LMIR: Will I subscribe to the rights issue?

It is clear that my complaint about the proposed rights issue is that it is not distribution yield accretive. In fact, it seems to me that the distribution yield could suffer quite significantly, post rights issue.

If I were to subscribe to the rights issue, it would be with the believe that the management will acquire more malls which are NPI yield accretive in the not too distant future using only debt. With its improved debt headroom by then, it should not be a challenge to acquire malls with a total pricetag of around S$450m using only debt.

Assuming that the purchases would have similar or slightly higher NPI yields as the REIT's current portfolio, this could improve distribution yield some 30 to 40% based on current estimates (ok, my estimates). So, subscribing to the rights issue would be akin to a confidence vote for the management.

If we believe that the global economy is going into a recession and that European entities could be recalling funds from Asia to address their financial problems back home, it is reasonable to assume that unit price of LMIR could suffer somewhat.

As there is no compelling reason in the present to subscribe to the rights issue, we could sell the nil-paid rights when they start trading in the hope that we could buy more units in LMIR at a much lower price in the event of a sell down.

Indeed, for some, they could even sell their units in LMIR when the market opens tomorrow if they feel that the proposed rights issue is a bad deal and, hence, will have no part in it.

How will Mr. Market react to the proposed acquisitions and rights issue? It is anyone's guess.

Will I subscribe to the rights issue?

Unlike the earlier rights issues of AIMS AMP Capital Industrial REIT and First REIT, it is not a screaming buy.

Unlike the rights issues of CitySpring Infrastructure Trust, it is not raising funds to strengthen its balance sheet which means it is not a screaming sell.

Anyway, it is early days yet. I will stay rational and wait for more specifics, if any. I will see if there is more information forthcoming in the promised circular and at the EGM.

For readers who have the inclination, reading my past blog posts (and comments) on other rights issues might provide a window into my thought processes:

1. CitySpring Infrastructure Trust: Rights Issue.
2. First REIT: Rights Issue.
3. AIMS AMP Capital Industrial REIT: Rights Issue.

Related post:
LMIR: Proposed 1 for 1 rights issue.

Office S-REITs VS Industrial S-REITs (2).

I thought I should share some information which I have taken from CBRE's report in Q2 2011 as I have recently received questions from readers on REITs which derive income from office space rentals in Singapore.

For office space, it is expected that "vacancy levels rises (are) inevitable in the next 6 to 12 months. This is the result of increased levels of new supply coming on-stream in addition to second-hand space returning to the market.

"It is apparent the government has been seeking to bolster office supply to facilitate business expansion and to ensure that operating costs remains competitive vis-à-vis other regional cities. Notably, some 1.84 million sf (GFA) of commercial space could materialise from two newly listed parcels – Marina Bay and Paya Lebar. The quality, quantity and competitive cost of Singapore’s office space over other regional cities positions the city state to attract businesses. With global uncertainty lingering, the test is whether this will boost occupier demand and prove to be a winning formula.

"Looking at the office supply pipeline, approximately 8.4 million sf of space is to be completed from H2 2011 to 2015. The GLS sites awarded in Q2 2011 contributed about 10.0% (834,000 sf) of the total. Along with the confirmed conversion of the Market Street Carpark, a Q2 2011 number of landlords/developers are in the midst of repositioning older office buildings through redevelopment. We anticipate that more supply will emerge in due course with the focus on Core CBD."

Therefore, it is understandable why I am not very sanguine about the prospects of REITs such as Suntec REIT and CCT which are heavily exposed to office space rentals. I am instead more sanguine about industrial space rentals.

"Driven by the limited upcoming supply of hi-tech space in the next few years, monthly rent for hi-tech space rose to $2.75 psf in Q2 2011, up from $2.65 psf in the previous quarter.

"Despite the slowing economic growth, demand for factory and warehouse space remains healthy....

