If you look at the cash flow for H1 the borrowings went up $2.8m, that covered the shortfall in distributions vs cash from operating activities plus the capex investment. This increased the gearing, on the back of modest devaluations, from just over 35% to just under 37%. Another half year like that & they'll be around 39% vs target range 30-40%. Which suggests that a cap raise or asset sale may be necessary. That's what IMO is weighing on the unit price.
To bring the cashflow inline with distributions & capex the distributions would need to be cut approx 20% (rent increases & all other things being equal. That would still be a yield of approx 9.8%
NTA is 94c vs 69.5c is a 26% discount which with the state of their Balance Sheet is a little light to me.
To get gearing down 3% they'd have to raise approx $27.5m, at 60c (14% discount) raise price that's an approx 15% dilution.
If you add together the 15% dilution & the 20% distribution cut to stop the gearing increases that's a 35% distribution reduction which still gives you a 0.0525c distribution or 7.95% on 69.5c. Although of course the unit price would likely drop to 60c.
So although with the cap rates they are using, devaluations going forward should be minimal I think the risk of a cap raising or asset sale with the likely impact on distributions is too high a risk. COF with lower gearing all be it lower cap rates is IMO a safer bet.
(20min delay)