ARA Asset Management: Re-initiating long position.

ARA Asset Management was a stock I fully divested more than 3 years ago. 

On hindsight, it was a mistake because deviating from a familiar practice, I did not keep a core position for income. I suppose I was a bit more active as a trader in the past.

I have been waiting for a chance to get back in and the recent plunge in its stock price has provided me with an opportunity to do so.

ARA's EPS for 2014 was 10.35c and DPS was 5c. So, they paid out about 48% of earnings as dividends. 

When looking at ARA's PE ratios in the last few years since 2012, we see a range of about 12x to 22x. Median PE ratio is, therefore, about 17x.

ARA's 1H 2015's EPS came in lower at 4.19c. Could 2H 2015 do better for FY 2015 to beat FY 2014's EPS in aggregate? Of course, your guess is as good as mine. 



If we should simply annualise 4.19c, we get a full year EPS of 8.38c. Multiply that by 17x and we get a price I might buy at which is about $1.42 a share.


At $1.32 a share, I am re-initiating a long position at a PE ratio of 15.75x which is a bit lower than the median of 17x identified earlier. 




Of course, if ARA should deliver an EPS of 10c for FY 2015, $1.32 a share would look much cheaper then (with a PE ratio of 13.2x).

Dividend yield, assuming DPS of 5c remains unchanged, is almost 3.8% with a purchase price of $1.32 a share.

Another stock for income and growth? Good to accumulate at lower prices? Perhaps so.


Related post:
ARA: Divestment $1.30 and $1.32.

9M 2015 passive income from non-REITs.

Some wonder if Mr. Market could go into a depression? I don't know but I do know that many stocks became much more attractively priced in the last three months.

Consistent with my strategy to diversify my portfolio to reduce reliance on S-REITs for income, I added to my long positions in the following as their stock prices declined more significantly recently:

1. Accordia Golf Trust

2. Ascendas Hospitality Trust

3. ST Engineering

4. Starhub

5. SembCorp Industries

In the last three months, I also initiated long positions in the following as investments for income:

5. VICOM
"A 15x PE ratio would give us a fair value of $5.36 or so per share."

6. Religare Health Trust
"Trust has demonstrated its ability to improve its revenue organically quite strongly which makes up for the expiration of the sponsor's waiver to their share of the distributable income."

7. King Wan
"King Wan is in a net cash position and it also has an order book that would provide earnings visibility until 2018."

Finally, I accumulated the following stocks which have a bit of an income investing angle but the main reason is because I think they are worth much more and at lower prices, they became even more attractive:

8. Wilmar

9. OUE Limited

If you should be interested, you could search ASSI for more of my blog posts on these stocks and why I decided to add them to my portfolio when I did.

Of course, stocks could stay undervalued for a long time but regularly receiving some dividend in the meantime makes the waiting more palatable. I like to be paid while I wait.

If you suspect that I have dipped into my war chest in the last three months, you are right. 

Could we see another big decline in the stock market? We could and we should be ready. So, being cautious, I have not exhausted my war chest.

I have a couple of fixed deposits maturing next month in October and I will probably be keeping the money close at hand instead of putting it in another fixed deposit or two.

In Q3 2015, the following non-REITs paid dividends:

1. SATS

2. Old Chang Kee

3. APTT

4. SingTel

5. SCI

6. SMM

7. Wilmar

8. NeraTel

9. ST Engineering

10. QAF Ltd.

11. Starhub

12. HongLeong Finance

13. Croesus Retail Trust

For the first 9 months of 2015, total passive income received from non-REITs: S$ 57,747.59. 

This works out to be S$ 6,416.40 per month.

Have a shopping list and be ready to pounce if Mr. Market becomes depressed.

Related post:

6M 2015 passive income from non-REITs.

Croesus Retail Trust: 22 for 100 rights issue.

Some time ago, I mentioned that due to the relatively high gearing level, I expected further acquisitions made by Croesus Retail Trust to be funded through new equity or a blend of new equity and debt.

