Old Chang Kee: Initiated a long position at 26c.

If we go out in the evenings or on weekends, we will see most of the restaurants packed and some of the more popular ones even have long queues. 

A friend of mine invested in Soup Restaurant which gives its shareholders a card that gives a 15% discount off the total bill for dining at their outlets.

Personally, I like going to Soup Restaurant too. However, I think of it as more upmarket, similar to Lao Beijing. 

In a recession, their businesses could take a hit. In this respect, I find Old Chang Kee to be a more attractive proposition.

Old Chang Kee's food kiosks are ubiquitous and always seem to be doing good business. Well, at least for those I see. 

I doubt very much that, in a recession, we will see people cutting back on their favourite curry puffs, sotong sticks or yam cakes in a big way.

Old Chang Kee's shares are thinly traded and it is rather risky to put in overnight buy orders.  

I look at it from time to time but did not do so recently for a few days when it touched a low of 22.5c a share. Less than 200 lots changed hands in 4 sessions at under 26c a share.

When it was trading at 38c and higher just a few months ago, I found it too expensive for my taste (pardon the pun). 

Now, at 26c, I decided to take a nibble (sorry, another pun) as it is definitely more attractive.

Six months basic EPS improved from 1.03c to 1.28c, year on year. 

However, as the company issued warrants in August last year, on a fully diluted basis, EPS improved from 1.03c to 1.07c year on year. 

It is quite obvious to me that this is a growth company.





Warrant holders are also in the money since they paid only 5c per warrant which has an exercise price of 10c. 

A good investment they made in Old Chang Kee, no doubt.

Gross profit improved 11.6% while net profit improved 25.9%, year on year. 

A pro forma full year EPS of 2.14c would give a PE ratio of 12.15x for the company. 

The company's balance sheet has also strengthened with lower outstanding bank loan balances. 

Cash and cash equivalents also increased almost 50%, year on year. Strong cash flow from operations has been cited as being the main reason for this.





The company could continue to pay a dividend of 1.5c per share which means a dividend yield of 5.77% at 26c a share.

The only other blog post I had on Old Chang Kee was rather tongue in cheek, if you remember. 

Now that I am a shareholder of the company, eating a curry puff will be a somewhat more savoury experience. I hope so, anyway. ;)





Read the Half Year 2011 report here.

Related post:
Old Chang Kee: Filling not enough.

K-REIT: 17 for 20 rights issue.

K-REIT will be seeking approval at an EGM for a rights issue priced at 85c per rights unit. 

This is to partially fund the purchase of Ocean Financial Centre. 

Mr. Market does not like this whole deal and sold down the units to a low of 93c this morning.

What do I think? 

Well, the whole exercise is expected to be DPU accretive which is something investors for income want to see. 

DPU is expected to increase from 6.37c to 6.72c.

Using the low of 93c per unit this morning, the TERP is 93c x 20 + 85c x 17 /37 = 89.32c.  

A pro forma DPU of 6.72c means a distribution yield of 7.52%.




Ocean Financial Centre is currently about 80% occupied. 

If the REIT manager is able to bump up the occupancy rate, we could see DPU and yield increase further. 

However, with the current softening office rentals which is likely to get worse, it could be an uphill battle. 

Commitment by the vendor to provide rental support for a period of five years.

Personally, I have a very small position in K-REIT from a long time ago. 

When I was deciding to invest between K-REIT and Suntec REIT more than two years ago, I chose Suntec REIT for its almost equal exposure to office and retail spaces. 

I have pared down my investment in Suntec REIT some time ago since, expecting its exposure to office space to be a drag on future performance. 

In short, I am not feeling sanguine about office space rentals and have not increased exposure to the corresponding REITs.

Having said this, given my very small position in K-REIT, I will most probably subscribe to the rights issue. 

If I were not invested in the first instance, I would not bother buying in now to gain exposure.




Some important numbers:
Gearing: Increases from 39.8% to 41.6%
All in cost of debt: Decreases from 2.48% to 2.23%
Interest cover ratio: 4.6x to 4.3x

See the slides presentation here.

