Possible delisting of Saizen REIT, First REIT and LMRT.

You know what they say about how things just seem to happen all at once sometimes? It never rains, it pours.

What are the chances of getting three strikes in a row? A turkey! That certainly got my bowling ball excited.

Just a few days ago, we heard news that Saizen REIT received a firm offer for their assets and this could well lead to the REIT being delisted if the offer is accepted. 

On my FB wall and here in ASSI, various discussions went on as to how much the offer could be and what could we do to fill the hole in our passive income if Saizen REIT were to be delisted.

Well, we might have more to ponder over after a friend shared this with me:

Lippo Group plans to shift two real estate investment trusts (Reits) with 35 trillion rupiah (S$3.63 billion) in assets from Singapore to Indonesia in order to benefit from tax breaks offered by Jakarta, its chief executive said.

The property-to-retail group's two Singapore-listed Reits are Lippo Malls Indonesia Retail Trust and First Real Estate Investment Trust.

Source: The Business Times

Saizen REIT and First REIT are two of my biggest investments in S-REITs. My largest investment in S-REITs is, of course, AIMS AMP Capital Industrial REIT. Together, these three REITs account for the majority of my passive income from S-REITs this year.

Although I sold off a large portion of my investment in LMRT (formerly LMIR) some time ago, I still have a meaningful investment in the REIT. Several percentage points might not be a big deal by themselves but add them to what I might be losing from Saizen REIT and First REIT, they become quite significant.

I could be realising significant capital gains but losing a big percentage of passive income from S-REITs in the not too distant future. It is not a tragedy, for sure, but it still creates a problem for me.

I will have to carefully consider how to make the best use of the money if the delisting of these three REITs should really happen.

Related posts:
1. Saizen REIT: Received a firm offer.
2. 9M 2015 passive income from S-REITs.

LMIR: 1Q 2014 DPU 0.68c.

There isn't much to say about LMIR's results but this is a quick blog post in response to a guest blogger's request. (Hey, you know who you are and I am still waiting for your next guest blog, ok? LOL.)

In my last blog post on LMIR, I said that:

"... we are likely to see DPU in S$ terms recovering in the next quarter as financial expenses normalise and I have estimated that a DPU of 0.66c is realistic."

Well, LMIR has done a bit better and declared a DPU of 0.68c for the quarter. Making the assumption that all things remain equal, at 41c a unit, we are looking at a distribution yield of 6.63%.

Now, I would ask the question that with the issues which investors in LMIR have to accept, is 6.63% attractive enough?

Issues? What issues?

I am going to be lazy. If you cannot remember, you might want to read this blog post again:
LMIR: Gearing ratio and margin of safety.

As an investment for income, I feel that LMIR can only become attractive again if the Rupiah appreciates meaningfully. When is that going to happen? Your guess is as good as mine.

In the meantime, if I were to put more of my money in LMIR, I will have to demand a much higher distribution yield than 6.63%.

See 1Q 2014 presentation slides: here.

LMIR: Gearing ratio and margin of safety.

A reader asked me why did LMIR's gearing ratio go up so much. It was 34.3% in the last quarter ending 31 Dec 2013 while it was only 28.2% in the quarter ending 30 Sep 2013. That is a 21.63% increase!

There is a simple explanation.





LMIR issued new debt in October 2013 and this was reflected in last quarter's report. The money raised was used to retire a loan facility in January 2014 which was, of course, not reflected in last quarter's report. This was why the gearing ratio jumped.

You might remember that I said that a good thing happened:

"When I blogged about LMIR in August last year, I said that the REIT's term loan maturing this year in June worried me but this concern was addressed when they used the proceeds from the issuance of a 3 year bond to repay the term loan a few months early. This also lowered the REIT's average cost of debt from 6% to 5.3%. A big improvement."

So, we should see gearing ratio come down again the next time LMIR announces results, everything else remaining equal. 





However, if the Rupiah were to continue weakening, gearing ratio will continue to increase. The REIT's assets are denominated in Rupiah but their debt is denominated in S$.

To illustrate this point, look at the presentation slides for 3Q 2013.

Debt at the end of 31 December 2012 and 30 September 2013 was the same at S$472.5 million. However, the gearing ratio went up from 24.5% to 28.2%. This was because property values fell in S$ terms.

Comparing 3Q and 4Q 2013 presentations, we see that property values in S$ terms fell again by 6.4%. 

So, with this in mind, it should not surprise us if the gearing ratio stays above 30% in the next results presentation even after taking into consideration the retired loan facility mentioned earlier.

Although I have said that the Rupiah will recover and that it always does, it is anyone's guess as to when it would recover. 





Whether LMIR will continue to be a good investment will depend on its future performance which is very much dependent on the Rupiah's future performance too.

Having said this, even if the Rupiah stays at the current level, we are likely to see DPU in S$ terms recovering in the next quarter as financial expenses normalise and I have estimated that a DPU of 0.66c is realistic. Is this attractive enough though?

Well, if we were attracted to LMIR because of the estimated 8.6% distribution yield in the recent past, then, we would probably want the same 8.6% yield to be attracted now. 

With a prospective DPU of 0.66c a quarter, to get a yield of 8.6%, unit price has to fall to 30.5c a unit. That is quite a bit to fall from the current 40.5c.

