Cache acquisition can potentially be high risks... the seller is a high risk co Metcash... it is famous for Independent Grocer (IGA) branding that is under severe competitive pressures as a result of supermarket war Down Under... The changed in competitive landscape is due to the successful arrival of German low cost retailer Aldi and another chain Costco... that has inflicated serious damage to IGA's mkt share and also eroded incumbents Woolworths and Coles. So far Coles has stayed ahead due to its ability to match Aldi and Costco's emergence... Hence Cache's ability to secure 8.9% yield on the acquisition. Anyway, SA is not exactly a hot spot for such logistics acquisitions... VIC/NSW/QLD are and that is where recent acquisitions have taken place. FCL-ALZ's industrial platform will stand to benefit from continued interests and the pending listing of this division Down Under
Greengiraffe,
Not sure what you were expecting with Cache Logistics but after the right issues that we can consider as a bad news since they said the proceeds would be partially used to deleverage thus likely to decrease the DPU, I find that this purchase is good news: 8.9% yield even in Australia is a very good yield and tho I do agree Metcash is currently facing increased competition. But they are a well established company and are still making millions of dollars of benefits so it will be one of the strongest Cache Logistics tenants.
Almost a 5 years lease with escalation rents based on consumer prices index is also not a bad thing.
Lastly one thing that I consider as a good news: they will use their borrowing facility in Australia to pay for the balance. So we will have to see exactly how much they use from the right issue proceeds to finance this acquisition but the deleverage will probably not be as bad as initially thought and more importantly the borrowings will be a bit shifted from SGD to AUD. This is important as AUD rates will probably not increase as fast as SGD rates when the FED starts raising US rates
I saw that article and the following is my comments:
Unfortunately end client is high risks and SA is quite a long shot for residential development... seldom heard of newsflow from SA...
There is also an interesting article on Metcash overnight:
Nov 15 2015 at 1:33 PM
Is Metcash a bargain or a value trap ?
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[img=620x0]http://www.afr.com/content/dam/images/z/v/h/w/z/image.related.afrArticleLead.620x350.gkz6x7.png/1447568191413.jpg[/img]The relationship between Metcash and independent retailers has improved. Supplied [Image: 1425525330490.png]
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by Jonathan Shapiro In explaining a $1 price target on Metcash, Morningstar analysts summoned a quote from Warren Buffet: "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that stays in tact". Despite the initial efforts of Metcash management to convince shareholders it will turn around the fortunes of the embattled wholesaler, it remains the most shorted share on the stock exchange, with more than 20 per cent of available shares loaned out to short-speculators who believe good management isn't enough. They're betting the company, which has already had half its sharemarket value, or $1.3 billion, wiped out, will continue to slide into oblivion. The shorts reckon its business model shouldn't exist. In acting as a middleman between suppliers and independent stores, at a time when every cent of margin is under threat and prices are falling, they believe its long-term viability is questionable. [img=620x0]http://www.afr.com/content/dam/images/g/k/z/h/z/0/image.imgtype.afrArticleInline.620x0.png/1447568161267.png[/img] In a ferociously competitive grocery sector that has been thrown unto upheaval by an assault by the discount retailers, the view is that "Metcrash" will be the first to get trampled in a brutal price war. And in the business with high operating leverage, falling prices and lower volumes is a devastating combination for the bottom line. But is talk of the demise of Metcash premature? Has the brutal market reaction to the dividend cut, and every bit of bad news at Woolworths, created an "asymmetric" opportunity to buy a challenged, but ultimately sustainable, business on the cheap? Some believe strongly that it is. Suggestions that Metcash's issues are "terminal" are absurd, misguided and mis-informed, certain shareholders say. The starting point for the bull case is naturally the cheap valuation on the stock. At 8 times forward earnings some believe it's a bargain.
Of course, Metcash has been 'cheap' for years. The stock has traded at a lower multiple compared with its dominant grocery peers in the Australian market. The discounted valuation coupled with the generous dividend lured value-hunters into what ultimately was an expensive trap. Now having shed $2.5 billion of market value since May 2013, it's a different level of cheap. A case is often made that if Metcash's three main divisions– groceries, liquor and hardware – are pulled apart, investors are getting the troubled grocery business for next to nothing. The grocery business is the largest accounting for around $200 million of EBIT. The hardware and liquor businesses on the other hand have proved to be steady earners even in the face of adversity delivering around $60 million of EBIT each. On relatively conservative multiples those businesses could account for much of the current share price – with other assets and debt roughly offsetting each other. On that logic, Metcash management need only stop the rot to justify a materially higher share price. Whether they can achieve that may prove far more difficult. Metcash has been shedding market share and with lower prices and margins, it new management team faces a tough task in fighting back against the assault of the hard-discounters and the wounded giants.