"Monthly rental for factories and warehouses rose during the quarter on the back of continued demand. In Q2 2011, the average monthly rents for factory units rose by $0.10 psf q-o-q to $1.85 psf and $1.50 psf for ground and upper floor units respectively. Meanwhile, the average monthly rent for warehouses also rose by $0.05 psf q-o-q to $1.70 psf for ground units and $1.40 psf for upper floor units.

"During the quarter, the capital values for 60-year leasehold strata-titled factory space increased by about 8.0% q-o-q to $312 psf for ground floor units and $230 psf for upper floor units. The capital values for freehold strata-titled warehouse space increased by a smaller 5.0% q-o-q to $471 psf and $412 psf for ground and upper floor units respectively.

"There is still demand for industrial space. Some companies are scouting for a larger space to consolidate their operations and at the same time expand. As such, we can expect some rental upside in the next half of the year."

I shan't say which industrial property S-REITs I like. I think it is easy enough to guess, is it not?

Read complete report here.

Related posts:
1. Industrial rent forecast strongest for Singapore.
2. Office S-REITs VS Industrial S-REITs.

LMIR: Proposed 1 for 1 rights issue.

I read with great interest the 1 for 1 rights issue proposed by LMIR. As regular readers know, I much prefer rights issue to private share placements as the former allows all unitholders to take part in the enlarged capital base of the REIT.

This rights issue is to raise some S$337m to help fund the purchase of two malls in Indonesia: Pluit Village and Medan Fair.  Pluit Village is to be purchased from the REIT's sponsor while Medan Fair is from an independent third party.

Pluit Village
Consideration: S$234m
Occupancy: 78.1%
NPI yield: 10.8%

Medan Fair
Consideration: $154m
Occupancy: 91.2%
NPI yield: 7.4%

Total purchase consideration is S$388m.  The proposed 1 for 1 rights issue at 31c per unit will raise some S$337m. The balance required for the proposed purchases will be funded by internal resources or debt.

LMIR's current NPI yield is 7.5%.  So, its purchase of Pluit Village is NPI yield accretive while that of Medan Fair is not. However, as the former is of a much larger value, it more than compensates for the latter. In aggregate, the purchase of the two properties is NPI yield accretive.

Now, is this rights issue good for unitholders?

The annualised distribution per unit (DPU) is estimated at 4c per annum currently. At the current unit price of 54c, that is a distribution yield of 7.4%. Subscribing to the rights issue at 31c per unit will give us an average unit price of 42.5c per unit. The number of units in issue will double while back of the envelope calculations show distributable income will increase only approximately 40%.

Therefore, DPU is likely to decrease to 2.8c per annum which will give us a pro forma distribution yield of only 6.59% based on the post rights unit price of 42.5c. So, this rights issue is not a good idea for unitholders who are investing for income. In terms of distribution yield, it is regressive.

Even if the management were to improve the occupancy of Pluit Village from the current 78.1% to 90%, it would not really make a difference.

This rights issue could be good in the longer run as it will probably send the REIT's gearing level to under 10% which will give it more debt headroom for future growth. It is perfectly reasonable to then question, with already such low gearing level in the first instance, why the REIT has to resort to such a large rights issue for these proposed purchases?

I have always thought of LMIR as a bullet proof REIT, a stable passive income generator. However, I have also been unhappy with their hedging policy which to me seems to suggest a mediocre management. I hope this rights issue is not going to prove me right (pun unintended).

Read announcement here.

Related post:
LMIR: Thoughts on partial divestment.

CapitaMalls Asia: Dual listing in Hong Kong.

Earlier in March, CapitaMalls Asia announced that it was exploring the option of a secondary listing in Hong Kong.

Today, it received in-principle approval and will list on Hong Kong's mainboard come 18 October.

"CapitaMalls Asia may not be raising new capital from its listing in Hong Kong, but the move will allow the mall developer to widen its investor base here in Hong Kong and by default China.


"This is expected to help improve its market visibility and trading liquidity - which then opens up additional sources of funding for the company."

Read complete article here.

Although I continue to believe in the fundamentals of CapitaMalls Asia as well as its longer term prospects, its share price is something else.

