$Apple(AAPL)$ Many reports have confirmed Apple iphone pro models pre salesorders are very strong, stronger than its predecessor iPhone 13 Pro series. In contrast, the normal iPhone 14 and 14 plus pales by alot. Therefore, if AAPL shifts its product mix towards the high-end pro series, the top and bottom line growth will be fantastic.Given iPhone sales remained resilient even during China lockdown, it shows the demand for high-end smartphone experiences is stillvery strong. With the punishment from Fed'srate hike on the share price, its time to see if there are opportunities to accumulate at huge discount.
Digital Core REIT: Analysis of its maiden acquisition
$DigiCore Reit USD(DCRU.SI)$ Digital Core REIT (DCREIT) announced an acquisition of two Data Center in Frankfurt and Dallas. The final effective stake in the two Data Center will depend if DCREIT is able to raise equity funding to partially finance the transaction.In the case where there is no equity fund raising, DCREIT will only acquire 25% stake in the Frankfurt facility at agreed price for US$558m (100% basis, 4.3% annualized 1H22 NPI). Total purchase consideration would be US$140m fully funded by debt, which is approximately. In this debt-funded scenario, the DPU accretion would be 2% to 1H22 pro-forma DPU, assuming a 3.5% financing cost. In my opinion, this is the best scenario where DCREIT can make use of its large debt headroom to leverage up and squeeze the extra yield from the relatively lower Euro interest rate.In the case where there is equity fund raising, DCREIT will acquire 89.9% stake in the Frankfurt facility and 90.0% stake in the Dallas data center (US$199m agreed price for 100% basis, 5.0% annualized 1H22 NPI yield). Total purchase consideration would be US$681m. DCREIT expects its DPU accretion to be 3.1% (based on 1H22 DPU pro-forma) assuming 60/40% debt/equity funding split with US$416m of new debt (3.5% interest cost) and at illustrative issue price of 83 US cents per unit.This is the scenario where I disagree with the equity funding illustration from DCREIT. Currently, the trading price for DCREIT is 76 US cents, far below the illustrative price of 83 US cents. Factoring a 9% discount to the trading price for the issued price, which is typical for private placements, the final issued price could be ~70 US cents. The Manager revealed that DPU accretion goes down by 20bps for every 1 US cent decrease. Hence, putting all these considerations together, the DPU accretion could only be 0.5% instead of 3.1%. Take note: once the issued price goes below 67.5 cents the deal will be DPU dilutive. Also, under this scenario, the gearing will shoot up from 25.7% to 37.5%, using up quite a bit of debt headroom.Given the current macro environment, investors will be more cautious on yield products such as REITs as investors typically look at the yield spread, esp. for lower-yield REIT such as DCREIT. Investors will also probably factor in a spike in interest cost as well and discount the bottom-line DPU, especially DCREIT has a 50% floating rate exposure. As such, I don’t think there will strong interest for private placement from both institution investors or investment bank underwriters, and the most probable scenario would be DCREIT purchasing a 25% stake in Frankfurt facilities fully funded by debt. As retail investors, it also important for us to review the REIT’s fundamentals in its entirety, not just the acquisition itself. Personally, given the Fed rate is projected to go 4.6% by 2023, I find it hard to stomach REIT with less than 5% yield now.@TigerStars @Daily_Discussion
$Invesco QQQ Trust(QQQ)$ With such a hawish tone from the Fed, its best notto bet against it. Fed signalled that by end of 2022 the fed fund rate is projected to increased to 4.5%. It took Fed almost 2.5 years from 2004 to 2006 to raise that amount of interest, but now Fed did it in 1 year. Damage to QQQ companies will not be spared. Together with the new IRA tax, earnings will not look good next year for these corporates. Very bearish trend.