In their acquisition of another mall in Japan, Torius in Fukuoka, funds will be raised partially through a rights issue. 

Some details:

1. 114,222,677 Rights Units. 

2. Issue price of S$0.610 per Rights Unit.

3. 22 Rights Units for every 100 existing Units held.

I very much prefer a Rights issue to a share placement because the former allows all unit holders to participate. I also like Rights issues if the money is used to purchase good quality income producing assets which would lead to DPU accretion.

Based on the purchase price, the NPI yield of Torius is 7.8% while Croesus Retail Trust's portfolio's NPI yield is 5.3%. So, the purchase is NPI yield accretive. However, due to the enlarged float, post Rights issue, we would see only a slight increase in DPU.

By subscribing to the Rights, I am putting my trust in the management to extract more value from the property as they have hinted at AEIs and future positive rental reversions.

I will fully subscribe to my Rights entitlement at 61c per Rights Unit and I will also apply for excess Rights, as usual. If I am successful in getting some excess Rights, it would improve the distribution yield of my investment in the Trust.

During the one week or so when nil-paid Rights are being traded (9 Oct to 19 Oct), we could see some weakness in the Trust's unit price. That could be an opportunity to accumulate.

Also, if the nil-paid Rights are priced attractively, I could buy more. For example, if we think that, post acquisition and Rights issue, a fairly good unit price to pay for Croesus Retail Trust is 80c a unit, then, if the nil-paid Rights should trade at anything lower than 19c a piece, it could be a good deal (80c - 61c).

I certainly hope that this rights issue would present opportunities for me to add to my investment in Croesus Retail Trust at more attractive prices.

Read announcement: here.
See Press Release: here.
"Nil-paid" Rights trading period from 9 October 2015 to 19 October 2015. The closing date and time for subscription for Rights Units by Unitholders is 23 October 2015 at 5:00 p.m. (9.30 p.m. for Electronic Applications through ATMs of Participating Banks).

Related post:
Croesus Retail Trust: ONE'S MALL.

9M 2015 passive income from S-REITs.

The stock market has declined a fair bit in the last three months. For a while, there was some panic. Even now, there is probably a lingering sense of unease in the air.


We must know what to do when presented with a situation. Knowing what to do depends on our own set of circumstances and also motivations. 

Recently, a reader asked me if she should sell a stock which she said she bought at a much higher price some time ago. 

I asked her to consider if she would buy that stock now at the current price if she didn't buy it at a much higher price earlier.

We want to buy at a price we would not sell at and to sell at a price we would not buy at.

There isn't a universal right or wrong answer. At least I do not believe there is. We could each have an opinion on something's value or the lack of it.

Anyway, what have I done in the last three months?

In the last three months, in the S-REIT space, I added IREIT Global to my portfolio as its unit price declined. I like the properties the REIT holds but I thought its IPO price unattractive.

To own freehold office buildings in Germany, arguably the strongest economy in Europe, is an attractive idea. At the current unit price, an 8% distribution yield is achievable.

My initial investment in the REIT is not a big one. In fact, it is relatively small and probably gives me only a toehold.

IREIT Global's relatively high gearing level and the weak Euro are pertinent concerns. 

However, IREIT Global's loans are in Euros. So, they do have a natural currency hedge. This is unlike LMIR's situation. 

Having said this, I feel that the largest decline in the Euro against the S$ could well be behind us. The S$ has weakened considerably as well. 

My reasoning here is really similar to my earlier reasoning on how we shouldn't see much more weakness in the JPY against the S$ when considering whether to invest in Saizen REIT or Croesus Retail Trust.

I also added to my long position in Soilbuild REIT at the end of August, paying 75c per unit, having avoided adding to my position as the REIT's unit price rose to the mid 80s earlier.

I like the fact that the REIT benefits from the shifting of certain commercial activities from office buildings to business parks which form a relatively big percentage of its assets.

