Sabana REIT: Bought more at 93.5c.

Today, I increased my investment in Sabana REIT once more. Price? 93.5c /unit. I still have the same question and that is why are people selling at this level?

I have a faint suspicion that a former substantial shareholder, Moore Capital Advisors, who last made a divestment which brought their investment in the REIT to less than 5% of the total units in issue back in December 2010, are still divesting. Of course, they no longer need to declare any sale of units although they still had some 29,752 lots on hand since that divestment in December 2010.

Why am I bullish on the REIT? The REIT is still trading CD with a DPU of 3.04c. Granted that this is an extraordinary payout as it represents distributable income from the REIT's listing in November 2010 to end March 2011. Quarterly, expect a DPU of about 2.2c as the norm. So, the distribution yield is about 9.4% at a unit price of 93.5c.

There are certain arguments that the REIT has a weak sponsor, an untested management and that the quality of its assets is questionable. However, looking at the strength of its balance sheet, its low gearing of 24.9%, its NAV/unit of 98c and its interest cover ratio of 7.9x, it would have to take a very incompetent manager to foul things up. Well, I can only hope that the CEO, Mr Kevin Xayaraj, is a competent one. He was with Ascendas Land (Singapore) Pte Ltd for two years in 2004 to 2005 before moving on to Cambridge Industrial Property Management Pte. Ltd. where he stayed till August 2009.

It is reassuring that the manager's performance fee is only payable if the REIT generates an annual growth in DPU of at least 10% over the previous financial year. If the DPU does not grow 10%, no performance fee. If the manager makes income accretive acquisitions which are financed through debt, DPU is likely to grow as well. However, if such acquisitions are financed through equity fund raising, the manager will have to be very careful to ensure that DPU does not suffer a dilution. How will the manager perform? This is a wild card, isn't it?

As for the quality of assets, DTZ revealed that Sabana REIT has some high quality assets such as Pantech 21 (72 years remaining) and Geo-Tele building (45 years remaining). In fact, 44% of the REIT's portfolio is made up of high-tech industrial buildings when compared to the number of warehousing buildings. The land leases on the REIT's high-tech industrial buildings do not start expiring until year 2051.

Investing in anything has attendant risks. Investing in Sabana REIT at its IPO price of S$1.05/unit might not have been the most prudent thing to do. With smallish REITs, there were better yielding alternatives out there. However, at 93.5c/unit, the risk premium has been watered down significantly. Could I be totally wrong about this? I think it unlikely but the possibility exists. After all, we can and should reduce risk in investments. It is near impossible to eliminate risk.

Looking at the chart, the lowest the REIT's unit price has been to was 92c while 93c can be said to be a rather strong, many times tested immediate support. Upon XD next Tuesday, we would probably see the REIT's unit price weaken.

Could we see 92c tested again? Possibly. Could we see price form a new low? Why not? How low? I do not know. However, I do know that if it gets much lower as to give a distribution yield of 10%, I am buying many more units. Unit price would have to be about 88c to give that kind of yield.

STI declines again: CapitaMalls Asia, Golden Agriculture and Sabana REIT.

I caught a hint of panic in the air today. It is not abject terror but a slight panic.

STI declines 1.3% to 3,113.76 at closing, lowest since 31 March 2011. Shares on the measure trade at an average 14.3 times estimated earnings, compared with about 15.6 times at the end of 2010, according to data compiled by Bloomberg. The world’s biggest builder of oil exploration and production platforms declined as crude oil futures fell for a third day on concern demand will weaken as stockpiles rise in the U.S., the world’s biggest consumer of the commodity.
Wednesday, 04 May 2011

© 2011 - The Edge Singapore

Is this hint of panic a good opportunity to load up some stocks on the cheap? Well, I took the opportunity to load up on some:

CapitaMalls Asia: The last time I bought some shares in this company was at $1.80 per piece. Today, my overnight buy order at $1.70 was filled. I had another buy order at $1.68 which was not filled. Incidentally, $1.68 was the low of the day. What is next?