If we were to include the 10% savings from a reduction in the average cost of debt, we could see a DPU of 0.7c in the next quarter. To get a yield of 8.6%, unit price has to be about 32.5c.

So, as anyone can see, unless we are expecting a dramatic decline in unit price, I think an 8.6% distribution yield from an investment in LMIR is probably wishful thinking now, no matter how we slice it. This is the new reality.






If an investor says that he is quite happy with a 7% yield, then, he could get it by investing in LMIR at 40c a unit. 

However, if a 7% yield is all he wants, he could get it from some other S-REITs in Singapore without having to worry about foreign exchange issues. 

If he were to invest in LMIR, he would do well to demand a bigger margin of safety.

For anyone interested in investing in LMIR now, I would say that there really isn't enough margin of safety (i.e. need much higher distribution yield) although for anyone who has been vested for a long time at prices much lower than now, there is probably lesser harm in holding on since he would have benefited from many rounds of income distributions and would also be sitting on some paper gains.

Related post:
1. LMIR: 4Q and FY2013 results.
2. LMIR: There and back again.

LMIR: There and back again.

I have not done any contra trades in a long time. Well, I did one today and lost some money in the process. Good heavens! What has happened to me?

Well, you might remember that I made a decision last week to buy some units in LMIR at 40.5c a unit. It was motivated by the fact that price had fallen significantly from when I sold a big portion of my investment in the REIT exactly a year ago and how distribution yield was an estimated 8.6% at 40.5c a unit. Arguably, it wasn't expensive.

Unfortunately, things went awry and based on the latest results, the annualised distribution yield is only 5.53%.

I always try to look ahead to see if a business could do better and I surmised that LMIR could see a higher DPU in the following quarter which could push annualised distribution yield up to 6.51% (based on unit price of 40.5c) at least.

However, even 6.51% would miss the 8.6% distribution yield which I estimated and which was an important motivation for me to add to my investment in the REIT.

Since the expectation that came with adding to my long position in the REIT was not met, I should logically think of selling. So, after chewing on this over the weekend, I decided to sell what I bought last week, booking a contra loss of a few hundred dollars in the process. Another fee paid to Mr. Market.

LMIR has done passably well as an investment for income in the last few years and it has been good to me. It is still one of my top 5 investments in S-REITs and my remaining long position is still very much in the black. However, whether LMIR will remain a relatively good investment for income will depend on its future performance.

There could possibly be a better time to increase my investment in the REIT.

Related post:
LMIR: 4Q and FY2013 results.

LMIR: 4Q and FY2013 results.

Exactly one year ago in 2013, I divested a big chunk of my investment in LMIR at 52.5c a unit. At the time, I said that selling at that price meant giving up a distribution yield of some 5.7%. The reason for the partial divestment was the unimpressive performance of the REIT since its rights issue.

Today, one year later, I made my first purchase in an S-REIT since the middle of 2012 as I increased my long position in LMIR, adding a quantum that is about a fifth of what I sold one year ago. So, you can say that, for various reasons, some of which have been discussed here in my blog before, I remain cautious.

At a recent lunch gathering with some friends, when asked, I said that LMIR was still not trading at a price that I would call cheap. Yes, the price I got in today was not cheap but I was looking at a prospective distribution yield of 8.6% which seemed like a fairer proposition compared to 5.7% a year ago but, everything else remaining equal, cheap would mean a 10% yield or higher. Impossible, you think?

When I remind myself that the lowest I paid for LMIR was 18.5c and that I got a huge chunk of rights at 31c, you see what I mean. Prices could plunge again for whatever reason or we could see another rights issue, again, for various reasons.

There was another reason from a FA perspective why I decided to add to my long position. When I blogged about LMIR in August last year, I said that the REIT's term loan maturing this year in June worried me but this concern was addressed when they used the proceeds from the issuance of a 3 year bond to repay the term loan a few months early. This also lowered the REIT's average cost of debt from 6% to 5.3%. A big improvement. Read it: here.

Technically, it also seems to me that the downtrend has been broken and that LMIR's unit price has been consolidating for a while. Of course, no one could tell that unit price has bottomed until after the fact but support seems to have formed at 39c. What is being formed now could be just a floor. We don't know but the momentum oscillators suggested that selling pressure had eased.

Now, the news.

LMIR released their full year results tonight. Here are some of the numbers for 4Q 2013:

DPU: 0.56c
Gearing: 34.3%
Occupancy: 95%
NAV/unit: 41c

The numbers are much weaker than expected. If we were to annualise 4Q DPU, we are looking at a vapid 5.53% distribution yield at 40.5c a unit, my buy price today.

Now, what do we do as unit holders? Press the panic button?

Taking in the bigger picture, what is affecting LMIR's performance in S$ badly is probably the weak Rupiah. However, the Rupiah will eventually bounce back. It always did in the past. In the meantime, the REIT's management will have to hedge the risk.

Looking at the REIT's numbers, it did not do too badly in terms of NPI, reducing 5.5% in S$ terms, thanks to contributions from new properties probably. What really caused DPU to reduce drastically year on year was the 37.5% increase in financial expenses related to the issuance of the MTNs. Now, if these expenses do not recur in the next quarter, then, DPU could improve by quite a bit in the same period.

The next time the REIT has to raise funds could be end of this year or early next year as a $200 million MTN matures in July 2015. So, it is very likely that DPU for the next quarter could be higher. How much higher?