Related post:
Office S-REITs VS Industrial S-REITs (2).

Hock Lian Seng: Insider buying.

There has been quite a bit of insider buying going on in Hock Lian Seng as its share price plunged in recent weeks to hit a new low of 23.5c. I know Hock Lian Seng to have a rather robust business although it is in a cyclical industry. So, I decided to take a look at its numbers.





Revenue for 1H 2011 reduced 32.3% compared to 1H 2010 due to the completion of  Marina Bay Station project. Other than this, the rest of its numbers still look good.

I like very much how its cash and short term deposits increased 11.7% from $149.7m to $167.156m. Order book stands at $272m as of 30 June 2011.





Hock Lian Seng is most probably capable of continuing a dividend payout of 1.5c per share when the time comes. At today's closing price of 24c per share, we are looking at a potential dividend yield of 6.25%.

Could its share price weaken further? It could and I would like to buy at a price closer to its NAV/share which is 17.8c. Having said this, at 24c per share, it is already a value proposition, I believe.





See 1H 2011 report here.

NOL: A messy ascending triangle?

Could this be an ascending triangle I see in NOL's chart?

Although ascending triangles are usually seen as a continuation pattern in an uptrend, a breakout could send NOL's share price higher to test resistance provided by the descending 100dMA which is currently at $1.32.

The 20dMA is set to form a golden cross with the 50dMA and is likely to provide immediate support at $1.115 in case of a pull back.

MACD shows that momentum is clearly positive now while the MFI shows higher lows, suggesting that demand is strengthening. The MFI which takes into account both share price and trading volume could test the 50% line for support if volume continues to dwindle while price stays at resistance.

As NOL's share price seems to be finding a floor if not bottoming, looking at the Stochastics provides us with insight as to why it seems to be having a hard time moving higher. This momentum oscillator is, after all, more accurate in situations where prices are moving sideways. The Stochastics has risen into overbought territory.

All in all, this TA seems to suggest that buying if the share price should pull back to support is a good idea because there seems to be a bias for an upward movement in the shorter term.

Tea with AK71: Visit a sky garden.

In the last few years, sky gardens have become the rage or at least I think so. Many condominiums also have sky gardens these days and they are apparently good selling points.

The very enterprising Marina Bay Sands even charge a fee to enter their sky garden (aka SkyPark) which is probably the tallest one in Singapore at 200m above ground. Personally, I wouldn't bother paying $20 just to gain entrance.

If we want to experience a sky garden, try the one at the National Library in Bugis. I was there recently and I really like it. No entrance fee too.

I like this. Creepers growing up some pillars which reminds me of a jungle.

Pandan! This spot smells really nice and will probably stay roach free!

If you like nature but are asthmatic like me, you will like this place.

I used to have a pot of Aloe Vera at home, if you remember. ;)

Open seven days a week, this is one sky garden all of us can enjoy for free.

A view of the Hotel Inter-Continental and Illuma Shopping Mall from the garden.

Go visit and see for yourself. Have a good weekend. :)

P.S. All photos taken with my trusty Samsung mobile phone, which, by the way, is also free, or have I said this before? ;)

You might want to read these:

Tea with AK71: Aloe Vera flowers?

Tea with AK71: My Samsung mobile phone.

Cambridge Industrial Trust: Worth another look.

I was looking at Cambridge Industrial Trust's latest presentation slides. It could be worth another look as its income could bump up quite meaningfully in 2012 and 2013.

Latest numbers:
Gearing: 33.1%
(No refinancing due till 2014.)
NTA/unit: 61.7c
Interest cover ratio: 5.1x
DPU: 1.082c

What I find attractive:
1. Built-To-Suit Project at Tuas View Circuit. Completion by 3Q 2012.
2. Built-To-Suit Project at Seletar Aerospace Park. Completion by 3Q 2013.
3. AEI for 30 Toh Guan Road. Completion by 4Q 2012.
4. AEI for 88 International Road. Completion by 4Q 2013.
5. AEI for 4 & 6 Clementi Loop. Completion by 4Q 2012.
6. Proposed acquisition of 25 Pioneer Crescent.

