Create more passive income with limited capital.

I have blogged about how Warren Buffet is a "know something" investor whereas I started out as a "know nothing" investor to being a "know a bit more" investor and, now, a "know a bit more than a bit" investor. Warren Buffet buys a lot of something which he thinks is a winner whereas for the rest of us it seems that diversification is the way to go. See: Excuse me, are you an investor?

Obviously, as is seen in my blog's header, I am more interested in building a reliable passive income stream than anything else. So, yield is a big thing for me and REITs naturally have a role to play in my strategy.

The meltdown in the global stock markets after the Lehman Brothers crisis shocked me out of complacency and into action, action which saw me beefing up my FA and picking up TA. I refused to be beaten and I was furiously reading and updating my knowledge, reviewing my past mistakes and planning for the future. 

REITs are a big part of my portfolio and they gave me much angst during the crisis. I also blogged about the lessons learnt. See: High yields: Successes, failures and the in betweens.

I went on to accumulate more units in REITs which met my selection criteria and currently the top three holdings in my portfolio are REITs.  They are Saizen REIT, AIMS AMP Capital Industrial REIT and LMIR.  These are all trading at big discounts to their respective NAVs, they have low gearing (or in Saizen REIT's case, lowered gearing) and high yields (or in Saizen REIT's case, potential high yield).

I was not a unitholder of Saizen REIT when they recapitalised.  I do not have any historical baggage.  I only looked at the numbers in mid 2009 and decided that there was immense value and that there was potential for a very high yield when income distributions resume. Today, the fundamentals have improved and my opinion has not changed. Persistent insider buying suggests a high level of confidence that the REIT is undervalued and that income distribution will resume as promised.  I also like the fact that Credit Suisse is now a major unitholder of the REIT.  See: Saizen REIT: 3Q FY2010 results.

I was a unitholder of MI-REIT and I was not very pleased with the recapitalisation package proposed late last year but I recognised that it was the best way to strengthen the REIT as there were no other viable alternatives (even though the CEO of CIT claimed there was). The renamed REIT is stronger in its balance sheet which is the most important thing in any business, in my opinion.  Why bother objecting to the recapitalisation plan on the grounds that unitholders' equity would be heavily diluted if the balance sheet remained terminally ill? The renamed REIT has the lowest gearing for industrial property REITs in Singapore now, next to the new kid on the block, CLT.  See: AIMS AMP Capital Industrial REIT (MI-REIT).

I have always been a unitholder of LMIR and I stayed positive on the Indonesian economy through the crisis. LMIR's very low gearing means there is little chance of it going to unitholders for funds. In fact, it has more room to gear up if there should be yield accretive purchases available. Even though some might be unhappy with a lack of growth in dpu in the current timeframe and how the forward hedging of the Rupiah/S$ exchange rate does not allow dpu to benefit from the stronger Rupiah, I remain sanguine about the situation largely because this REIT is still delivering a very healthy yield in excess of 10% at the current price. See: LMIR: More units at 10% yield.

Recently, some suggested that I might be overexposed to REITs.  In my usual way, I told them that it really does not matter to me if something I am investing in is a REIT or a company as long as it is able to satisfy certain criteria I have of which high yield is one. I rather concentrate my limited resources on a few good REITs than to spread out over tens of REITs and companies for the sake of safety through diversification.  I think Warren Buffet got it right to concentrate rather than diversify, in such an instance.

Many bloggers are quite comfortable revealing how much they receive in dividends on a monthly basis. I am somewhat less open but I will say that in the month of May, a big chunk of my dividends came from LMIR.  In the month of June, I am expecting a similar amount of income distribution from AIMS AMP Capital Industrial REIT.  Between LMIR and AIMS AMP Capital Industrial REIT, the annualised income distributions I receive could be as much as 4x my monthly salary. It is like getting 4 extra months of bonus every year. You like the idea? I do too.

