPS
|
40%-50% lower than NAVPS
|
30%-40% lower than NAVPS
|
20%-30% lower than NAVPS
|
10%-20% lower than NAVPS
|
<10% lower than NAVPS
|
Score Awarded
| |
Score
|
12
|
10
|
8
|
6
|
4
|
2
|
2
|
2) Is the Gearing below 36%?
Remarks: Gearing ratio = 34.6%
Gearing Ratio more than 40%
|
Gearing Ratio 36%-40%
|
Gearing Ratio 31%-35%
|
Gearing Ratio 26%-30%
|
Gearing Ratio 20%-25%
|
Gearing Ratio less than 20%
|
Score Awarded
| |
Score
|
6
|
8
|
10
|
4
|
2
|
0
|
10
|
3) Loan profile. (No. and types of lenders, loan maturity, interest cover ratio, loan denominated in which currency, etc)
Remarks: Total Borrowing of S$518.6 mil. S$130.1mil due in FY2018, S$208.5mil due in FY2019, S$80mil due in FY2020 and the balance S$100mil due beyond FY2021.
S$90.3mil uncommitted revolving credit facilities (RCF) available.
Interest Cover Ratio of 5.1 times.
It appears that current cash and equivalent of $8.9mil will be sorely insufficient to cover the upcoming repayment of S$130.1mil due in FY2018 (Nov'17) and there are no news on the refinancing options as of now.
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
5
|
2.5
|
0
|
0
|
4) Yield Per Year?
Remarks: Based on purchase price of $1.35 and FY2017 DPU of $0.1103, Yield = 8.17%
Yield more than 8%
|
Yield between
6% - 7.9% |
Yield between
5% - 5.9% |
Yield between
4% - 4.9% |
Yield between
3% - 3.9% |
Yield less than 3%
|
Score Awarded
| |
Score
|
12
|
9
|
6
|
4
|
2
|
0
|
12
|
5) Any financial engineering involved to boost income?
Remarks: I did not manage to uncovered any financial engineering (income support etc.).
Yes
|
No
|
Score Awarded
| |
Score
|
0
|
3
|
3
|
6)Are the foreign currency risk sufficiently hedged?
Remarks: Received incomes in both SGD and AUD, as well as possessing loans that are denominated in both AUD and SGD also.
Nonetheless, it is not a big cause of concern as the exchange rate between AUD and SGD have remained relatively stable over the last couple of years.
Yes
|
Not Applicable
|
No
|
Score Awarded
| |
Score
|
5
|
5
|
0
|
5
|
7) Did the DPU improve for the last 5 years?
Remarks: FY2017-$0.1103 FY2016-$0.1135 FY2015-$0.1107
FY2014-$0.1053 FY2013-$0.1072
Remarks: FY2017-$0.1103 FY2016-$0.1135 FY2015-$0.1107
FY2014-$0.1053 FY2013-$0.1072
DPU improve for 5 out of 5 years
|
DPU improve for 4 out of 5 years
|
DPU improve for 3 out of 5 years
|
DPU improve for 2 out of 5 years
|
DPU improve for 1 out of 5 years
|
DPU improve for 0 out of 5 years
|
Score Awarded
| |
Score
|
12
|
9
|
6
|
4
|
2
|
0
|
9
|
8) Is the receivables too excessive compared to ' Cashflow from Operations'?
Remarks: As of 31 Dec'16, Trade receivables are at $9,200,000 while based on FY2016 Annual report, Cashflow from Operations are at $74,628,000. Hence, receivables are 12.32% of cashflow.
Fundamental Analysis
9) Quality of Management
9a) Any directors with political connection?
Remarks: NIL
9b) Any directors with banking background?
Remarks: Mr Eugene Paul (Citigroup, JP Morgan).
9c) Any directors with outstanding relevant experiences with respect to the industry in which the Company is involved in?
Remarks: Mr George Wang (Real Estate, Fund Management), Mr Norman Ip (BCA, Securities Industry Council, Real Estate), Mr Eugene Paul (REIT)
9d) If the Company has operations overseas, does the Company have any directors well-acquainted with the oveaseas' culture?
Remarks: Properties mainly in Singapore with a small portion in Australia. Mr Nicholas Paul and Mr George Wang is well acquainted with Australia, having spent a good part of their career there.
10) Quality and diversity of tenants
Remarks: 43.5% of rental incomes are derive from tenants from the logistic and warehousing sector, representing a huge concentration within this sector. The balance rental incomes are obtained from tenants from various sectors, with non exceeding more than 18%.
However, I am of the opinion that the concentration in the logistic and warehousing sector is not a weakness but a strength instead. This is given Singapore positioning as a logistic hub, with a world class seaport and airport facilities, as well as the increasing popularity for global shipping of goods (online purchase, etc). Although there are definitely headwinds ahead, but I believe that Singapore position as a shipment hub will continue to stay in the near future as we play to our strength (efficiency, location, punctuality, etc) while we sail with the growth story in the logistic industry.