$Daiwa Hse Log Tr(DHLU.SI)$ Last night, Daiwa House Logistic Trust (“DHLT”) announced its intention to acquire 2 freehold properties and a freehold land where the existing warehouse is already sitting from its Sponsor. The total purchase consideration is ~S$47.7million and it’s intended to be funded by cheap JPY borrowings and partial payment in units to its Sponsor. The acquisition is projected to deliver ~1.3% DPU accretion based on pro-forma numbers.The NPI entry yield is pretty decent at 6.5%. One of the new warehouses, DPL Iwakuni 1 & 2, is newly built and pretty modern, but there is no information if this is a ramp-up or cargo-lift installed warehouse. Moreover, D Project Matsuyama S is a relatively older and smaller warehouse completed in 1994 that is built-to-suit.The good thing about this acquisition is that the Sponsor is willing to support the fund raising by accepting the new units for payment at higher of NAV or 10 Day VWAP. This issued price is 15% higher than the current trading price of DHLT. This demonstrates the Sponsor’s confidence as it invests a portion of the proceeds back into the REIT to show its skin in the game. I believe this is the reason why the share price rise in the midst of the red sea after Fed’s hike last night.However, what I dislike about the Sponsor is how cunning they are to sell the property (with limited land tenure) and the freehold land separately for D Project Iruma S Land to unitholders. This feels like the Sponsor is out to milk unitholders by purposely engineering such transactions. I believe DHLT will be forced to buy more of such “freehold land” in the future. Mind you, D Project Iruma S’s freehold land is more than 2 times the price of D Project Matsuyam a S’s properties + freehold land.Moreover, after last night Fed’s third 75bps rate hike with an ultra-hawkish tone, Yen’s depreciation hit record low of 145 to Dollar. This means that unitholders of DHLT will receive significantly less DPU in terms of SGD as illustrated in IPO. This may or may not be attractive to unitholders at the current moment.Currently, I have mixed feeling for Daiwa as a Sponsor, and at the same time due to the macro environment, I prefer to wait and see first before investing in DHLT.Above analysis is purely my opinion and does not constitute as trade advice.@TigerStars @Daily_Discussion
$Grab Holdings(GRAB)$ A good amount of GMV growth is still fueled by incentives and perks. With a net cash of only 2.6billion, Grab will be forced to cut down incentives, and from here you can see what is the true GMV.Food delivery industry itself a very competitive sector. In Singapore we have Food Panda, Deliveroo and Grab food. In Indo we have Go-To (merger of tokopedia and Gojek). The markets that Grab serves in are unlike Uber. These countries are more densely populated and food can be obtained relatively easier. I really wonder what is the true demand for food delivery and how much are consumers willing to pay.In terms of PS valuation, Grab is more expensive than Uber and Meituan, both companies which have grown past the J-curve and exhibiting the flywheel effect! Whereas Grab is still struggling with high HQ cost with their newly built HQ building in SG. Most analysts'estimated Grab can only turn profitable in 2025. Before that, i wonder how long Grab's balance sheet allow such level of cash burn.
$Energy Select Sector SPDR Fund(XLE)$ Global energy demand continues to expand steadily, driven by population growth, productivity growth and improving living standards. It’s estimated that we require 3x energy over the next 20 years. Oil demand is going up even with all the EVs, net zero carbon pledges and subsidies etc.However, capex spending on oil and gas has more than halved since 2014! There is a significant underinvestment due to all the ESG protocol and the growing pressure to decarbonise. Years of underinvestment leads to lower production of oil and natural gas, which will lead to sustained higher price for oil in the longer run.Hence, I like $Energy Select Sector SPDR Fund(XLE)$ as I expect oil prices to be high on the back of tighter market conditions in 2023. It will be a good hedge against persistently high inflation.
September rate hike should be 75bps without much surprises. Previously market participants are still speculating for 50bps so Fed have to come out and crash those expectations. But doing 100bps is too overkill especially signs are showing that inflation is already softening. I dont think Powell will want to do something so sensitive before the midterm election andmake the US citizens hate the Democrats. Mind you, 75bps in Sep means that we are on track for a 4 - 4.25% fed fund rate, which is already verg high.