Technically, the counter's share price is very much in a downtrend. Selling into strength is, therefore, a sound strategy.

A movie: Real Steel!

When I was at the movies earlier this week, I saw the trailer for "Real Steel". Wow! I am so going to watch this!

This is a story set in the near-future where the sport of boxing has gone high-tech. It stars Hugh Jackman as Charlie Kenton, a washed-up fighter who lost his chance at a title when 2000-pound, 8-foot-tall steel robots took over the ring.

Now nothing but a small-time promoter, Charlie earns just enough money piecing together low-end bots from scrap metal to get from one underground boxing venue to the next. When Charlie hits rock bottom, he reluctantly teams up with his estranged son Max (Dakota Goyo) to build and train a championship contender.

As the stakes in the brutal, no-holds-barred arena are raised, Charlie and Max, against all odds, get one last shot at a comeback.

I like this kind of inspiring stories and with robots thrown in, the little boy in me cannot resist it!

Play the Real Steel game and win movie premiums.
Check it out:
http://sg.churpchurp.com/AK71SG/share/realsteel

Sabana REIT: Acquiring 21 Joo Koon Crescent.

Sabana REIT is recently on an acquisition spree. Today, it announced the proposed acquisition of 21 Joo Koon Crescent. With this latest acquisition which will be funded fully by debt, its gearing level will bump up to 35%.

Property: 21 Joo Koon Crescent.
Consideration: S$20.274m.
Remaining lease: About 43 years.

If all its recent proposed debt funded acquisitions should be successfully carried out, it is reasonable to expect rather much higher distributable income starting 2012 which would bump up DPU, of course.

However, with pro forma gearing level at 35%, the REIT could possibly resort to some equity fund raising for future proposed acquisitions.

I am still sanguine about Sabana REIT's numbers and I will accumulate if there should be any weakness in its unit price.

Read announcement here.

ARA: Partial divestment at $1.20

I was hoping that ARA's unit price would retest resistance provided by the declining 20dMA yesterday after the rather nice white candle the day before. So, I was hoping that there would be a chance to sell closer to $1.30.

Unfortunately, yesterday's black candle was formed on the back of much higher volume as price tried unsuccessfully to move higher. The ADX is rising and the DIs are still negatively placed. Selling pressure was strong.

The white candle today had even lower volume than that of two days ago. The bulls seem to lack conviction. So, I decided to lock in some gains by divesting those units obtained at $1.13 recently at $1.20.

If price were to go higher from here to test resistance provided by the declining 20dMA which approximates $1.29, I could divest those units obtained at $1.22 last week. If price were to weaken, I could load up again if the immediate support at $1.11 should hold firm.

Tea with AK71: Ad by Abercrombie & Fitch is indecent!

On 28 August, I made a quick mention of the gigantic poster at Knightsbridge (the former Crown Prince Hotel) put up by Abercrombie & Fitch and how it caused distress to some people with more puritanical persuasion. They said it was lewd. Read blog post here.

This was a photo I took that day:

Indecent?

What if we were to put a 4 storey high statue of David by Michelangelo in the same location?

Totally indecent! Gasp! It does not even have a pair of jeans to hide the privates!

Or what about this famous painting in the Sistine Chapel (yes, in a Chapel) also by Michelangelo?

Anyway, the Advertising Standards Authority of Singapore (ASAS) in its infinite wisdom has decided that the ad is indecent and has called for the ad to be removed.

Why bother talking about being more vibrant in the arts when we are not even able to match the openess of the Renaissance period a few centuries ago?

Read article here.

Do you want to be a millionaire?

Many people would like to be millionaires. There is something magical about having a million dollars in our bank account, it seems.

Of course, when we think about it, a million dollars these days is really not a big deal, especially when a DBSS flat in Tampines could cost almost as much!

I read an article in China Daily recently which is titled "After making a fortune, millionaires find a gaping vacuum in their lives". 

The article makes me wonder how many actually lost themselves in money making frenzies and, in the process, forgot why they want to be rich in the first place.