With gearing level at 33.1%, the Trust has ample debt headroom to finance items 1 to 5 if the management should decide to take on more debt. This would mean greater distribution yield accretion.

Item 6 is to be financed with internal cash resources which means gearing level will not go up and the purchase will be distribution yield accretive, everything else remaining equal.

Buying now at 46c per unit will give a distribution yield of about 9.4%. Even with all the initiatives announced, I would like to see this yield going nearer to 10% before increasing my investment in the Trust.

See presentation slides here.

Capitaland, CapitaMalls Asia and NOL: Closing charts.

CAPITALAND

Volume increased over the last session but the bulls were not strong enough to have the share price close above the 50dMA. Closing at $2.52 is where we find resistance provided by the declining 50dMA.

Although price did touch a high of $2.56, forming a white spinning top suggests indecision and is a sign of weakness.

The counter has, in the meantime, broken out of its immediate downtrend. Immediate support is provided by the flat 20dMA at $2.49.

CAPITAMALLS ASIA

CapitaMalls Asia's chart looks more promising. Another white candle was formed today on higher volume. $1.25 could be resistance turned support.

Further upward movement in price could see the gap at $1.33 filled. Immediate support is at $1.25.

NOL

Although a black candle was formed today on relatively higher volume, there is reason to be optimistic. Why?

The decline in price only travelled halfway down the white candle from the previous day. This suggests that the bears were lacking in conviction and there were enough buyers to keep the share price from falling too much.

A decline to immediate support at $1.125 could see more buying momentum.

CapitaMalls Asia: Watch the 50dMA.

The MACD has formed a higher low together with a higher low in share price last week. Momentum has clearly improved and we could have found a floor here, if not the bottom.

Closing at $1.25 in the last session meant that the resistance provided by the declining 50dMA was still valid. This morning, thus far, price action is flirting with this MA.

Could we see the share price closing above the 50dMA today? If it does, the 50dMA could be resistance turned support and price could go higher to test resistance provided by the declining 100dMA. This could be another good trade.

Capitaland: Positive divergence.

Capitaland spots a positive divergence. As price formed a new low on 4 Oct, it is clear a few sessions later that the MACD has formed a higher low. The MACD is a lagging indicator just like other momentum oscillators. So, things are usually clearer a few sessions later. Acting before a clearer picture forms would be to pre-empt.

That the MACD formed a bullish crossover with the signal line in negative territory also suggests the return of buying interest although not strong enough to send the MACD into positive territory. Coupled with the positive divergence, we could see Capitaland's share price moving higher.

A long white candle was formed in the last session as resistance provided by the 20dMA was overcome convincingly. Share price is currently resisted by the declining 50dMA which is at $2.52. If this were to be broken, I believe bulls will return and bears will cover their shorts.  We could then see the share price rising to test resistance provided by the declining 100dMA which approximates $2.71 which is also a potential double bottom neckline.

Could be quite a rewarding trade for breakout traders if a breakout should materialise.

NOL: Found a floor.

It seems to me that NOL's share price has found a floor, if not the bottom.

If we were to draw a trendline connecting the highs since 5 Jan 11, it is obvious that the long term downtrend remains intact. This trendline approximates the declining 100dMA which makes this the MA to watch. Then, why do I say the share price has found a floor?

Looking at the MACD, we see that it has been rising since hitting a low in late August. In the last session, it broke into positive territory which signifies the return of positive momentum.

The last three sessions also saw the share price trading above the 50dMA, suggesting that this MA could be resistance turned support. This is approximately at $1.125. If this support holds strong, we could see price rising to test resistance provided by the 100dMA which approximates $1.30.

Given the circumstances, buying closer to support could be a good idea for a trade.

ARA: Divested at $1.26 and $1.30.

Trading volume for ARA expanded today, being the highest in six sessions, which helped to form a long wickless white candle. This is the most bullish of candles. Could we see its share price climbing higher tomorrow? We could.

