2Q2017 Stocks Update
Ascott Reit
Income
Revenue increased by 4% y-o-y in both 1H and 2Q 2017 due to contributions from new properties (Sheraton Tribeca, Citadines Frankfurt, Citadines Hamburg). Profit increased by 2% y-o-y basis for 2Q, but there was no change from 1H2016.
Revenue also increased from properties in Vietnam and Philippines after AEI had completed, and also from better revenue in Belgium. This was offset by the divesting of 18 housing properties in Tokyo.
1.84c DPU for 2Q, representing a 8% increase from the last quarter. 3.356c DPU for 1H, a 6% increase from last half if one-off items were not considered.
Debt
Gearing dropped to 32.4% from 41.1% in March 2017 due to the rights issue. Interest cover improved from 3.8 to 4.4x, and weighted average debt maturity increased from 4.6 to 4.8
8% improvement in finance costs due to refinancing for lower interest rates and repaying bank loans. Ther was also a 17m foreign currency gain by using the rights issue to pay this back. The rights issue appears to have gotten some good value in repaying debts at this point.
Considering the current share price. I think the debt situation for Ascott looks good, and a key concern I had (high gearing) when i invested seems to be kept away.
Portfolio
The portfolio saw an upward revaluation of S$6m.
Ascott REIT completed acquisitions of Citadines Frankfurt and Citadines Hamburg in May, which were accretive at a EBITDA yield of 5.4% and under Master Leases.
Doubletree Hilton is expected to complete its acquisition in August 2017.
AEI was also completed in London Barbican, Somerset Makati (ADR uplift of 14%) and Somerset HCMC (ADR uplift of 23%). I like that AEI is leading to increased revenues, reflecting positively on management.
Frasers Logistics Trust
Revenue and NPI are within forecasts. Distributable income beat forecast by 5.8%, because of interest savings (finance costs beat forecasts by 18%), and lower withholding tax.
DPU of 1.75c, 6.7% above forecast.
On a whole year basis (20 June 2016 to 30 June 2017), distributable income beat forecasts by 4.7%, and DPU beat forecasts by 5.5% for the same reasons.
Balance sheet now shows A$1.75bn of property assets after acquiring the 3 call option properties (A$1.60bn at IPO).
NAV per share = S$0.92
Weighted average cost of borrowings = 2.8%
Interest cover = 9.5x
Gearing 29.3%
No debt expiry in FY2017 and FY2018
Occupancy = 99.3%
WALE = 6.7yrs
Average fixed rental increases = 3.2%
Acquisition of 7 properties expected to complete in August 2017. Have completed placement exercise and obtained EGM approval.
Soilbuild Business Space REIT
2Q and 1H 2017 Distributable Income grew 4.3% and 5.5% y-o-y. However, DPU had declined by 6.3% and 5.3% on a y-o-y basis. The decline in DPU, despite the increase in income, was due to some management fees being paid in cash, and also units being issued.
Distribution of 1.466c in August
NAV per unit = $0.72
Occupancy = 92.6% (JTC average 89.7% - one thing i learnt this quarter is that JTC has statistics which I can use to see if the REIT is performing within average expectations)
WALE = 3.3 years
Rental reversions = -9.3%
Debt profile
Weighted average cost of borrowing = 3.37% p.a.
Weighted average debt maturity = 2.3 years
72 Loyang Way - One of the pain points in this portfolio. Occupancy now stands at 22.8%, and the REIT is still able to make use of the security deposit to prevent this from affecting its NPI. I must keep monitoring this to see how badly it would affect future results.
Interestingly, the security deposit is reflected as cash in the balance sheet. So even though NPI is not affected, utilising the security deposit would thus impact the NAV.
Of note is a blog post by MySweetRetirement recording his decision to divest his Soilbuild Units. He did so because of the declining DPU in both 1Q and 2Q2017 compared to 2016, flat net asset value despite acquiring Bukit Batok Connection, and the low occupancy at 72 Loyang Way due to the weak offshore and oil and gas sectors.
Capitaland Commercial Trust
Financials
CCT saw a huge improvement in revenue (29.5%) and NPI (34.3%), but overall distributable income only increased by 6.7% (8.3% on a half year basis). This is due to finance costs, and the changes in revenue resulting from structural changes. Capitagreen now contributes to revenue as it was acquired in 2Q2017 and contributes more as CCT now owns 100%, while joint venture income had dropped as a result. One George Street now counts towards JV income but had only booked 10 days as it completed the JV on 20 June. But overall, it is good to see an increase in distributable income, and hopefully they can keep it up next year.
DPU had also increased by 3.2% (2Q) and 4.6% (1H) respectively. A distribution of 4.59c per unit was announced.
Another good sign is that property operating expenses did not go up proportionately. However, there were higher asset management fees (due to consolidation of Capitagreen's asset management fees, and also higher trust expenses for professional fees.
Net assets also rose as a good amount of liabilities were paid off, offset by a reduction in total assets due to the divestment of One George Street.
Occupancy: 97.6%
Gearing: 35.2%
Cost of Debt 2.6%,
average term to maturity 2.9 years
Interest coverage 4.9x
Current NAV per unit is 1.80 excluding distributable income. I realise that CCT is actually still trading below its NAV, and may be worth considering adding more at this point.
Major changes
In June, CCT divested 50% of One George Street and holds it in a JV.
Divesting WilkieEdge for S$280m
Entered into a JV to develop Goldenshoe car park (CCT owns 45%). CCT divested Goldenshoe to the JV, and retains a call option over the commercial portion and a drag along right for the service residences component
Issued 54.7m new units pursuant to conversion of convertible bond
The divesting of OGS, WilkieEdge, and Goldenshoe would give a net gain of S$171.7m.
Analysis
Currently CCT is doing well due to capitagreen, which is mitigating negative rent reversions in other properties. Currently the market is still one of oversupply of office properties, which is expected to hit CCT's income as negative rental reversions seem to be likely. It might be a good strategy to wait for prices to drop further on more negative rentals before picking up more units to hold in the long tern.
Portfolio Changes
I also recently added 1,000 units of Netlink Trust. So far the price has remained stable, and I will be waiting to see whether the yield is worth holding on to these shares.
Thoughts for next few months and things to work on
I have been considering if I should divest some of my units of Ascott Reit as the current price is quite attractive compared to the discounted rights issue price I purchased at (1.18 vs 0.919) This would be a pretty good capital gain for me. However, I think currently the management is still moving on a good path and I could possibly hold these units longer and take the dividend yield. The current market confidence also means there is little better place to deploy the cash if i were to liquidate now. I will still watch the price regularly and if there is an upward trend, consider again if I will ride it and cash out some shares.
Preparing this summary has reminded me that my financial literacy is still very limited and I need to put more effort into learning to read the financial statements and analysing them critically. I intend to focus my reading of financial blogs to how they are analysing their stocks, and also to pick up some books on stock analysis to get better at this.
I also currently don't have much on my watch-list except CMT, so I should try to broaden it till I hit a good number of 10-15 stocks that I am tracking.
The above merely constitutes my notes for my own reference only and is not to be taken as financial advice for any person of any kind.