On another note, their tenant, CWT Limited, contribute 22.6% to AA REIT income and this situation is worth monitoring as they have a rather huge direct impact on AA REIT performance should the situation changes.
11) Quality of lease (WALE, rental escalation, etc)
Remarks: Current WALE is only 2.49 years and starting from FY2018, there will be a further tenants' lease expiry of 29.6%, with a further 17.7% in FY2019. This will be occurring during a period of oversupply in industrial/logistic space while enduring poor demand due to the slowdown in the manufacturing sector.
Due to this poor economical climate, it is hence not surprising to see that the average rental revision for the last quarter was in the negative territory (-13.6%).
12) Occupancy level (in comparison to industry average)
Remarks: Not much to be said. Solid.
At current level (3Q FY2017), it outperform the industrial average regardless of whether it's the overall occupancy or by the various property profile (warehouse, industrial, Office Park, etc).
13) Type and duration of property lease.
Remarks: Once again, very solid with an average unexpired land lease of 38.7yrs and with more than 71.5% of the lease expiring more than 30yrs from 31 Dec'16 onwards.
At current yield of 8.17%, return on capital deployed will be between 12 to 13 years, thereby proving me with free money annually for at least 25 more years!
14) Is the market sector in which the Company is involved in, currently on a uptrend, stagnant or on a downtrend?
Remarks: I wanted to say that the market that AA REIT is in looks pretty bad. But on second glance, it doesn't look all that shabby for AA REIT at all!
For a very detailed report on the outlook, you may wish to refer to their FY2016 Annual Report (Pg46 onwards).
But lucky you! I'm not feeling lazy so I'm going to summarise some of my findings.
Firstly, although the industrial properties are facing some pressure from an oversupply (average 3.9mil sq ft of supply every year, estimated to last until FY2021), we have to bear in mind that such space only constitute 26.4% of AA REIT's portfolio.
On the other hand, logistic properties constitute a 53.2% of AA REIT's portfolio and yet the oversupply of logistic space is estimated to end by FY2018, providing an opportunity for upside after FY2018.
Similarly, although business space takes up 20.4% of AA REIT's portfolio, the oversupply is estimated to stop by this FY and hence providing upside after this FY. Then again, business park is not a huge portion of AA REIT assets.
All in all, due to various segment that AA REIT has its' hands in, it is not adversely affected or gaining from the various situations.
15) Are the economies of the countries in which the Company has operations in, currently on a uptrend, stagnant or on a downtrend?
Remark: Singapore economic growth for 2017 will remain within the same range as 2016, which is in the low 1% to 3%.
For Australia where AA REIT has some presence in, the GDP forecast is also expected to be rather muted. Then again, Australia only contributes about 12% to AA REIT income, so I will apply heavy discount to their contribution to AA REIT results.
Overall, both economies are expected to grow. But at such low rate of growth, it's kinda like watching paint dry (boringggg).
With a score of 72.5, I am actually rather comfortable with nibbling at AA REIT at its' current price without losing a great deal of sleep if it tanks.
Should the price falls again later this year, I will consider making another tranche of purchase provided that its' fundamental remains the same.
Heh.. I used "I" a lot in this blogpost. So please take note that all the comments above are basically my own opinion only. All the best in you forming your own :D
Ciao~
Remarks: As of 31 Dec'16, Trade receivables are at $9,200,000 while based on FY2016 Annual report, Cashflow from Operations are at $74,628,000. Hence, receivables are 12.32% of cashflow.
Receivables <11% of Cashflow from Operations
|
Receivables 11% to 20% of Cashflow from Operations
|
Receivables 21% to 30% of Cashflow from Operations
|
Receivables >30% of Cashflow from Operations
|
Score Awarded
| |
Score
|
6
|
4
|
2
|
0
|
4
|
Fundamental Analysis
9) Quality of Management
9a) Any directors with political connection?
Remarks: NIL
Yes
|
No
|
Score Awarded
| |
Score
|
2.5
|
0
|
0
|
9b) Any directors with banking background?
Remarks: Mr Eugene Paul (Citigroup, JP Morgan).
Yes
|
No
|
Score Awarded
| |
Score
|
5
|
0
|
5
|
9c) Any directors with outstanding relevant experiences with respect to the industry in which the Company is involved in?
Remarks: Mr George Wang (Real Estate, Fund Management), Mr Norman Ip (BCA, Securities Industry Council, Real Estate), Mr Eugene Paul (REIT)
Yes
|
No
|
Score Awarded
| |
Score
|
5
|
0
|
5
|
9d) If the Company has operations overseas, does the Company have any directors well-acquainted with the oveaseas' culture?