All else being equal, I think that a DPU of 0.66c in the next quarter is realistic. Of course, if the management works hard at bumping up occupancy, DPU could even surprise on the upside. All this is assuming that the Rupiah stays at current levels. Even a slight strengthening of the Rupiah could provide a lift to the REIT's performance.

Of course, there is no saying how Mr. Market would react although a sell off tomorrow would be quite natural. 39c could indeed be just a floor and not the bottom. Next support could be found at 35.5c, the low of 4 June 2012.

See slides presentation: here.
See financial statement: here.

Related posts:
1. LMIR: Divested 42.5% at 52.5c.
2. LMIR: 2Q 2013 DPU 0.93c.

OUE C-REIT.

OUE Limited is spinning off OUE Bayfront in Singapore and Lippo Plaza in Shanghai into a REIT. Seems like OUE Limited is actively recycling capital and trying to catch whatever remaining interest investors might have in a REIT IPO. Just barely half a year ago, they listed OUE Hospitality Trust and I blogged about that here.

OUE C-REIT is the name of the latest offer. It will be priced at 80c a unit and will offer a distribution yield of 6.8% or a DPU of about 5.44c.

I believe that this IPO is a plus for OUE Limited shareholders just like the listing of SPH REIT was good for SPH shareholders. However, I don't think OUE C-REIT is attractive as an investment for the same reason that I thought SPH REIT was not attractive compared to SPH as an investment. You might be interested in that blog post. Read it: here.

I like the fact that OUE Limited has given a commitment to support the REIT by offering assets at a discount to valuation in future. This is something that the Lippo Group has done for LMIR and First REIT as well. After all, it is the same family that is in control of OUE Limited. Yes, OUE Limited is a 55% owned subsidiary of the Lippo Group.

I also like the fact that OUE Limited will retain a 45 to 50% stake in OUE C-REIT which will see their interests more aligned with those of minority unit holders in the REIT since any action taken which might hurt minority unit holders will hurt the sponsor, OUE Limited, most.

Having said this, we have to remember that the sponsor would have reaped most of the benefits from the IPO and the higher distribution yield is a result of income support given by the sponsor. If there were no such support, the distribution yield is actually 5.56%, almost 20% lower.

Over the next couple of years, if the REIT manager is able to fill up all the vacant space in the two initial properties and achieve positive rental reversions in re-leasing, the REIT could deliver a yield of 6.8% without any support.

However, with interest rates set to increase, we could see a heavier debt burden come 2017 when most of the REIT's debt mature. This could wipe out any hope of maintaining the relatively attractive distribution yield now unless unit price of the REIT declined.

The REIT could grow DPU through accretive purchases from its sponsor, of course, but with gearing ratio relatively high at 41% or so now, it would probably have to resort to equity fund raising either in the form of a rights issue or private placements. Unit holders should be prepared for this.

All investments are good at the right price and to invest in OUE C-REIT for income, I would only be interested if it should offer a much higher distribution yield, given the considerations above.

Related posts:
1. A strategy to grow wealth and augment income.
2. 2013 full year income from S-REITs.

2013 full year income from S-REITs.

On 15 September 2013, when I reported 9M income from my investments in S-REITs, I mentioned that full year 2013 will probably see lower income compared to full year 2012. 

This is mainly because I sold approximately half of my investment in LMIR (Lippo Malls) earlier this year and I have not made any substantial acquisitions in S-REITs since.

Please read:
LMIR: Divested 42.5% at 52.5c.

In fact, I recently divested about a quarter of my position in Sabana REIT as I moved funds into Croesus Retail Trust. Wondering why I did this?

Please read:
Added Croesus Retail Trust and reduced Sabana REIT.

Luz Shinsaibashi.
Taken with my little IXUS from my hotel room using 32x zoom!

For reasons I mentioned in my blog post of 15 September 2013, I will continue to be very cautious in adding to my positions in S-REITs. Definitely, if I feel that they are undervalued, I would buy more. Could this happen? Of course it could. Remember Saizen REIT in the middle of last year when its warrants were set to expire?

Please read:
Saizen REIT: Why did I buy? Would I buy more?

We might also get a hint that a REIT is undervalued if insiders suddenly become active in buying too. This happened with AIMS AMP Capital Industrial REIT earlier this year when its unit price declined enough to offer an approximately 10% discount to NAV.

Please read:
AIMS AMP Capital Industrial REIT: Nibbling with George Wang.

There could be opportunities for relatively compelling buys again in future. If they should present themselves, I hope I am lucky enough to spot them and brave enough to buy some. Until then, my portfolio of S-REITs might not grow.

Although it would be nice to grow my income from S-REITs, it should not be growth at all costs.

An apartment building in Japan.

So, my strategy for S-REITs is to stay largely invested for income while waiting for Mr. Market to make me offers I cannot refuse. This way, my war chest continues to grow and I will have the resources to do business with Mr. Market when he suffers from manic depression which he does from time to time.

So, what is my full year 2013 income from S-REITs?

Total: S$ 118,081.02

This is some 2% lower than the year before and I expect income from my portfolio of S-REITs in 2014 to be at least marginally lower due to the partial divestment in Sabana REIT this quarter.

Related posts:
1. 9M 2013 income from S-REITs and more.
2. 2012 full year income from S-REITs.

9M 2013 income from S-REITs and more.

