Feb 24:

It's hard to see exactly what exactly is going on in terms if income.

I'm think that gross income includes some rent free incentives, which (depending on lease structures) can be quite deceptive. For example, a tenant might sign a 10 year lease that has a "rent rebate" for the entire term. The REIT books the entire rent as income and then capitalises the "rent free" portion. If the rent free potion is only for a relatively brief period of time, then fair enough. But if it's for a longer period of time, capitalising the rent free incentive is somewhat deceptive. I do not think rent free is included in "capex incentives".

The difference between statutory revenue and FFO revenue is notable. it appears to me that the main difference can be explained by "rent free and abatement".

I'd need to do a lot more work to gain some comfort on what a sustainable distribution would be, given increasing interest costs and the actual underlying cashflows that the assets are generating.

August 23:

March analysis still holds up ok. COF bought too much on the way up and didn't sell early enough.

The valuations on the portfolio do look slightly more conservative compared to some of the bigger office REITS (DXS and GPT), however the Cap rate is still well below the marginal cost of debt. Falling effective rent and expanding cap rates will undoubtedly see office vals deteriorate further.

At around $1.30, this probably becomes a good long duration play.

I'm not convinced $0.12 is going to be the low point for distributions, but will see how things pan out and act quickly if need be.

March 23:

Still no divestments and I have recently divested around $1.75, due to my thesis breaking.

Not only am I doubtful that distributions can be sustained at current levels ($0.14), I'm not even convinced 8% is an appropriate discount rate.

With the cost of incremental debt for COF now probably at or above the portfolio cap rate, the pinch is going to be felt on the bottom line. You don't have to get too creative to see how how distributions can get to $0.12 or lower.

The current cost of debt in the latest half year was 3.4% which translated to an interest expense of $15.7 mil for the half year. Even if the if the cost of debt moderates to 5% in the long term (I think it's close to 6% at the moment) as hedging roles off, it's easy to see that distributions are going to be crushed by increasing interest costs, unless interest rates fall significantly.

Will adopt an $0.12 distribution discounted at 8% for my valuation.

August 22:

Hmmm. That's not ideal. FY23 Distribution forecast of $0.141 was not part of the thesis. For the time being I will value based on $0.14c distributions into perpetuity discounted at 8%.

I need to figure out how much of the drop in distributions is due to bad luck and how much is down to crap management. More to come....