Secondly, given the parent’s company (FCL) obvious direction to divest more of their Australian properties into their Reits wings, there will be plenty of acquisitions opportunities for FCOT (And FHT) in the next few years ahead. It’s a little tricky here because given the structure of Reits to pay out majority of its earnings, acquisitions will have to be funded via debts and/or equity.
The point I am trying to make is given the relatively high current valuation of the Reit in terms of its NAV (compared against their relative peers), any drop in the stock price means that it is much more difficult for the company to acquire a yield accretive acquisitions since the net property yield of the acquisitions cannot be lower than the yield they are already offering to unitholders. We see the latest Collins Street acquisitions as one of those examples where the difference between the NPI and current yield are not significantly different. In other words, share price would have to continue to move upwards in order to make sense for them to issue equity at an attractive price. The management can always choose to fund the acquisitions via debt, which is a much cheaper form of financing, though the limitations of the gearing and the rising interest rate would not have helped them much.
I have also utilized part of the proceeds from the sell to purchase something else today, a company which I think presents a better risk reward ratio in the long run. I may blog in the next day or two regarding the purchase, given if time permits. Let’s see if the decision to do so in right over the long run.