I believe that Soilbuild REIT and AIMS AMP Capital Industrial REIT are well managed industrial properties S-REITs. They will face challenges as the economy soften but they should be more resilient than office REITs which predominantly have office space in Singapore's CBD.

Next, I think it is probably timely to comment on a development which has been gaining momentum in the S-REIT space.

Many S-REITs have DRPs (or DRIPs), Distribution Re-investment Plan. Some readers asked me if I would take part in these plans. 

My answer is that I invest in S-REITs for income. So, I would usually take the cash distributions unless there is a chance to benefit from arbitrage which happened once before for AIMS AMP Capital Industrial REIT and some might remember that I blogged about it.

We must stay realistic. Remember that S-REITs' unit prices could come under pressure in the short term. What is short term? Maybe, the next one or two years.

Many S-REITs' unit prices have already declined somewhat in recent months. This is probably in response to interest rates which have risen because the S$ has weakened quite significantly against the US$.

When the US Fed finally moves to increase interest rate by, say, 0.25%, before the end of the year we might see a knee jerk reaction which could send S-REITs' unit prices lower as risk free rate rises.

Taking distributions in cash would give us more resources to take advantage of such a situation if it should come to pass.

I do not think that S-REITs' distribution yields would rise to the levels seen a few years ago during the Global Financial Crisis but the possibility that we could see yield expansion happening exists.

To be sure, there is really no need to be pessimistic. S-REITs remain relevant tools for income investors. They are not going to go kaput. We should try to stay pragmatic.

How much? Oh, sorry, I have been rambling.

Total income from S-REITs for first 9 months in 2015: S$73,139.35.

This works out to be S$8,126.59 per month.

Related post:

6M 2015 passive income from S-REITs.

A financial strategy for the elderly with spare cash.

I am sure many of us are good children and worry for our parents.

Dear AK,

I have been reading your blog for a while and I do agree with a reader that there are many pieces of gold to pick up regardless how we traverse your site.

I would like to seek your thoughts on doing financial planning for elderly. To be specific, my mother (70 years old) has recently struck a windfall. As she is not good with her money and I believe that within one or two years, that money would have been vaporized if she were to donate some to temple, give some to children, grandchildren , overly indulge herself and so on.

She has stopped working few months ago and her children have been giving her monthly allowances (regardless if she is working or not). Her CPF does not give her monthly payout as she does not qualify for the minimum sum (the amount is $60,000 during her time).

I would like to help her draft out something such that she can still receive monthly 'salary' from her windfall. By having monthly salary, it would gives her the feeling of being independent and have control on what she wants to spend on, instead of relying on her children. Having said that, her children will still continue to give her the monthly allowance.

This amount of money, besides being able to give her monthly payout, would at the same time be earning interest and to 'grow' more money as well. I am not sure if she should do a voluntary top up to her CPF account such that she can receive monthly payout, or she should keep it in fixed deposits of varying duration.

Would appreciate if you could help to throw some light.

Thank you

Best regards

LT

Hi LT,

Your mom is very lucky to have good children. :)

OK, know that I am not a qualified financial adviser or something. I can only talk to myself:

"For the elderly, they should be more concerned about not losing money instead of growing money. They should not be taking too much risk.

"If they are not investment savvy, they could consider contributing to their CPF account. The money will be split into the OA, SA and MA. Since they are 55 years or older, they can withdraw the money when they need (except for money in the MA). If they don't need the money, leaving it in the CPF means getting 2.5% to 4% in interest income.

"For the more elderly, those who are 65 and older, I think this is a good enough option and is something I have asked my parents to do.

"For the younger seniors, those who have just turned 55, they could consider Top Ups to their CPF-RA if they believe in an annuity that will pay them a monthly income for life from age 65."

I hope I have not confused myself. -.-"

Best wishes,
AK

Also read this:
Improving retirement adequacy for my dad.

Related post:
Make my money last longer? A senior's example.