In China, it is almost as dangerous to be rich as it is to be a police officer as between "2008 and 2010 nearly two in every 10,000 multi-millionaires with a net worth of more than 100 million yuan lost their lives; for police officers, the country's most dangerous occupation, the death rate is three in every 10,000...

"Out of the 72 multi-millionaires and billionaires who have died in the past eight years, 19 died from illness; the rest died of unnatural causes...

"Of the 17 millionaires and billionaires who killed themselves over the past eight years, the average age was 50..."

The article made an interesting statement by saying the 

"poor can always nurse the hope of a better life.." 

while 

"wealthy entrepreneurs.. become confused over their original aim of making money."

Do you still want to be a millionaire? ;p

Related posts:
Passive income: A higher purpose.
No change to my plan as I plan changes to my life.

A wealthy doctor was strangled, shot and stabbed in his Florida mansion.

Win $80,000 cash or a Volkswagen Touran!

Monopoly is back at McDonald’s with over 3 million prizes to be won. Get your game labels with any Extra Value Meal purchase to win.

With over 3 million prizes be won including (1) $80,000 cash from Visa (2) Volkswagen Touran (3) A trip to Atlanta from Coca Cola and (4) A trip to Prague from Dynasty Travel plus many more.

And with over 3 ways to win in 2011 (1) Collect to win (2) Instant Win and (3) Chance Card all prizes must go.

The new Chance card also wins you $100 instantly and a final entry into the draw to win any unclaimed prizes.

Double labels on weekends also means you receive double the labels with any EVM purchased over the weekend period.

All prizes must go!

Start playing McDonald’s Monopoly today:
http://sg.churpchurp.com/AK71SG/share/mcd-monopoly2011

Meanwhile, want to win a $300 H&M voucher?
Play the Biore Marshmallow Whip Game:
http://sg.churpchurp.com/AK71SG/share/biore-marshmallow-whip-game

Good luck!

Have an iPad? Use Flipboard to follow my blogs.

I am probably one of the least tech savvy person around. So, for me to blog about technology is a rarity.

Ever since I started using an iPad, high technology is just a touch away. It is really a joy to use.

Recently, I was introduced to an app by a very good friend. The app is called "Flipboard".

The "cover" of Flipboard looks like the cover of magazines. It uses pictures from the publications we are subscribed to for its "cover".

I am able to keep up with my favourite magazines, newspapers and blogs all with this one single app!

Once we "flip" the cover, we search for publications to subscribe to and they will become a part of our Flipboard. It is that easy.

I really like how the introductions to articles in my blog are visually presented. Looks very professional, don't you agree?

If you have an iPad, you know what to do. Just go to the Apple app store and download Flipboard.

It is free and that makes me happy too.

Related posts:
1. Protect your iPad.
2. China prices, global deals.

First REIT, AIMS AMP Capital Industrial REIT, ARA and Sabana REIT.

It is kind of late and I still have a long drive ahead of me. So, this will be a quick update with very simple charts.

My overnight buy order for First REIT at 76c was filled. My other overnight buy order at 74.5c was not filled although the unit price did go that low today.

Overnight buy order for AIMS AMP Capital Industrial REIT at 19.6c was filled. I thought that many people would want to buy more units of this REIT at 19.5c, the last low. So, I queued 1 bid higher at 19.6c.

Towards the end of the day, I also bought shares in ARA at $1.13 and units in Sabana REIT at 86.5c.

Like I said in my last blog post on ARA, I did not put in an overnight buy order at $1.17 which was the next support I identified if $1.22 should fold. I said I would rather wait and see. Today, ARA's volume was rather low and $1.13 was a good 9c lower than $1.22. Could we see ARA at $1.08 next?

As for Sabana REIT, I would like to get this closer to 83.5c, its last low. At 83.5c, it would be giving a distribution yield of 10.5%. 86.5c is a few bids higher.

Looking at the chart now, I think I should have stuck to the original plan and waited for its unit price to get closer to 83.5c. Well, who knows for sure? Could have a bullish harami in the next session. ;)

Good luck to us all.