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LMIR: Too cheap to sell.

Wednesday, December 7, 2011

Some who managed to get a meaningful number of excess rights might be thinking of selling these rights for a quick gain. After all, selling at 36.5c today would mean a capital gain of 5.5c or 17.7%. This is more than 18 months' worth of income distribution from the REIT if we were to use my estimate of 3.26c in annual DPU, post rights and acquisitions.

Personally, I wouldn't sell my rights units as I am investing for income. I will be getting 10.5% distribution yield on cost. That is pretty good, especially when we consider the fact that its gearing level is below 10%.

However, if I should consider selling, at what price would I sell? Similar to First REIT, I feel that an 8% distribution yield should be fair. 8% distribution yield is still fairly high but looking at First REIT's unit price, it would seem that Mr. Market is not willing to accept a yield lower than 8% for a REIT with an Indonesian focus.

Some might argue that LMIR traded in excess of 60c a unit not too long ago. Even at just 60c, it would mean it had a distribution yield of 7% (based on the estimated annual DPU of 4.2c back then), a full percentage point lower than 8%. A persuasive argument.

So, when would we see fair value for LMIR? When its units are trading with a distribution yield of between 7 to 8% would be my guess. Assuming that its annual DPU does not change from my current estimate, that would mean a unit price of 41c to 46.5c. It is currently still too cheap to sell.


Marti said...

I am also not selling despite having gotten a fairly generous amount of excess rights. Yield is too good to give up :)

It seems the market puts quite a high risk premium on Indonesian REITs: retail and health-care REIT are normally the highest valued/lowest yield out there as their activity is the most stable, yet both First and LMIR seem to be lowly valued. The fact that they are somewhat small probably factors in too as they are below the radar of some of the bigger players.

AK71 said...

Hi Marti,

Not telling how many excess rights you were given? Make me jealous! ;p

Yes, Mr. Market seems to apply an Indonesian discount on First REIT and LMIR.

I guess it could be a good thing. We might be able to buy more at lower prices, perhaps. ;)

Mark said...

Hi AK71
At what price will you be loading more LMIR? :D

AK71 said...

Hi Mark,

I was wondering if anyone would ask me this question. ;)

If I were not vested yet, the current price is not bad to start a long position with. It is a more than decent price.

I already have a significant investment in the REIT but if it should hit 32.5c, I would definitely load more for a 10% distribution yield.

SnOOpy168 said...

Did a simple cost averaging, small holdings + rights + excess, TERP is above the current market price ! :-(

Buay song lor.

But then investment is up & down. I will keep it for income.

Will add more at the right price, for diversifications purpose.

Huat ah.

AK71 said...

Hi SnOOpy168,

Hindsight is bad for health. ;p

Personally, I feel that an advantage in investing for income is that I avoid all these messy feelings about short term paper losses (or gains). They mess me up.

Yes, you are right to say that prices will fluctuate. So, don't be too concerned.

Ask ourselves why did we choose to stay invested. If the motivation is for regular income, then, did we do the right thing? If we did, then we should be glad. :)

Ray said...

Hi AK,

Between the two options below, which one would you choose and why?

1) selling now in anticipation of much lower prices so that you can collect stock cheaply.

2) Dollar Averaging.

Need not be LMIR btw, could be for any stocks.

AK71 said...

Hi Ray,

I will always remain partially invested, accepting that I do not have perfect knowledge.

If a crash should come, I would buy more at supports.

Of the two options you provided, option one suggests that one had perfect knowledge which was what a young "analyst" once told me he had.

"It is 100% foresight. Nothing is due to luck!"

Wow! Youthful confidence. Unfortunately, I do not have such youthful confidence. :(

Option 2 is attractive but I have been corrupted by TA. I won't do dollar cost averaging. I like to do a bit of timing if possible.

I am a person of many conflicts...

Ray said...

"Yes, you are right to say that prices will fluctuate. So, don't be too concerned."

You know, I really wish I can do that but every time I look at the stock market and see my paper losses, I cant help but ask if I should sell now and buy back cheaply later. All these noises from Europe side certain arent helping!

AK71 said...

Hi Ray,

Well, you know, there are many ways to Nirvana. If an investment technique is giving you sleepless nights, it might not be the one for you. Of course, then, you might also want to question if you should be investing.... yet. ;)

Ray said...

Well, I'm sleeping like a pig at night actually :D
It's during the day when I think how / what next to do for my portfolio.

AK, how do you manage to keep cool even though your portfolio has paper losses? Like do you chant something to yourself? :D

AK71 said...

Hi Ray,

Chants? Hahaha.. We are taking this Nirvana thing a bit further now. ;p

Like I said a few times before, understand why we are invested. If we are invested for income, then, we should concentrate on how to get the most income from our investments (with thorough FA and some help from TA, of course).

Fluctuations in the underlying assets' prices should not affect us (unless we are leveraged or using money we should not be using to invest).

Also, I have a warchest and I am ready to buy more on the cheap if the opportunity should present itself.

I am getting between 7.7% to 17.7% distribution yields on cost for my investments in S-REITs. That has a wonderful calming effect. ;)

SnOOpy168 said...

was a little disappointed at today's dividend's announcement :(

"Tax-exempt distribution of 0.36 cents per unit and capital distribution of 0.17 cents per unit"

Q411 (1 October 2011 to 31 December 2011) = 0.53c

AK71 said...

Hi SnOOpy168,

I will have a blog post about the results later today. I will share my thoughts with you then. :)

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