However, I have completely divested my long position in ARA and would not be able to benefit from further appreciation in its share price, if any. Completely? Yes. My overnight sell orders at $1.26 and $1.30 were both filled today. So, does it mean that I believe that ARA's share price has peaked for now? I don't know if it has peaked but I feel that it is nearing a longer term and, most likely, stronger resistance.

Longer term resistance? Connecting the highs of 31 May, 1 Aug and 1 Sep will give us a clear trendline which approximates the declining 50dMA which is at $1.32 thereabouts. If this resistance could be overcome, we could see the counter's share price moving higher. Otherwise, it would retrace to supports.

I simply followed my TA (for what it is worth) and divested as the gap at $1.26 was filled and at $1.30 which is just one bid away from gap fill at $1.305. The latter was filled after the market closed at 5.04pm.

Good luck to all who are still vested.

Related post:
ARA: Partial divestment at $1.18.

Tea with AK71: A short fairy tale!

I would like to share this fairy tale (which could be a reality for some of us):

Thanks to a cboxer, Patty, for sharing this with me.

I hope you enjoyed it as much as I did. ;-p

ARA: Partial divestment at $1.18.

On 7 October, I said in a blog post that the 61.8% Fibo line "approximates $1.18 and this is also where gap close could take place if the resistance at $1.16 could be taken out convincingly". My overnight sell order at $1.18 was filled.

Closing at $1.205 is exactly where we find the declining 20dMA today. This also coincides with the declining trendline connecting the tops of 1, 9 and 21 Sep. So, it explains why it was such a strong resistance.

With the MACD forming a bullish crossover with the signal line in negative territory, we could see a continuation of this rebound. A necessary condition would be higher volume if price should attempt to push higher. Notice how volume has reduced as price inched higher in recent sessions. This is most probably unsustainable.

Overcoming resistance at $1.205 in the next session convincingly could see buyers piling back into the stock which could then see gap closing at $1.26 and perhaps even at $1.305. The latter is still possible since the declining 50dMA approximates $1.32 and provides some breathing room.

Related post:
ARA: Partial divestment at $1.155.

Courage Marine: Bought more at 10c per share.

For a while, it looked as if a double top was forming in the Baltic Dry Index (BDI). Well, the potential double top formation has been negated as the BDI broke resistance and looks set to form a higher high.

As most of Courage Marine's business is on a per trip basis and at spot rate, a higher BDI is good news for the company. If the BDI continues to rise into winter, it could turn out to be quite a good quarter for Courage Marine and it looks like it could happen.

Bloomberg reported earlier in the year that freight rates are poised to rise after hitting a two year low as owners of ships carrying coal and iron ore scrapped the most vessels in 28 years. Indeed, Courage Marine recently sold one of its vessels to be scrapped as well. Also, Malaysian Bulker Carrier predicted that the dry bulk market could do well in the medium term due to Japan increasing imports of coal.

Technically, the MACD has been rising since plunging to a low in negative territory in mid August 2011. Although momentum is still negative, the rising MACD suggests that momentum is improving.

If we believe that Courage Marine's share price is currently range bound without any trend, looking at the Stochastics reveals that momentum is closer to the lower end of the range, although not oversold. Any further upward movement in price could find initial resistance at 11c while support is at 9.5c.

Related posts:
1. Courage Marine: Added at 10.5c per share.
2. Double dip recession or just very slow growth?

Tea with AK71: Alkaline water.

In recent months, I kept being bombarded by news about alkaline water. I hear about it on the radio. I read about it in the magazines and newspapers. I read about it in flyers given out at shopping malls. Is alkaline water really so amazing?

A few days ago, when I was shopping at NTUC Fairprice. I saw alkaline water on sale! These bottles were placed together with bottles of mineral water and distilled water. Price: $2.90 for a 2 litre bottle. Made in Singapore.

Anyway, the idea is that our body is very acidic and the food we eat is mostly acidifying too. So, to maintain a healthier balance, we need to eat alkalising food. For some time now, when I want a snack, I eat an orange, an apple, a handful of raisins, figs or almonds. These are alkalising. So, I guess drinking alkaline water is a natural next step.