Looking at the daily chart, expecting a more bearish scenario could see the 150% Fibo line, which coincides with the lower limits of the MA envelope, providing stronger support at $1.64 next. We might even see the strongest of the 3 golden ratios tested on the downside. The 161.8% Fibo line approximates $1.62.

Golden Agriculture: Look at the daily chart and find the uptrend support originating from 28 October 2008. This is a very long term support and likely to be a very strong one.

It is approximating the lower limits of the MA envelope which is at 62.5c in the next session. With the support at 65c, which is where I bought more of the stock today, compromised on higher volume, we could see price weakening again in the next session. With the fundamentals strong and the longer term uptrend intact, I am buying more on weakness.

Sabana REIT: I bought more units of this REIT today at 93.5c/unit. For reasons unknown, the REIT was sold down heavily today.  Two transactions, each with more than 1 million units, sold down the REIT at 93.5c /unit. It is strange that the individuals or institutions responsible for these two transactions did not sell in the last three sessions when unit price touched a high of 95.5c but chose to sell at 2c lower today instead. This is especially puzzling as the units are still being transacted CD.

A DPU of 3.04c will go XD on 10 May, next Tuesday. Paying 93.5c/unit today is a good deal, I believe, representing a discount of 5.6% to NAV/unit and a relatively secure distribution yield of 9.4%. Until next Monday, I am accumulating on any further weakness.

Courage Marine: Profit warning.

Courage Marine's management issued a profit warning, expecting 1Q 2011 to turn in a loss: "The Board of Directors of the Company wishes to inform Shareholders that, despite efforts by the Group to secure deployment of its fleet, fleet utilisation was low during the first quarter of 2011. The Chinese New Year holidays in February resulted in a decrease in our fleet utilisation over the period. In addition, the Japanese quakes, tsunami and nuclear power plant disaster had temporarily halted the shipment of cargo to and from Japan, which resulted in a temporary over-supply of vessels within the Asian region. In addition, freight rates during the period remained generally low, with the BDI averaging around the 1,500 level during such period." Read announcement here.

I took the opportunity to divest most of my investment in the company at 22c/share when the price spiked on news of dual listing plans by the management. This was on 18 Jan 2011. I still retain a small investment in the company despite dismal BDI numbers as I want to see if dual listing would help reflect the value of the stock more accurately. Well, we win some and we lose some. Here is the latest BDI chart:

Technically, the counter had been range bound with resistance at 19.5c and support at 17c. Today, price broke support and touched 16.5c briefly before closing at 17c.

Gapping down today, we could see gap fill happening at 18c and that would be a good price to reduce exposure or to divest completely. Sell at resistance, that is what I would do. Panic selling would not do us any good.

Mapletree Industrial Trust: A simple analysis.

I looked at the results of Mapletree Industrial Trust (MIT) briefly when it was announced a few days ago. It didn't interest me much and so, I did not blog about it. Someone asked me a couple of days ago what I thought of it and if I would invest in the trust now.

I like industrial properties S-REITs because they probably offer a more stable source of passive income compared to office S-REITs or retail S-REITs. At least, in theory, that's how it is. I also like First REIT which is into healthcare properties. I usually choose to invest in REITs with relatively higher yields compared to their peers in the same sector. After all, investing for income, distribution yield has to be a very important consideration.

MIT's distribution yield, at the last done price of $1.08 per unit and an annualised DPU of 7.72c, is about 7.15%. I cannot say I am excited by the yield. Investing in AIMS AMP Capital Industrial REIT, Cache Logistics Trust or Sabana REIT would give a higher distribution yield.

At $1.08, MIT is also trading above its NAV/unit of 95c (a rich premium of 13.7%). MIT has a gearing level of 36.1% and an interest cover ratio of 6.6x. Occupancy rate is at 93.2%. So, we could possibly see distributable income increasing again in future if occupancy rate improves. This could bump up DPU by a few % but distribution yield would probably not surpass 7.8% even so (ceteris paribus).