Things should get better from here as from the month of September, income distribution from Saizen REIT would add to my passive income stream. I might just stop trading the market and sit back, relax and let the passive income stream in.  Of course, it remains to be seen if my calculations as to Saizen REIT's potential income distribution would come to pass.  See: Replies from AK71: All things Saizen REIT.

I remember watching and very much enjoying a cooking program in my teenage days, "If Yan can cook, so can you!". Now, I say to anyone who wants to create more passive income with limited capital, "If AK71 can do it, so can you!"  See: Seven steps to creating passive income from the stock market.

Saizen REIT: Insider purchases continue.

26 May 2010:

Ms. Yvonne Ho Yuk Yee, spouse of Mr. Raymond Wong Kin Jeon, has purchased 300,000 warrants of Saizen REIT (“Warrants”) on the open market. Mr. Wong is therefore also deemed to be interested in the 300,000 Warrants owned by Ms. Yvonne Ho Yuk Yee and held by HSBC as depository agent.

Amount of consideration (excluding brokerage and stamp duties) per share paid or received: 6.5c.

Mr. Raymond Wong Kin Jeon's deemed interest now stands at 19,373,390  Units or 2.033% of current issued share capital. 

Given the weakness in the stock market which has made valuations more attractive, I have considered increasing my exposure to Saizen REIT through purchasing more of its warrants.  Warrants, however, do not get any income distribution and that is a big negative for me. 

Technically, things remain somewhat dicey as it remains to be seen if the unit price of Saizen REIT would be pushed down further by the declining 100wMA or if the support provided by the 50wMA would prevail.  If I were not informed by TA, I would have simply gone ahead and bought many more Saizen REIT units as the price retreated.  Marrying FA and TA has made me more cautious and a recent purchase made with the retreat in price was a smallish hedge.
 

Related post:
Saizen REIT: Recent insider purchases.
Charts in brief: 27 May 10 (Part 2).

Charts in brief: 27 May 10 (Part 2).

Healthway Medical: The MACD is poised for a bullish crossover with the signal line in negative territory. MFI is just above the oversold region while OBV has been in gradual decline.  Technically, not very inspiring although the 14c support has been recaptured.  This is a long term support provided by the 200dMA which has flattened.

The shorter term downtrend is obvious with both the 20d and 50d MAs declining. Overcoming the 20dMA resistance would probably see 15.5c tested as a significant resistance level.  Another chance to sell at resistance? Perhaps. Good luck to all who are still vested.

LMIR: An impressive white candle day. MFI formed a higher low and is rising.  OBV is rising. MACD has turned up towards the signal line.Without higher volume on an up day, we have to remain somewhat sceptical of the upmove but an upday is always welcomed. I would now wait to see if the upward movement continues. I expect resistance to any continuing upward movement in price at 47c which was the support level which failed on 19 May. This was rather recent and is still fresh in the minds of market participants.
 

NOL: Buying momentum has been improving with the MFI rising.  OBV has been rising strongly too, suggesting accumulation is robust. A white engulfing candle formed today after a black spinning top yesterday. This confirmed the black spinning top as a reversal signal.  Expect further resistance at $1.94 and $1.99.

Saizen REIT: It is quite obvious that there is some weakness in the short term.  If the tension in the Korean peninsula should escalate, more nervous investors might sell their investments in Saizen REIT. This, unfortunately, is not something we could have anticipated or controlled.  Fundamentally, Saizen REIT is improving over time and its income stream is stable and secure. 15.5c remains a significant support.  The next significant support is at 14.5c.

SPH: Things are turning around, it seems.  A white candle day with MFI and OBV rising. MACD has gone flat which allows the distance with the signal line to lessen. Immediate support provided by the 200dMA at $3.70 while immediate resistance is at $3.78.  Overcoming $3.78 would find further resistance at $3.82 where the fast descending 20dMA seems poised to form a dead cross with the 100dMA in the coming sessions.

