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Sabana REIT: Initiated long position.

Thursday, March 31, 2011

Initiated a long position in Sabana REIT at 93c and 92.5c today. 93c was, of course, a hedge, while 92.5c was the price I have been waiting for since late last year shortly after the REIT's IPO.

The IPO price was at $1.05/unit. So, getting in at the prices that I did today represents a discount of more than 11% from the IPO price. The NAV per unit is 99c and my entry prices today represent a discount of more than 6% to NAV. With an estimated DPU of 8.63c for 2011, my investment today will enjoy a distribution yield of about 9.3%. With a gearing level of 26.5%, I believe this REIT is a fairly safe investment in the next couple of years.

Technically, the REIT looks rather weak and is suffering from some heavy selling which saw its price touch a low of 92c today. A single sell order at 9.42AM accounted for 1,215 lots sold down at 92.1c per unit. It seems that someone is selling down the REIT and we see 100 lots being sold down regularly throughout the day at 93c per unit. Volume was really heavy. More downside seems likely.

What's next? Fundamentally, any further price weakness would make this REIT even more attractive to me. However, I am not in a hurry to accumulate. After all, I have gotten my foot in the door today. I will now monitor the technicals until there are more favourable signs to add to my initial long position. 91c next? Possibly. Keep an eye on the MACD and see if a higher low forms as price forms a lower low. We are on the lookout for a potential positive divergence.

After all, given the fact that Sabana REIT should be announcing its first income distribution soon, could we not see a reversal of its downtrend in the near future? The REIT, as per its prospectus, "will make distributions to Unitholders on a quarterly basis, with the amount calculated as at 31 March, 30 June, 30 September and 31 December each year for the three-month period ending on each of the said dates."

Good luck, mon ami.

Related post:
Sabana REIT: Being stubborn?


I said...

good luck AK ;)

AK71 said...

Hi Isaac,

Good luck to us all. ;)

Freedom Achiever said...

Hi AK,

Sell down with huge volume doesn't mean anything, cos when there are willing sellers, there are willing buyers. I am glad to see this doesn't affect your buying decision. Good luck for your purchase.

Freedom Achiever

AK71 said...

Hi Freedom Achiever,

My style is a mixture of FA and TA.

FA doesn't worry about selling down and volume. If the valuation becomes cheaper, we have a bargain.

TA, however, thinks that heavy volume selling is bearish and is a sign that things could get worse. So, cheap could get cheaper.

With Sabana REIT, I think that its valuation is reasonable now, although not a bargain, perhaps.

I am keeping an eye on the charts now. What could Mr. Market be feeling? ;)

Thanks for the encouragement and well wishes. :)

Anonymous said...

I am a fan of your blog. I notice that your investment strategy is more dividend income driven and heavily weighted towards industrial reits. When interest rate goes up, the price of industrial reits will go down and you will be badly hit. Shouldn't you mitigate this risk ? [DonaldQ]

AK71 said...

Hi DonaldQ,

I was not always heavy in Industrial S-REITs. It just so happens that when I started this blog in December 2009, it was towards the end of my investment phase in stocks like Healthway Medical and E-pure, amongst other penny stocks.

Recognising that low interest rates would be a boon to borrowers and that they could be here to stay for a while, I invested in undervalued S-REITs. So far so good with the exception of Saizen REIT and we know why.

Most REITs have locked in lower interest rates when they refinanced in the last one year. These new loans are not maturing for a couple of years or more. So, for the immediate future, investing in S-REITs is pretty safe.

With yields so high, interest rates must really rocket upwards to have any great impact on the distribution yields of S-REITs. Personally, I do not foresee sky rocketing interest rates as that would derail efforts to sustain economic growth which is just gaining traction in the developing world.

Thanks for the comments and I look forward to hearing from you again. :)

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