I know there are companies which sell machines which would make normal tap water at home into alkaline water either through distillation or ionising processes. I don't think I can convince my mom to have one installed. She is skeptical about the health benefits of alkaline water. Frankly, I don't know for sure if the benefits are proven beyond a doubt as well. At $2.90 a day, I guess, it is worth a try.

Does anyone have any personal experience, good or bad, with alkaline water? Would you like to leave a comment to share your experience?

Er, in case you are wondering, this is not an advertorial. I don't make any money from blogging about this.  ;)

ARA: Partial divestment at $1.155.

When I was looking at ARA's chart last night, I decided that I should do a partial divestment. I would sell those shares I bought on 4 Oct, Tuesday.

Why? Volume was relatively thin. Up days accompanied by such thin volume are suspicious.

I decided that there would be resistance at $1.16 because that was the price at the start of two long black candle days and with high volume to boot.

Shareholders who had wanted to divest then but did not do so at $1.16 would remember that price. They would also remember how a low of $1.015 was hit by the close of the next day. That was a whopping 14.5c loss in just two days!

Mr. Market remembers extremes well and would try to divest if $1.16 should be tested. Today, the counter hit a high of $1.165 before closing at $1.15. The resistance at $1.16 was overcome only briefly. Closing at $1.15 means $1.16 is still the resistance to watch for now.

Using Fibo lines, we see that 61.8% approximates $1.18 and this is also where gap close could take place if the resistance at $1.16 could be taken out convincingly. The next higher resistance is at $1.23 as provided by the 50% Fibo line and the declining 20dMA.

Naturally, my next sell order is at $1.18. I could also place another sell order where the declining 20dMA is approximating. However, unless volume should increase meaningfully, it is hard to envisage ARA's share price moving much higher. Volume is, after all, the fuel that drives rallies.

As the MACD is still in negative territory and with no sign of a positive divergence, the shares bought on Tuesday were really for a quick trade on expectations that a rebound would materialise. So, I put in an overnight sell order at $1.155, just one bid below $1.16 where I expected some resistance. This was filled.

Locking in gains with a partial divestment is, I believe, the right thing to do. The counter is in a downtrend and we want to sell at resistance in a downtrend. I think that is what short sellers are waiting to do as well.

Related post:
ARA: A trading buy?

AIMS AMP Capital Industrial REIT: 2Q FY2012.

AIMS AMP Capital Industrial REIT has suffered from negative sentiments and from some bigotry in the local investment community, no thanks in part to the acrimonious recapitalisation process of the former MI-REIT.

However, investors who were objective enough to recognise the stronger recapitalised REIT would have enjoyed some rather attractive income in the last two years.

AIMS AMP Capital Industrial REIT has delivered once again!

1. Distributable income increase 48%, year on year.
2. DPU of 2.5c, payable on 7 Dec 11, has been declared.
3. NAV per unit: $1.365
4. Interest cover ratio: 6.4x.
5. Gearing: 30%.

Although the annualised DPU of 10c (based on this latest set of numbers) will give us a distribution yield of 10.53% at today's closing price of 95c per unit, bear in mind that 20 Gul Way's redevelopment has started in August. This will likely result in lower distributable income in the coming quarters.

For my estimates, please see:
AIMS AMP Capital Industrial REIT: Consolidation and corporate rating.

See 2Q FY2012 results here.

AIMS AMP Capital Industrial REIT achieves 26% higher 2Q DPU of 2.5 cents
Thursday, 06 October 2011

© 2011 - The Edge Singapore

LMIR: Circular to unitholders.

Two days ago, LMIR issued to unitholders a circular regarding the EGM to be held on 20 Oct with regards to the proposed acquisitions of Pluit Village and Medan Fair as well as the proposed 1 for 1 rights issue.

The management provided two sets of numbers, one which looks at FY2010 and another looks at 6M 2011. I would like to be a bit creative with the numbers to determine if LMIR is worth buying into at today's closing price of 45c per unit.