Starhub: Price has not been able to recapture the 200dMA support so far. $2.14 remains the immediate resistance. Although MFI has been rising, forming higher lows, OBV has not been as enthusiastic.  This suggests that we have positive buying momentum but accumulation is weak. MACD is still declining in negative territory and the downtrend is still very much intact.

A successful break above the 200dMA would find resistance at $2.19, the top of a base formation which lasted a few months.  Upside seems limited and going long at this point seems less likely to be rewarding. Any decline in price from here should see initial support at $2.06, the neckline of a reverse head and shoulders formation seen in November 09.

"We could have had an interim bottom of some kind - had an incredibly negative spate with really big volume on the downside," says Danielle Park, president of Venable Park Investment Council and author of Juggling Dynamite. "I think the themes we're concerned about today are like the volcanic cloud over Europe. It'll blow away for a little while and then it'll come back." 
Posted May 26, 2010 05:09pm EDT by Aaron Task



Related post:
Charts in brief: 26 May 2010.

Charts in brief: 27 May 10 (Part 1).

CLSA notes S-REITs offer yield of 7.1% vs yields of 5.3% from telcos, 3.0% from market.
 
“Unlike before, where S-REITs’ dividends could see further dilution from recapitalization exercises, we would argue that with a lower sector gearing and stable physical asset yields, most REITs would not need to recapitalise further. Hence, earnings and dividends are more insulated from any possible dilution,” says the research house.

S-REITs give better yields vs telcos, market says CLSA
Thursday, 27 May 2010

© 2010 - The Edge Singapore

STI rises 1.6% to 2,739.70 at closing
Thursday, 27 May 2010

© 2010 - The Edge Singapore

Another up day for the STI on respectable volume. We will lose a trading day tomorrow as it is Vesak Day.  We can only cross our fingers and hope that global stock markets continue to strengthen tomorrow so that the STI could have a decent chance of continuing this rebound next Monday.

Courage Marine: This counter strengthened ever so slightly to close at 18.5c.  The BDI is up again at 4,209. The longer term support of 17.5c is holding as price formed a white hammer today on thin volume. I like this company's strong fundamentals. The technicals are turning up and I've bought some at 18c as a hedge.

MFI has formed higher lows and emerged from the oversold region. The MACD is turning up towards the signal line. Courage Marine might just be a laggard and might just play catch up if movement in the BDI remains favourable.

AIMS AMP Capital Industrial REIT: A rebound is underway. Volume expanded as MFI and BDI rose in tandem. The MACD has turned up towards the signal line since it started its decline ten sessions ago. Expecting strong resistance at 21.5c.  Overcoming 21.5c would give this counter a chance at retesting old highs at 23c.

CapitaMalls Asia: Volume expanded today as we have another white candle day. Price touched a high of $2.13 before retreating to $2.11.  The trendline resistance has done its job at $2.12.

MFI continues to rise, forming higher lows.  OBV is rising too.  MACD is rising in negative territory.  If the next session sees price closing above $2.12, we could see $2.19 tested as the next resistance. If this does not happen, price is likely to go lower, seeing that it is a symmetrical triangle and the downtrend could continue. I am no longer vested in this counter, having cut my losses in last week's rebound. Good luck to those who are still vested.

FSL Trust: Price has detached itself further from the lower limits of the Bollinger bands. It is quite obvious that OBV has stopped declining, suggesting that distribution activities have come to an end for now. MFI has formed a higher low and is still rising.  The MACD looks set to form a bullish crossover with the signal line, although it is still in negative territory.  The worst is probably over for this counter. For anyone who has been waiting to go long on this counter, it seems fairly safe to put in a hedge now although further volatility to the downside cannot be discounted.

Golden Agriculture: Reached a high of 52c only to close at 50.5c.  From the candlesticks, it would seem that 50.5c is an important resistance level.  Successfully overcoming this would find resistance at 52.5c and 54c.  Could it retest 56c, where we now find the flat 100dMA?

Related post:
Charts in brief: 26 May 2010.