Three more months to the end of the year. Lots of things have happened in the first 9 months of the year. I want to zoom in on the investment front and record some of my thoughts.

The strategy to be invested in S-REITs for income is still working. Of course, with the spectre of the Fed cutting back on QE and a possible increase in interest rates in the next 2 or 3 years, Mr. Market has turned cautious on leveraged investments like S-REITs. This is only natural. Unit prices of S-REITs have become more realistic as a result.

When Mr. Market is pessimistic, that is when we are likely to get good deals. As to what is a good deal, I am sure this is rather subjective. Every person would have a different idea of what is an acceptable margin of safety. Every person would have a different perception of a REIT's prospects.

Having built up a relatively large portfolio of S-REITs, I devoted more resources to investing in what I believe are undervalued stocks, something which I continue to do in 2013.

So, essentially, what I have done is to keep what has worked well for me thus far while expanding my investments in certain companies, recognising possibly more difficult times ahead for S-REITs. 

This is an approach that requires more work than simply getting passive income from S-REITs but the time when it was a no-brainer to buy and hold S-REITs probably ended sometime in the second half of 2012.

For 9M 2013, how much did I receive in passive income from S-REITs? 

$92,872.65

Full year 2013 income from S-REITs is most likely going to be lower compared to 2012 because I sold a significant portion of my investment in LMIR earlier this year and also because Saizen REIT distributes income half yearly (i.e. there is no income distribution in December from Saizen REIT).

Also, we might want to bear in mind that, although hedged, the weaker Indonesian Rupiah and Japanese Yen could result in lower income distributions in S$ terms for unit holders of these REITs in the year 2014.

With twice as much industrial space being scheduled for completion in 2014 and 2015 than any single year in the past decade, the possibility of stagnating or even a reduction in income for industrial S-REITs in future cannot be discounted. This is why looking at WALE (Weighted Average Lease Expiry) of industrial S-REITs is more important now.

Although I would have liked nothing better than to sit back and collect passive income regularly from S-REITs, doing very little else, I decided to move out of my comfort zone. For sure, there were bumps along the way but my efforts have generally been rewarding thus far. 

What did I do?

I increased my investments in stocks which are likely to be dependable passive income generators such as SPH and NeraTel. 

I also hold long positions in stocks which I believe would benefit from the Chinese consumption story such as CapitaMalls Asia, PCRT and Wilmar. 

Any dividend from investing in these stocks and any gain from trading would go towards cushioning the possible decline in income from S-REITs in future.

Up to 15 September 2013, the total gain from trading this year amounts to: 

$188,625.13

It was fortuitous the way the China Minzhong saga turned out. It preserved my trading gains and grew it rather significantly at the same time. Apart from my long position in Wilmar, all other investments are in the black. 

So, what is my plan for the future? 

Nothing profound really. 

If prices were to decline much more, I hope I would be brave enough to buy more. If prices were to rise much more, I hope I would remember to sell some.

The grand scheme is to augment and not to replace my passive income portfolio. 

For sure, it doesn't mean that I think S-REITs are going the way of the Dodo. Indeed, they are still good investments for income at the right prices. For me, passive income from S-REITs will still be an important pillar in achieving financial freedom. This is unlikely to change in the foreseeable future.

Remember, this blog is not meant to instruct but if anyone finds it inspiring, I will be happy enough.

Related posts:
1. 2012 full year income from S-REITs.
2. Never lose money in real estate and S-REITs?
3. Do not love unless it is worth the loving.
4. Motivations and methods in investing.
5. Be cautious climbing the S-REIT tree.
6. Be comfortable with being invested.

LMIR: 2Q 2013 DPU 0.93c.

LMIR has delivered stellar results! I am very pleased that its DPU has improved to 0.93c in 2Q 2013. This is 4.5% higher, quarter on quarter. An annualised yield of 3.72c gives us a distribution yield of 7.44% which beats what is offered by retail S-REITs in Singapore including the recently listed SPH REIT.

If I were to invest in a REIT, it should offer me a distribution yield like this. If it should offer me a distribution yield similar to the dividend yield SPH could give me, I won't feel compelled to invest in the REIT.

I also like the fact that the REIT is trading at below its NAV of 57c and that it has a relatively low gearing level of 24.2%.

Can we expect a higher DPU in future? With a new CEO at the helm, the REIT seems to be doing better, achieving  about 15% in rental reversions for expiring leases. Having 8% more leases in its portfolio expiring this year, I certainly hope to see more positive rental reversions. This will marginally bump up DPU by at least 1%, assuming a 15% rental reversion.

There is also a vacancy rate of almost 5%. So, there is space to fill and, proportionally, if we could make a simplistic assumption, we could see a 5% increase in DPU if full occupancy can be achieved with new tenants paying the average rate psf.

Then, there is the matter of debt maturity. Roughly a third of LMIR's debt is due next year in June. I can only hope that they will be able to borrow at a lower rate. If they are able to do this, of course, this should result in higher distributable income.

All in all, rather pleased.

Related posts:
1. LMIR: DPU improved 20%
2. SPH or SPH REIT?

See 2Q 2013 results presentation: here.

LMIR: DPU improved 20%.

I am pleasantly surprised to see LMIR's DPU improving some 20% from 0.74c to 0.89c, quarter on quarter. At the price of 55c a unit, annualised, we are looking at a DPU of 3.56c and a distribution yield of 6.47%.

