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Ascendas REIT - Looks undervalued
A-REIT has obtained S$200m in credit facilities to refinance part of its S$300m commercial mortgage-backed securities (16% of total debt) due in August 2009 at a low credit spread of 120bp (vs the current 250-300bp). We estimate this translates to a borrowing rate of 3-3.5% for the new loan. We forecast an average funding cost of 3.8% in FY10, from 3.25% previously, which would erode DPU by 5.5%, assuming its S$524m revolving term loan is refinanced at 5%.We lower net income 13% for FY10F to S$173.7m and 16% for FY11F to S$173.8m as we see a sharp decline in spot rents. The business parks outlook has turned bleak, with rents down 4.4% qoq to S$4.30psf in 4Q08 on slower demand. Net leasable area from the manufacturing sector (21% of A-REIT’s portfolio) fell for three consecutive quarters to 4Q08. However, potential terminations for A-REIT’s multi-tenant logistics and light industrial buildings should be mitigated by its high security deposits (10-month average for sale-and-leaseback properties).While A-RE
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