Remarks: Properties mainly in Singapore with a small portion in Australia. Mr Nicholas Paul and Mr George Wang is well acquainted with Australia, having spent a good part of their career there.
Yes
|
Not Applicable
|
No
|
Score Awarded
| |
Score
|
2.5
|
2.5
|
0
|
2.5
|
10) Quality and diversity of tenants
Remarks: 43.5% of rental incomes are derive from tenants from the logistic and warehousing sector, representing a huge concentration within this sector. The balance rental incomes are obtained from tenants from various sectors, with non exceeding more than 18%.
However, I am of the opinion that the concentration in the logistic and warehousing sector is not a weakness but a strength instead. This is given Singapore positioning as a logistic hub, with a world class seaport and airport facilities, as well as the increasing popularity for global shipping of goods (online purchase, etc). Although there are definitely headwinds ahead, but I believe that Singapore position as a shipment hub will continue to stay in the near future as we play to our strength (efficiency, location, punctuality, etc) while we sail with the growth story in the logistic industry.
On another note, their tenant, CWT Limited, contribute 22.6% to AA REIT income and this situation is worth monitoring as they have a rather huge direct impact on AA REIT performance should the situation changes.
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
2.5
|
1.25
|
0
|
2.5
|
11) Quality of lease (WALE, rental escalation, etc)
Remarks: Current WALE is only 2.49 years and starting from FY2018, there will be a further tenants' lease expiry of 29.6%, with a further 17.7% in FY2019. This will be occurring during a period of oversupply in industrial/logistic space while enduring poor demand due to the slowdown in the manufacturing sector.
Due to this poor economical climate, it is hence not surprising to see that the average rental revision for the last quarter was in the negative territory (-13.6%).
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
2.5
|
1.25
|
0
|
0
|
12) Occupancy level (in comparison to industry average)
Remarks: Not much to be said. Solid.
At current level (3Q FY2017), it outperform the industrial average regardless of whether it's the overall occupancy or by the various property profile (warehouse, industrial, Office Park, etc).
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
5
|
2.5
|
0
|
5
|
13) Type and duration of property lease.
Remarks: Once again, very solid with an average unexpired land lease of 38.7yrs and with more than 71.5% of the lease expiring more than 30yrs from 31 Dec'16 onwards.
At current yield of 8.17%, return on capital deployed will be between 12 to 13 years, thereby proving me with free money annually for at least 25 more years!
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
5
|
2.5
|
0
|
5
|
14) Is the market sector in which the Company is involved in, currently on a uptrend, stagnant or on a downtrend?
Remarks: I wanted to say that the market that AA REIT is in looks pretty bad. But on second glance, it doesn't look all that shabby for AA REIT at all!
For a very detailed report on the outlook, you may wish to refer to their FY2016 Annual Report (Pg46 onwards).
But lucky you! I'm not feeling lazy so I'm going to summarise some of my findings.
Firstly, although the industrial properties are facing some pressure from an oversupply (average 3.9mil sq ft of supply every year, estimated to last until FY2021), we have to bear in mind that such space only constitute 26.4% of AA REIT's portfolio.
On the other hand, logistic properties constitute a 53.2% of AA REIT's portfolio and yet the oversupply of logistic space is estimated to end by FY2018, providing an opportunity for upside after FY2018.
Similarly, although business space takes up 20.4% of AA REIT's portfolio, the oversupply is estimated to stop by this FY and hence providing upside after this FY. Then again, business park is not a huge portion of AA REIT assets.
All in all, due to various segment that AA REIT has its' hands in, it is not adversely affected or gaining from the various situations.
Uptrend
|
Stagnant
|
Downtrend
|
Score Awarded
| |
Score
|
2.5
|
1.25
|
0
|
1.25
|
15) Are the economies of the countries in which the Company has operations in, currently on a uptrend, stagnant or on a downtrend?
Remark: Singapore economic growth for 2017 will remain within the same range as 2016, which is in the low 1% to 3%.
For Australia where AA REIT has some presence in, the GDP forecast is also expected to be rather muted. Then again, Australia only contributes about 12% to AA REIT income, so I will apply heavy discount to their contribution to AA REIT results.
Overall, both economies are expected to grow. But at such low rate of growth, it's kinda like watching paint dry (boringggg).
Uptrend
|
Stagnant
|
Downtrend
|
Score Awarded
| |
Score
|
2.5
|
1.25
|
0
|
1.25
|
Total Score Awarded = 72.5 out of 100 Points
With a score of 72.5, I am actually rather comfortable with nibbling at AA REIT at its' current price without losing a great deal of sleep if it tanks.
Should the price falls again later this year, I will consider making another tranche of purchase provided that its' fundamental remains the same.
Heh.. I used "I" a lot in this blogpost. So please take note that all the comments above are basically my own opinion only. All the best in you forming your own :D
Ciao~