There is also a new face at LMIR. The REIT has a new CEO, Mr. Alvin Cheng. After many quarters of mediocre performance, I hope that having a new CEO would see the REIT doing better.

As it was revealed that the higher DPU was due to contributions from 6 acquisitions completed in 4Q 2012, any further increase in DPU, barring further acquisitions, will have to come from AEIs, improving occupancy and rental reversions. Efforts under the former CEO had been rather weak in these areas which led me to conclude LMIR was not run as well as it could have been.

I look forward to more good news with a new CEO at the helm of the REIT.

Related posts:
1. Unimpressive 4Q 2012.
2. Divested 42.5%.

See: LMIR 1Q 2013 results release.

LMIR: Divested 42.5% at 52.5c

Last night, I made a decision to sell a large chunk of my investment in LMIR. Today, my overnight sell order was filled.

By selling at 52.5c, I am giving up a distribution yield of approximately 5.7%.

As I went through my records to cancel out the units which were sold, I found out that the majority were purchased in late 2008 through 2009. 

I made fewer purchases in 2010 and 2011. 





Of course, the total number of units doubled during the rights issue in late 2011 at a price of 31c per rights unit.

Since the rights issue more than a year ago, the performance of LMIR has been unimpressive. 

I blogged about how unitholders who did not take the opportunity to buy more nil-paid rights as it was sold down aggressively then would have been better off without the rights issue and the subsequent acquisitions.

What is immediately positive about the divestment?

Given my entry prices, the divestment locks in a hefty capital gain. 

A big part of my remaining investment in the REIT is now "free", in a manner of speaking.






I have also put in a sell order at 53c. 

This is for the rights units converted from nil-paid rights bought in the open market in late 2011. 

If the sell order should be filled, it would reduce my investment in the REIT by another 30.5%. 

Then, my remaining investment in the REIT would be truly "free".





Of course, I have not taken into consideration the income distributions which I have been receiving from the REIT since 2008. 

I could check but it wouldn't serve any useful purpose other than to provide me with a way to kill time.

Still invested, I hope that LMIR's management would do better in FY2013 since I would still stand to benefit if OCBC Research's forecast for a much higher DPU from the REIT this year comes through.





Related post:
LMIR: An unimpressive 4Q 2012.

LMIR: An unimpressive 4Q 2012.

I don't have much to say other than how unimpressed I am with the results.

DPU: 0.74c (payable on 5 March)

Gearing: 24.5%

NAV/unit: 56c

Occupancy: 93.5%

The management could possibly work on positive rental reversions for leases expiring this year. They could also try to push occupancy closer to 100%. All these would contribute to a higher DPU.

Please, no more acquisitions at least in 2013. For now, efforts should be on improving the performance of the recently acquired malls.

If there should be any acquisitions and it could happen since gearing is at only 24.5%, I hope that the management will be more careful in their efforts.

Careful? Yes, to ensure that DPU does not get watered down again. This was something I talked about in past blog posts.

LMIR really tests one's patience and the management's record leaves much to be desired.

Related post:
LMIR: 3Q 2012.

See slides: here.

LMIR: 3Q 2012 DPU 0.73c.

A reader sent me an email and asked if I would be writing about LMIR's 3Q 2012 results. I admit that I was wondering if I should just skip it this time.

LMIR announced a DPU of 0.73c which is lower than the 0.79c declared in 2Q 2012. This is despite the fact the distributable income improved 37.9%, year on year.

In my blog post on the REIT's 2Q 2012 results, I was optimistic that the REIT's DPU would improve further as its gearing of 9.3% meant that it had plenty of debt headroom for yield accretive purchases. However, the management has squandered the enviable low gearing level as a slew of recent acquisitions were DPU dilutive in nature. Post rights, I estimated a DPU of 0.815c and it does not look like it is going to happen anytime soon.

Unless unitholders were active in acquiring nil-paid rights as they were sold down to 2.1c, I believe we were better off pre-rights compared to post-rights. Pre-rights, we were enjoying quarterly DPU in excess of 1c and unit price was very much the same level as it is now. Those of us who bought into the nil-paid rights cheaply would have made capital gains of between 20+% to 40+% in less than a year, excluding income distributions received in the same period. Those who did not do so are not any better off.

Only time will tell us the quality of a REIT's management and LMIR's has disappointed so far.

See 3Q 2012 financial statements: here.

Related posts:
1. LMIR: 2Q 2012 DPU 0.79c.
2. LMIR: More acquisitions and lesser DPU again.
3. LMIR: More benefits from acquiring 4 malls?

LMIR: More acquisitions and lesser DPU again.

The latest acquisitions of Pejaten Village and Binjai Supermall will further reduce DPU.

Of so many REITs I am vested in, LMIR is one which has constantly disappointed in more ways than one.

The management has listed the advantages of acquiring these malls and they sound like a rehash from their equally distasteful purchase of 4 malls recently:

1. Acquisitions are at a discount to NAV.
2. Enhance earnings of the Trust.
3. Properties are of good quality.
4. Increase economies of scale in operation and marketing.
5. Minimise concentration risk.

The price tag for the purchase of the two malls: $126.5m
NPI of the two malls: $7.0m
NPI yield: 5.53%

Just like its recent purchase of 4 malls, these acquisitions are not NPI yield accretive. NPI yield of the REIT's portfolio is being gradually diluted with these overpriced purchases.