What has short sellers on notice is Metcash's operating leverage. The past three years have shown that 1 per cent or 2 per cent declines in grocery revenues can take earnings down by around 20 per cent, demonstrating just how crucial every dollar of sales is to Metcash. The company is responding in a number of ways. On the capital management side, it took the brave but long overdue decision to cut its dividend, triggering a wave of income funds to systematically dump their holdings, punishing the stock. No dividend also means it's cheaper for the shorts to hang around and wait for what they believe will be its eventual demise. AUTOMOTIVE SALE ALSO CRITICAL
But that move, along with the $275 million sale of its automotive business, was critical in improving its balance sheet. With less leverage, Metcash is less prone to going over the edge, allaying that fear at-least. Metcash has also undertaken several bold initiatives aimed at reversing the loss of market share felt by its independent grocers. One has been its Price Match strategy, in place since September 2014 where it matches the sticker prices of its competitors. The other has been its Diamond Store programme where it is working with several of its retailers to refurbish their stores and improve their fresh-food offerings to attract more customers. The company outlined how its strategy was tracking on September 30 as senior management and division heads presented their vision to achieve a turnaround. That clearly won over a few investors, acting as a catalyst for a near 30 per cent rally in the share price as they convinced the sharemarket of a clear path to fixing the business. The early evidence is that while the turnaround will take years, there are some green shoots, with sales and warehouse volumes up as a result of the initiatives. The shorts are more sceptical. They saw little in the presentations beyond division heads telling their shareholders and their customers what they wanted to hear. The price-matching strategy doesn't come cheap. Metcash is effectively wearing much of the cost in the form of lower profits to allow its independents to win back customers. The rationale is that if shoppers are paying the same for key items they'll be more inclined to shop at their IGA. The margin loss is an investment, but not every shareholder is convinced it will work. They feel the IGAs' value to shoppers is convenience, not price, and doubt Metcash can go head-to-head on this front. Others believe Metcash 'jumping at shadows" as much of the fall in sales was attributable to aggressive petrol discounts offered by Woolworths and Coles and changes to trading hours in Western Australia that hit the IGAs harder than most. HIGHER VOLUMES HOPED FOR What shareholders are hoping for is that the initiatives will eventually drive higher volumes and ultimately better terms from suppliers that will help its margins. This is how dynamics played out with Tesco, the embattled UK retailer that is fighting back after being caught off-guard by the discounters. But Metcash's biggest challenge could be ahead of it. More than a third of Metcash's sales are accounted for by independent retailers in South Australia and Western Australia. Those two states will become the next battleground as Aldi, the discount retailer plans an assault that could threaten to erode more of its market share. But here Metcash's independent grocers may prove more resilient the bears give them credit for. Some of the best-run independent grocers in the country operate in these states, having successfully warded off Coles and Woolies for years by offering customers a better experience. It is also argued that the pace of rollouts, Aldi plans to open 20 stores in each state by the end of next year, won't be enough to seriously dent Metcash's share. In fact one bright spot in the discount assault is that it has improved relationships between Metcash and its independent retailers. With new management there's said to be a new era of understanding that they need to work together, and share the cost, in fighting for their respective futures. In fact Metcash's biggest weakness is its strength. With no direct control over the independent retailers, it will be difficult to co-ordinate its response to the discount retailers and changing dynamics. But, the bulls say, the autonomy of the retailers means they know their customers better and respond directly to their tastes. That could give it the upper hand, if trends among overseas shoppers become more prevalent here. Commonwealth Bank analyst Andrew McLennan says in other markets shoppers are visiting stores more often, but buying smaller baskets, which leaves the convenience offering of the independents well placed to win more business, at the expense of both Aldi, and Woolies and Coles. The "limited assorted model" is slowly challenging the hard-discount model overseas and there may already be early signs of similar trends in Australia. For a company and a business under siege, the prospect of a structural 'tail-wind' must seem like a daydream. What divides investors at present is whether or not Metcash is more vulnerable than its larger peers or more nimble and better able to respond to disruptive forces. Those that believe the latter admit a bet on Metcash largely rests on the abilities of chief executive Ian Morrice to deliver on an ambitious strategy in extremely tough circumstances. But it's also a bet that Metcash has a future in the new retail world order. Here, it's the rapidly evolving habits and priorities of the nation's shoppers that will decide its fate.