FY2010 had a DPU of 4.44c. If the DPU were to be replicated in FY2011, we would have a distribution yield of 9.87% at today's closing price of 45c per unit.

Taking into consideration the proposed acquisitions and rights issue, the management arrived at a pro forma DPU of 3.54c. At 45c, the TERP (theoretical ex-rights price) would be 45c+31c divided by 2 = 38c. This would provide us with a pro forma distribution yield of 9.32%. Distribution yield accretive? I think not.

More relevant perhaps is to use more recent numbers provided for 6M 2011. This gives a half year DPU of 2.26c which translates to a distribution yield of 10.04% based on today's closing price of 45c per unit.

Taking into consideration the proposed acquisitions and rights issue, the management arrived at a pro forma half year DPU of  1.63c. At the TERP of 38c, we would get a pro forma distribution yield of 8.58%. Again, is this distribution yield accretive? Clearly no.

So, will I subscribe to the rights issue? Although it is not distribution yield accretive, I will subscribe to the rights issue for two reasons:

1. The even lower gearing, post rights, of the REIT will allow more acquistions in future to be funded solely by debt. Another rights issue soon after this is unlikely. Therefore, we are likely to see DPU increase and distribution yield improve, everything else remaining equal. Very likely, this exercise will pave the way for future distribution yield accretion.

2. With a TERP of 38c, the pro forma distribution yield is estimated at 8.58% (using 6M 2011's numbers). This is definitely still very attractive considering what our money will make in a one year S$ fixed deposit now.

For anyone who is investing for income and who would be happy with a distribution yield of 8.5%, buying into LMIR at today's closing price of 45c is a viable option.

Read circular here.

Related post:
LMIR: Will I subscribe to the rights issue?

ARA: A trading buy?

2,531.02/

-90.38/

-3.45%

2,531.02/

-90.38/

-3.45%

I remember reading an article recently in which Warren Buffet said he has his elephant gun ready and will scoop up undervalued companies if they should present themselves. With so much fear in the air and likely to get worse, we should do the same.

Do not feel fearful when there is so much fear in the air. Instead, get ready to load up on cheap stocks which, by the way, could get cheaper.

One company which I am eyeing is ARA Asset Management. By all accounts, this is a great company to invest in but at the right price, of course.

ARA is in a net cash position and has a net profit margin of 53.6% according to its 1H 2011 numbers! Yes, net margin, not gross! It also has a yearly dividend payout of 4.8c per share which seems sustainable.

NextInsight has two recent articles on ARA Asset Management. So, I shan't say more. Read: ARA Asset Management: resilient earnings, super high profit margins and steady dividends.

We have identified a good company to invest in. The question is what is a good price to buy at or when should we start buying?

On 23 Sep, I initiated a long position at $1.22 per share. Then, I said that although ARA is "a fundamentally sound company, its share price could weaken further from here. It might be a good idea to wait for the dust to settle before adding to my newly created long position." See blog post here.

On 26 Sep, I decided to add to my long position at $1.13 and these shares were divested on 29 Sep at $1.20 for a quick trade. Recognising that price could rebound before weakening again, the long position at $1.13 was more for a trade anyway. I was lucky it turned out nicely. See blog post here.

So, has the dust settled? It doesn't look like it. The MACD has continued its plunge deeper into negative territory as long black candles formed two days in a row on the backs of high volume. However, shares of ARA could be a trading buy. Why?

If we look at the Bollinger Bands and the MA Envelope, we will see that ARA's share price had in the past rebounded if it should break the lower limits. The rebounds tested and broke the 20dMA which acted as a weak resistance. The 50dMA then stopped the share price from moving higher. Could this happen again?

I added to my long position towards the end of the trading session today at $1.04, $1.035 and $1.03. If price should rebound to test resistance, I will offload these shares for a quick trade.  If price should continue to weaken, expect the next supports to be at 98c and 95c.

Looking at the weekly chart, it is clear that stronger support is at 89.5c. This is followed by 61.5c. If these supports should be tested, it will be some way to fall from the current level.

1H 2011 presentation slides here.

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.