It does not matter that purchases are at a discount to valuation. They are still too expensive if ordinary unit holders are getting less income even as the REIT's asset base grows! If there is nothing worth buying, don't buy anything. Doesn't sound too difficult or does it?

The primary beneficiary here is the REIT's manager as they will be paid an Acquisition Fee equal to 1% of the purchase price which works out to be about $1.3m!

I think Ms. Viven Sitiabudi should consider retiring as CEO.

Read announcement: here.

Related post:
LMIR: More benefits from acquiring 4 malls?

LMIR: More benefits from acquiring 4 malls?

Since its rights issue last year in December, expectation was for LMIR to acquire more shopping malls to improve its DPU which has been rather disappointing, being much lower, post rights issue, than initially expected. With my investment in LMIR some 200% bigger than it was, pre rights issue, I am naturally concerned with its underperformance.

Finally, an announcement to acquire 4 malls at a discount to their respective valuations. The 4 malls are:

1. Palembang Square for S$ 74.8m
(19.9% discount to valuation)

2. Palembang Square Extension for S$ 29.8m
(4.5% discount to valuation)

3. Tamini Square for S$ 30.1m
(23.4% discount to valuation)

4. Kramat Jadi Indah Plaza for S$70.8m
(2.2% discount to valuation)

The acquisitions will be funded fully by debt. Weighted average interest rate: 5.079% per annum. See note at the end of this blog post.

One question now on unit holders' minds is probably how much more are we going to get in DPU, post acquisitions. After all, we are investing for income.

1Q 2012, we received a DPU of 0.69c.
2Q 2012, we received a DPU of 0.79c.

Both distributions were lower than the estimation of 0.815c per quarter, post rights. They were definitely lower than the DPU of approximately 1c per quarter, pre rights.

So, will DPU improve after these latest acquisitions?

Net Property Income (NPI) yields for the 4 properties are: 4.41%, 1.00%, 8.637% and 7.2%. Collectively, the NPI yield of these 4 acquisitions is less than 6.00%.

If I remember correctly, LMIR's portfolio's NPI yield is about 7.5%.  So, these acquisitions are not NPI yield accretive. They are, in fact, regressive.

However, the management of LMIR is going to get a performance fee because in terms of absolute NPI, there will be additional NPI after the acquisitions. Fee? Some 613,158 new units in LMIR will be issued for this purpose. This fee is payable even though the pro forma numbers show that the distributable income will suffer a decline, post acquisitions.

Of the 4 malls being acquired, 2 malls have occupancy rates of under 90%. If the management is able to boost occupancy to above 90% over time, it could make a marginal improvement to the pro forma numbers. It wouldn't be anything to shout about.

It should, therefore, come as no surprise that in the five benefits of the acquisitions listed by the management, none refers to any improvement in income distribution which, probably, matters most to ordinary unit holders like me investing for income.

See announcement: here.

Note: The Manager proposes to finance the Acquisitions from the proceeds raised from the issuance of the S$200,000,000 4.88% Notes due 2015 and S$50,000,000 5.875% Notes due 2017.

LMIR: 2Q 2012 DPU 0.79c.

LMIR has increased distributable income, giving a distribution per unit (DPU) of 0.79c in 2Q 2012, payable on 30 August 2012. This an improvement over the DPU of 0.69c in 1Q 2012. Having said this, it is still lower than the 0.815c I estimated, post rights.

LMIR has a gearing level of 9.3% (9.2% in 1Q 2012) and its interest cover ratio is 11.4x (13.3x in 1Q 2012).  There is plenty of debt headroom and I still believe that growth through further acquisitions is likely to be funded fully by debt and we could see DPU improving by a fair amount.

Indonesia remains a growth story with domestic consumption forming some 60% of its GDP. The demand for quality retail space is growing over time.

LMIR remains a bullet proof REIT with a strong balance sheet. However, whether it could deliver meaningfully higher DPU depends on its management which seems slow to act and has, in my opinion, under-delivered, post rights.

Would at I buy at current prices? No.

See slides presentation: here.

Related post:
LMIR: 1Q 2012 DPU 0.69c.

Market gyrations, my portfolio and a sabbatical.

My investments in S-REITs are holding up nicely which gives credence to my strategy to overweight S-REITs in my portfolio. Their relative price stability and high distribution yields provide some solace in a volatile market.

A brief look at some of my larger investments in S-REITs:

1. AIMS AMP Capital Industrial REIT closed at $1.20 per unit. My cost per unit ranges from $0.775 to $1.10.

2. Sabana REIT closed at $0.97 a unit. I first initiated a long position at $0.93 in March 2011. I bought more as its unit price sank below $0.90. I am still holding on to those units I bought at $0.865.

3. First REIT closed at $0.90 a unit. This is an investment I have had for many years. My lowest entry price was $0.42 during the global financial crisis. I took part in its rights issue at $0.50 a unit. I bought more nil-paid rights for a total cost of $0.66 a unit. I also bought more units at $0.70+c.

4. LMIR closed at $0.39 a unit. Like First REIT, this is an investment I have had for many years. My lowest entry price was $0.185 during the global financial crisis. I took part in its rights issue at $0.31 a unit. I also bought more nil-paid rights for total cost of $0.331 to $0.365 a unit.

