This REIT delivered results that are inline. I favor Cache more than Aims AMP and Sabana due to its higher yield yet lower gearing. (Compare against other REITs here)
Cache
Assets: 788 mil
Cash: 7.6 mil
Debts: 203 mil
Debt/Asset: 25.7%
Qtr Net Income: 10.6 mil
Qtr Net Operating Cash flow: 19.4 mil
Qtr Capex on existing properties: 5 mil
Qtr Free Cash Flow: 14.4 mil
Qtr Interest Expense paid: 1.5 mil
Qtr Distribution to share holders: 12 mil
EV/EBITDA: 18 times
PTB: 1 time
I am very comfortable with paying 95 cents ( current share price ). Cache is probably the REIT that is at fair value.
- A lot of REITs do not have much capital expenditure done on their properties. Seems like it is more asset acquisition rather than asset enhancements.
- Valuation is fair. For this price I pay for an annualized 8.2% yield or 48 mil in cash flow.
- Distribution is less than net property income
- Interest paid is very low. I was looking at Fortune REIT and they have a huge chunk of their net property income shaved by interest expense. Perhaps this 1.5 mil is just a small part of a bigger interest expense. It will be good if they can keep interest expense less than 10% of operating cash flow
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AK71
Monday 2nd of May 2011
Hi Drizzt,
Well, a black swan event is like what hit Japan and affected my investment in Saizen REIT. If something like this were to happen to LMIR, well, just tough luck. I don't think any amount of hedging would make a difference. The hedging that LMIR's management do is against currency risks, after all.
If there should be any event in Indonesia that could cause the Rupiah to depreciate to a point where 100% hedging would work to unitholders' advantage in S$ terms, the country would probably be in dire straits and I wonder what would be the state of the rest of the members of ASEAN.
AK71
Sunday 1st of May 2011
Hi Drizzt,
A competent management would reduce risk and at the same time try to maximise returns. It is impossible to eliminate risks altogether. Hedging is necessary but 100% hedging is questionable.
The Rupiah is the currency of an economy that, together with India and China, did not go into a recession in the last financial crisis. The Rupiah is not the US$ or the Pound Sterling. I have said this and more in my blog. Not much I can do about it, of course, since I am not and will never be rich enough to get a directorship. ;)
Drizzt
Sunday 1st of May 2011
lol but perhaps the management is really hedging against an ultimate blackswan event. thats when you would appreciate it.
AK71
Saturday 30th of April 2011
Hi Drizzt,
Their CFOs never last long, averaging about 1 year in their job before quitting. I wonder....
I seriously dislike how they are losing tons of money in their hedging strategy and it has been in place forever. It is my personal guess that the CFOs might not have agreed with this and had to pack their bags.
I did reduce exposure to this REIT some time back. The investment is now at a size which I feel comfortable keeping. It is, after all, a stable passive income generator with >8% distribution yield although it could really be quite a bit higher.
Drizzt
Saturday 30th of April 2011
hi AK71, thanks for sharing. Is the reason why they hedge because that is necessary? what if INR wasn't this straight forward?
AK71
Friday 29th of April 2011
Hi Drizzt,
I blogged about LMIR last night. I am keeping the status quo. ;)
Drizzt
Friday 29th of April 2011
for a potential new investor their changing of CFO is a concern.
AK71
Thursday 28th of April 2011
Hi Drizzt,
Yes, I agree that Cache has stronger numbers and I am accepting the lower distribution yield as a premium for greater safety. :)
You feel that Cache will have a problem in future because they are tied to long term lease agreements which prevent them from raising rents? Then, would it not go against your feelings that its lower 8.2% yield is safer than AA REIT's 9.5%?
Drizzt
Friday 29th of April 2011
Hi AK71,
that is my opinion, but really interest rates rise is only part of the equation. if we compare the debt profile of Aims vs Cache, one is lower than the other and what is the debt structure? it might work better for Cache in the end.
Whats your view of LMIR at this price? plan to nibble abit.