Some numbers for easy comparison:

AIMS AMP Capital Industrial REIT (20.5c):
Yield: 9.76%.
NAV/unit: 27c (24% discount).
Gearing: 32%.
Interest cover ratio: 5.7x.

Cache Logistics Trust (95.5c):
Yield: 8.18%
NAV/unit: 88c (8.5% premium).
Gearing: 26.4%
Interest cover ratio: 9.5x.

Sabana REIT (94.5c):
Yield: 9.3%.
NAV/unit: 98c (3.6% discount).
Gearing: 24.9%
Interest cover ratio: 7.9x

For people who were lucky enough to invest in MIT during at its IPO at 93c per unit and are still holding on, they would be enjoying a distribution yield of 8.3% which is more attractive. What about investing in MIT now? The biggest attraction in investing in MIT now is probably its pedigree. Mapletree is, after all, an arm of Temasek Holdings. Ironclad? Probably.

What about Mapletree Logistics Trust (MLT) which has expanded through acquisitions? Back in July 2010, I mentioned that I was wary of this trust because of its high gearing of 43.6%. The management has since brought the gearing level down through equity fund raising. Its numbers are now somewhat stronger:

Mapletree Logistics Trust (90.5c):
Yield: 6.85%.
NAV/unit: 85c (6.5% premium).
Gearing: 39.4%.
Interest cover ratio: 6.7x

MLT's distribution yield is even lower compared to MIT's. Its gearing is also higher. MLT's occupancy rate is >98% and has less room to increase revenue by filling vacancies compared to MIT. If I have to choose between MLT and MIT, the latter has my vote.

See MIT presentation slides here.
See MLT presentation slides here.

Golden Agriculture: Accumulation mode.

Anyone who has been following my blog recently would know that I have been accumulating shares of Golden Agriculture. Today, I bought more shares in the company at 66.5c a share. Do I intend to buy more if price should weaken? Yes, I would.

I am confident that the demand for crude palm oil (CPO) will strengthen as an edible oil as well as for the production of bio-fuel. With increasing affluence in Asia, especially in India and China, consumption is on an upward trajectory. With crude oil once again north of US$100 a barrel, we could see a stronger return of bio-fuel as a less expensive alternative. The fundamentals support higher CPO prices in future.

CPO has retreated to RM3,270 a ton from a high of RM3,960 in February. This is a decline of more than 17%. There are signs that the steepest part of the correction is over as price has managed to stay above RM3,230 a ton since late March.

Golden Agriculture's fortunes are probably the most levered to the price of CPO amongst the CPO companies listed in Singapore. Its share price took a dive from a high of 83c on 4 Jan 2011 to just 61c on 23 Feb 2011 for a loss of 26.5%. Devastating for anyone who got in at or near the high? Quite. Could price continue to move south?

Well, technically, I get the impression that the counter is oversold. As the ADX is at 11 and the DIs approximate 20, there is no strong trend or a trend per se. Volume has reduced again today as price found support at 66c and this is where the uptrend support which originated on 23 Feb is found. Stochastics is still in oversold territory and could we see it forming a higher low?

I always say that TA is about probabilities and never certainties. So, in the event that price moved lower, where is the next support? If the trendline support originating from the low of 23 Feb were to break, I see the next support at 65c. This is also a more ideal entry price I identified some time back when I was thinking of re-initiating a long position in this stock. More ideal because it was the top of a very lengthy basing process which started in early January 2010 and ended in October of the same year.

By drawing a Fibo fan using the low of 23 Feb and the high of 11 Apr, 65c is also where we would find the 78.6% Fibo fan line next week. For good measure, I used the low of 25 May 2010 and connected it to the low of 23 Feb 2011 which gave me another trendline support. Guess what. This line actually approximates the 78.6% Fibo fan line mentioned earlier.

65c could be the next strong support. If price were to test 65c, I am buying more.