5. Saizen REIT closed at $0.143 a unit. The history I have had with this REIT is somewhat bumpy. I increased my long position once again with a large purchase as its warrants reached their last day of trading not too long ago. Average price of that purchase $0.129.

I have collected many quarters of income distributions from these investments and my war chest is constantly being refilled. So, I constantly have funds to take advantage of any investment opportunities which might come along.

My strategy is to stay partially invested as we must also have cash to continue investing especially if Mr. Market decides to sell good quality stocks and trusts at bargain basement prices.

Recent efforts to invest in some companies instead of S-REITs have produced below average results. In fact, my poorly timed investments in China Minzhong and Wilmar, although relatively small, are a drag on my portfolio's performance. If I had stuck to my strategy of concentrating on S-REITs in recent times, my porfolio would have fared much better.

Of course, there would be people who disagree. Readers who comb the cyberspace for information would have, no doubt, come across some local blogs which vilify REITs. Well, everyone is entitled to his own opinions.

I have gotten somewhat tired of defending my position. Actually, why do I even need to defend my strategy? If people like it, they are welcome to follow. If they don't like it, don't follow. This is a free world. Just don't be rude.

I was never a savvy person with IT stuff and when I discovered blogging, I was like a child who discovered the sweetness of sugar. I got a sugar high. I have always enjoyed writing. So, I took to blogging like a fish to water. Also, as I age, I have developed an increasingly serious speech impediment. To a rather talkative person, this is an annoyance and makes blogging even more of an outlet of expression.

Making money from blogging was never a first thing on my mind. It came about later on when friends suggested that I could put some ads in my blog. I must say that I have been able to make some pocket money this way. Pocket money? Hey, Nuffnang pays me 20c for every click I get for ads they place on my blog. If my primary motivation for starting this blog is to make money, I must be seriously mental.

If I were to stop blogging tomorrow, what would I lose in monetary rewards?

Well, I have been thinking of taking a break from blogging and I have shared this thought here in my blog as well. There are other aspects of my life I would like to spend more time on. There are also people I would and should spend more time with. It is also quite obvious to regular readers that I have been blogging less frequently too.

We often hear of the saying that "this is the last straw that broke the camel's back". Well, I think I got another catalyst to stop blogging at least for a while earlier this evening.

To my regular readers, you know which blog posts I have here in my blog which would keep you squarely on your goal of financial freedom. Each time you waver, come back to my blog and go down the right sidebar. I would also be doing the same, no doubt. It is not easy to start but start we must. The journey is hard but go on we must. When we see the results of our effort, it would get easier and easier. Remember, if AK71 has done it, you can too.

To new readers, understand that we are all different. Not everyone can be a Warren Buffet or Donald Trump or Robert Kiyosaki. They have all taken their own paths to success. You should find your own. Reading my blog, if you feel that my way is something you would like to emulate, give it a go but know that everyone's circumstances are different. Set for yourself realistic goals. Take baby steps but you have to work towards building up passive income to a level that is equal to or exceeds your earned income. Then, you would have achieved financial freedom and you work because you want to and not because you have to.

In everything we do, there is an element of luck. Even Warren Buffet was wrong before. No one is God and even with Him, there is debate on things He might have done wrong. OK, this is a sign that I should stop. Yes, Father, I have sinned.

----------------
The following was a blog post written on 28 November 2011 after talking to "ao" in LP's infamous cbox (Bully the Bear). It was never published... till now:

A reader asked me recently if I ever get tired of replying to comments in my blog, especially with skeptics aplenty when it comes to my investments in REITs. I told him that I am only human and I do feel tired sometimes.


Recently, I had lunch with the blogmaster of Time to Huat and another long time friend. They asked the same thing, almost. One of them said that some comments were almost repetitive and marvelled at my patience in replying to every comment even so.


To me, I feel that if a job is worth doing, it is worth doing well. How do we measure worth? In the world of blogging, at least to me, it is not measured in dollars and cents. I would be better off giving private tuition with my time, using such a measure.


When I started blogging, I took on certain responsibilities whether I knew it at that point in time or not. I am airing my thoughts in cyberspace. I am sharing ideas. Of course, there will be questions and also disagreements. What is a blogger to do? Face these squarely.


Being a blogger is like being a semi public figure. Semi public? Yes, we can choose to blog without revealing our true identity. I have gotten a taste of what it is like to be a semi public figure and I doubt I would ever want to be a public figure. So, although I have met a handful of readers and fellow bloggers so far, I have decided quite some time back to be more reclusive. I value my privacy too much to ever become a public figure.


Recently, I have been thinking again whether I should stop blogging altogether. My blog posts are usually crafted with care  So, it takes up a lot of time and I only have so much time...

LMIR: 1Q 2012 DPU 0.69c.

I remember saying that LMIR was too cheap to sell in December last year. It was trading at 36.5c a unit then.

I also remember saying that unitholders should be more patient after the rights issue because the REIT's DPU would bump up in time. The rather low DPU of 0.53c for 4Q 2011 would not be the norm. I estimated the norm to be a DPU of 0.815c per quarter or 3.26c per year. In fact, quarterly DPU could surprise on the upside in time.

LMIR announced a higher DPU for 1Q 2012 as expected but the quantum of 0.69c is lower than the 0.815c I estimated. Is the management taking too long to deliver the goods, post rights issue?

