Esther Ang asked 5 months ago
Rusmin Ang Staff answered 5 months ago
Heng Hou Ching
replied 5 months ago Hi Rusmin,
Most reit will present in the acquisition details that it is DPU accretive.
How do we know if this is true? Example, Fraser Logistics recent acquisition of Four Logistics Properties In Germany, it only says “The Proposed Acquisition is expected to be DPU accretive
and NAV per unit accretive on a historical pro forma basis”. No figures were provided.
Also, with risk free rate close to 3.8% (Using T-bills as example), for the property yield of any acquisition, should we demand a much higher rate than this? (i.e. at least 6%) Or should we still compare with the property yield of the reit’s current properties?
Thanks for your help.
Rusmin AngThat’s quite vague! I guess this is relatively a small acquisition but still, they should’ve provided the numbers.
You can either write in to them or go to attend AGMs to enquire about this.
Other than that, you may also have to watch out the capital distribution for Frasers Log & Comm. Capital distribution relates to lease incentives, rental support, divestment gains and coupon interest. This accounts almost 10% of the DPU which may not be sustainable.
Heng Hou Ching
replied 5 months ago Hi Rusmin, thanks for the insights on Frasers Log & Comm.
With risk free rate close to 3.8% (Using T-bills as example), for the property yield of any acquisition, should we demand a much higher rate than this? (i.e. at least 6%) Or should we still compare with the property yield of the reit’s current properties?
Thanks for your help.
We have no control over the acquisition of the property and its yield by manager.
So nowadays we just focus on DPU accretiveness whenever an acquisition is made. The accretiveness must not be supported by any form of financial support.
Heng Hou Ching
replied 4 months ago Hi Rusmin, is capital distribution considered as a kind of financial/income support? If yes, then I believe we should demand an even higher yield to offset the risk. Thanks.
We usually exclude capital distribution from calculation of yield since it is not sustainable.
Heng Hou Ching
replied 4 months ago Hi Rusmin:
I wrote to FLCT investor relations.
For FLCT recent acquisition of German Properties, the DPU accretion is up to 1%. The cost of debt to fund the acquisition is 3.83% and the NPI yield is low 5%. Good news is that the yield does not have any income/rental support. Does not seem like a very attractive acquisition but is ok.
With regards to distribution of divestment gains as capital distribution, IR only mentioned that they still have quite a sizeable amount to be distributed. I guess once that is gone, DPU most likely will drop, together with the upcoming refinancing of loans which will be refinance at much higher rates.
The distribution yield of 6.9% now may not seem that attractive given that they also distribute 100% of their income.
May I know your views on this? Thanks!
Nice effort there, HH!
I think the acquisition looks fine on the number side but you may also want to pay attention on the qualitative side, i.e. WALE extension, quality of tenants, location, etc. For capital distribution, we should exclude them out in the calculation of yield. If it is 10% of the current DPU, we can strip it out. So I still think that FLCT needs to trade at its historical high yield of 7.5% (based on core DPU) or higher to become more attractive.
Heng Hou Ching
replied 4 months ago Hi Rusmin:
Thanks for your inputs.
Based on the latest half year dividend of 3.48 cents, 0.36 cents (about 10%) is capital distribution. If we exclude it, the half yearly dividend will be 3.12 cents. If we annualized it, it will be 6.24 cents.
They have about $1,589m borrowings due for refinancing in FY24 to FY26. This is close to 70% of total borrowings. The refinancing will be at a much higher rate than the previous ones. I believe we may need to take this into account as well.
I assume a further 5% drop in DPU from 6.24 cents due to higher refinancing costs. This will work out to be 5.93 cents. For FLCT to be at historical high yield of 7.5%, the price to buy at will be close to $0.80!
Not sure if I am too conservative in my calculation. Appreciate your thoughts. Thank you.
I think you've got good point there for expiring loans that will be refinanced at higher rate. It should negatively affect the DPU but wondering if you know % of the portfolio that have built-in rent escalation? This increment may be able to offset some of the DPU pressure. It could be quite tricky to estimate the precise impact if we take into account of FOREX fluctuation between EUR, AUD and SGD. So give yourself more buffer if there are more moving parts.
Heng Hou Ching
replied 4 months ago Hi Rusmin:
Percentage of portfolio that have built in rent escalation is 83.6%.
Given the forex risks etc, I guess between $0.80 to $0.90 could be a good time to enter FLCT.
Yep, that sounds a lot safer!
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