(02-06-2011, 09:14 PM)Nick Wrote: There is a quite a number of properties in the ROFR and development assets coming online in the next 2 years. Would it make better sense to purchase CWT for the potential boost in earnings and book value going forward or Cache for its stable income backed by master leases from CWT ?
Personally my thinking would be more bias towards CLT though I'm vested in both at the moment. In fact, I'm thinking of partially divesting my CWT stake to put into CLT; but your point about potential boost to CWT's book values from divesting more properties is well noted.
When in doubt, buy both!
CWT was traded at $0.83 per share on 24th May 2011.
Today it is traded at $2.15 per share (Gain 158%)
Had you invested $83,000 you would have $215,000 today.
On the other hand.
Cache Log Trust was traded at $0.93 per share on 24th May 2011.
Today it is traded at $0.86 per share (Lost 11%)
Had you invested $93,000 you would have $86,000 today.
Food for Thought:
Currently, is Cache Log Under Price for its Value?
25% gain is nowhere compared to 158% gain over the same period of 5 years. One would have more than doubled his investment by investing in CWT over the 5 years. Comparing the figures, one should not expect much gain from investing in business trusts or REITs in terms of total gains over the same period of time even though business trusts and REITs still have a place in an investor's portfolio depending on his investment objectives.
I disagree with you as you are comparing a company like CWT with REITs. Having said that, there are still some REITs listed on SGX which achieved very good returns for investors for the past few years via capital gain and distributions. Examples include MapleTree Commercial Trust, MapleTree Industrial Trust, ParkwayLife REIT, Fortune REIT etc. You just have to choose the right ones.
But I do agree you that the performance of business trusts listed on SGX had not been good to date.
Hi ghchua,
Thanks for highlighting the difference in nature for CWT and Cache Logistics as company and REIT respectively. I am only stating the figure of returns as it is over the same period of 5 years. It is generally true that companies yield better returns than REITs and business trusts though there maybe those few exceptional REITs or business trusts that may outperform companies on a long term basis (at least a decade and more).
However, each type of investment does have its place in an investor's portfolio as I have mentioned. Again, it really depends on an investor's investment objectives, disposition and risk appetite. One can choose to invest solely in companies alone (knowing companies generally yield better growth and returns) while another can invest in REITs and business trusts alone (more for stable income) and yet another can choose to invest in a mix of companies and REITs and business trusts.
11-05-2016, 02:09 PM (This post was last modified: 11-05-2016, 02:13 PM by vesfreq.)
(07-05-2016, 02:09 PM)jeremyow Wrote: 25% gain is nowhere compared to 158% gain over the same period of 5 years. One would have more than doubled his investment by investing in CWT over the 5 years. Comparing the figures, one should not expect much gain from investing in business trusts or REITs in terms of total gains over the same period of time even though business trusts and REITs still have a place in an investor's portfolio depending on his investment objectives.
Also to add. The earlier and more frequent dividend payout also means that a reit holder has the opportunity to plough back the dividends for greater compounded growth in dividend payout. Assuming a dividend yield of 8% per annum, the actual compounded rate of return (assuming 4 time payout) is no longer 8% per annum. It is worthwhile to take this into account, if you are analysing or comparing over longer time periods. As to how to interprete this, I leave it to your creative minds. If one had this investing strategy in place, he/ she would have created a pretty sizable (depending on the initial investment outlay) cash yield real estate asset.
Companies like cwt or ssg are not so likely to pay dividends as frequent as cache. And, reinvesting of dividends are not as likely to yield higher compounded rates of return like a reit.
Reit and equities like cwt have very different risk profiles. The former is a real estate landlord and faces issues more to do with real estate management, tenancy and lease renewals, while the latter has a very different operating business and surely much more vulnerable to economic swings and cycles.
Cache has a very good investor presentation and the reasonable measures taken to ensure the consistent payouts. CDL Hospitality too has a good presentation demonstrating how they preserve this consistent dividend payout.
Reit is very appropriate to investors looking for salary replacement income, unlike the "conventional" equities. And, surely is a convenient alternative to direct real estate investment ownership which incurs much more administrative effort, time and perhaps cost. To quote David Kuo (from Motley Fool), it is easier to sell a share unit by unit, rather than selling a property brick by brick.
Just my views.
The thing I am scared most is not nightmares or market crashes..... Its my greed that I fear the most.
When people ask what is my target price, I never have any good answer for it because Philip Fisher said before (in Common Stock Uncommon Profit) that the best time to sell is never. Equity investment is buying into ownership, not betting slips.
The path to greatness and wealth is necessarily dangerous.... because greed is a fearsome fore that threatens your success at every step.
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