I have, of course, questioned the quality of the management a few times before and readers who have been following my blog from its inception would remember some scathing remarks I had made in the past.

Whatever the negativities, LMIR, with its very low gearing level of 9.2% and interest cover ratio of 13.3x, would take a fool of epic proportion to sink. Therefore, it remains, in my opinion a bullet proof REIT with plenty of room to grow.

What is worth highlighting is that any further growth is likely to be funded 100% by debt and, thus, DPU would grow, everything else remaining equal.

For anyone investing for income with a good dose of patience, investing in LMIR could be a very rewarding decision. So, is it a good time to buy into LMIR now?

Well, at last Friday's close of 42.5c, the annualised distribution yield, using 1Q 2012's DPU of 0.69c, is 6.49%. This is not attractive enough for me to add to my long position.

Assuming that the REIT would, over the course of 2012, deliver a DPU of 3.26c as per my estimates, the distribution yield would be 7.67% at the same unit price of 42.5c. This is definitely more attractive but it would mean investors must be more optimistic and place more confidence in the management to deliver. This is a judgement call.

Investors could consider adding if price should weaken to offer distribution yields upwards of 8% for a bigger margin of safety. Is this to be based on annualising 1Q 2012's DPU or the DPU I estimated, post rights? That's your call.

Related posts:
1. LMIR: Too cheap to sell.
2. LMIR: 4Q 2011 results.

See press release: here.

LMIR: 4Q 2011 results.

In recent weeks, I noticed that in some publications including The Business Times which compare high yielding stocks in Singapore, LMIR's distribution yield was overstated probably based on historical quarterly DPU. Historically, LMIR's quarterly DPU hovers at around 1c.

Recently acquired Pluit Village.

Personally, I estimated the DPU after acquisitions and rights issue to be closer to 3.26c per annum which works out to be 0.815c per quarter.

As a reader correctly pointed out not too long ago, the first DPU after the recent acquisitions and rights issue is likely to be lower because the acquisitions would have only been completed in December 2011. Indeed, DPU for 4Q 2011 (Oct to Dec 2011) is 0.53c, including contributions from recent acquisitions for the period of 6 December to 31 December 2011.

Income distribution is payable on 16 March.

Plaza Medan Fair.

This lower DPU likely disappointed Mr. Market as LMIR's unit price dipped from the start of the trading day, closing 1.5c lower at 39c but not before touching a low of 38.5c. If we were to annualise the quarterly DPU of 0.53c, it would mean an annual DPU of 2.12c or a distribution yield of only 5.3% based on a unit price of 40c. This would be a mistake, however.

Any investor with a longer term perspective should not worry as this much lower quarterly DPU is probably temporary. Over time, even my estimate of 3.26c in annual DPU should be surpassed, all else remaining equal.

Some numbers:

NAV/unit: 60c.
Gearing: 8.7%
Ave. cost of debt: 6.7% p.a.

See slides presentation: here.

So, should we rush to buy units of LMIR now? Not me. Why?

Although its unit price has declined from the ascribed fair value of 41c which sees a distribution yield of 7.95% with an estimated annual DPU of 3.26c, there could be more room to fall. This could happen once the REIT goes XD.

A doji was formed today as price closed lower. A doji suggests indecision and this could be due to the fact that the REIT is still trading CD. However, a gapping down is bearish. The very high volume on a down day reinforced the bearish picture.

The MACD has made a bearish crossover with the signal line which suggests that positive momentum has weakened. MFI and Stochastics are nowhere near oversold and we don't have a buy signal. If anything, the bearish divergence we spotted some time back is being played out now. The uptrend is broken.

It remains to be seen if immediate support at 38.5c as provided by the declining 100d MA would hold. If it should give, next support is at 37c which is where we find the upturning 50d MA.

Related post:
LMIR: A slow and steady climb.

LMIR: A slow and steady climb.

LMIR's unit price has been slowly and steadily climbing higher and this is netting me some handsome capital gains on the rights units from nil paid rights purchased not too long ago.

Remember I mentioned that LMIR was too cheap to sell? I still think it is too cheap to sell but it is approaching the fair value of 41c which I ascribed it back then. Technically, it is now also closing in on the next resistance level at 39.5c. 

If it should break 39.5c convincingly, we could see resistance provided by the declining 20wMA at 41c tested next. 41c coincides with the fair value I have ascribed to the REIT's unit price and I expect strong selling pressure if it should be tested.

I have done another partial divestment today at 39c, one bid away from the immediate resistance of 39.5c, taking some gains off the table. With this partial divestment, I now retain only a fifth of all the rights units from nil paid rights I purchased in its rights issue.

Why not wait for 41c? There is no way we can be sure that 41c will be tested and I am beginning to see some signs of possible weakness in the form of lower highs on the MFI and Stochastics with unit price pushing higher. The lower high on the MFI suggests weaker demand with price going higher.

On the weekly chart, the MACD has completed a positive crossover with the signal line but it is still in negative territory. Although MFI and Stochastics' gradual rise from their oversold territories suggest that there is some support for the REIT's unit price, we could see some price weakness in the coming weeks.

Accumulating when longer term supports are tested would be a good strategy. On the weekly chart, I see 36c as a technically attractive price to add to long positions.

Related posts:
LMIR: Partial divestment at 38c.
LMIR: Too cheap to sell.