Suntec REIT: MBFC.

Suntec REIT is purchasing the one-third interest in Marina Bay Financial Centre (MBFC) held by Choicewide Group Limited, Cavell Limited and Hutchison Whampoa Properties Limited for S$1,495.8 million. This is hot on the heels of the announcement by K-REIT that it would purchase Keppel Land's one third interest in the same project. See slides here.

"The Manager is currently reviewing various financing options for the Acquisition to determine an optimal capital structure for the Acquisition. Details for the financing structure will be set out in the circular to be issued to Unitholders in due course, together with a notice of an extraordinary general meeting of Unitholders, for the purpose of seeking the approval of Unitholders for the Acquisition" and "The Acquisition is expected to improve the earnings and distributions for Unitholders". Read press release here

As per Suntec REIT's latest report, its current gearing is at 32.9%.  Total assets at S$5.275 billion.  Debt at S$1.733 billion. The REIT currently has 1,881,862,143 units in issue. See Financial Results for 3Q2010 here.

The net property income (NPI) of Suntec REIT is about S$200 million, annualised. NPI yield is 3.8%.  So, the acquisition at S$1,495.8m should at least have an annualised NPI of about S$60m (for a NPI yield of 4%) to make it NPI yield accretive.

Details as to the NPI of the acquisition has not been made available. However, it was made known that the acquisition will increase Suntec REIT’s office portfolio nett lettable area (NLA) from approximately 1.9 million sq ft to approximately 2.4 million sq ft. Using K-REIT's one third share of the same project as a guide which gives a NPI of S$37.396 million and if we include the income support of S$113.9 million payable over 60 months to be provided by the Vendor, giving us S$ 22.8m per year, we would get S$60.196m per year. So, the purchase looks to be NPI accretive.

It would be interesting to see what kind of financing structure would be decided upon. It is my assumption that Suntec REIT would issue rights to fund the purchase instead of having a share placement exercise if it is sincere about improving the distributions for unitholders. It could also gear up to 45% (on existing properties, excluding the proposed acquisition) and get about $600 million in loans which would reduce the size of any accompanying rights issue. Perhaps, in such an instance, they would have a 1 for 2 rights issue at about $1.00 per rights which would obtain an additional $909 million in funds. It could also gear up on the proposed acquisition (a 40% gearing would secure another $600 million in loans). This would further reduce the size of any accompanying rights issue.

Of course, this is all guesswork on my part. It is very late and I am half asleep. Let's wait for the circular.

K-Green Trust: Weak technicals.

In my first blog post on K-Green Trust on 3 July, I mentioned that "I would be quite happy to collect some units at $1.00 which would give a yield of 7.82% to begin with." With its price in decline lately, could I get my wish?

On 22 August, I said that "a near term support seems to have formed at $1.10" and "I would buy some at the current price of $1.11 instead of waiting as per my original plan". I also said "With an estimated yearly DPU of 7.82c, buying at $1.11 would give a yield of 7.05%."

Well, as things turned out, K-Green Trust's support was at $1.09 and this broke on 21 Oct. Today, price closed at $1.06, a natural candlestick support level. This could break and a stronger support would be at $1.04. Could we see $1.00 eventually, the buy price I thought of in my maiden post on the trust?

With the lower highs on the MFI and RSI plus the MACD plunging in negative territory, we could see price going lower in the near future. Look at the OBV and we see ongoing distribution. All technicals point to a higher probability of price going lower.

Related posts:
K-Green Trust: A stable source of passive income.
K-Green Trust: Possibly stabilised.

China Hongxing: Correction.

Recently, a reader asked me what do I think of China Hongxing. I have not done any fundamental analysis of this company, having gone in only once for a trade based on technical analaysis.

Looking at the charts, the 20d and 50d MAs are about to complete a dead cross while the MACD is declining in negative territory.  Momentum is clearly negative.  However, look at the OBV and we would notice that there is no massive distribution.  In fact, a quick look at the trading volume confirms that volume has been dwindling as price declined from the peak formed on 15 September. A low volume pullback is underway, it seems.

The 100dMA has just completed a golden cross with the 200dMA at 16c.  This is likely to be strong support level and would be ideal as an entry to go long on this counter. In the meantime, 17c is immediate support and could be a nice hedge in case price does not test support at 16c.

Related post:
China Hongxing: CD.

Marco Polo: BUY call by KIM ENG.

This could have happened in early October. A relative of mine bought some Marco Polo at 48c after reading a BUY call by Kim Eng with a target price of 60+c.  I cannot remember the exact target price now.  On hindsight, that was a high and price has been retreating since.

Although price closed at 43.5c today, the uptrend is still intact.  Connecting the lows of 2 June and 31 August makes this quite apparent. The MACD dipped into negative territory last week and together with the momentum oscillators, it paints a negative picture. The OBV shows massive distribution took place on 5 October and it has not shown any signs of sustained accumulation since.

What do we do if we want to go long here? We either wait for signs of a positive divergence or for price to test longer term MAs before entering.  The 100dMA is currently at 42.5c.

If we look at the weekly chart, we see that the rising 20wMA looks like it could form a golden cross with the 50wMA in another few weeks. The rising 100wMA is at 39.5c.  This MA has proven to be a strong support earlier this year in May/June. It is more reliable as a support than the 100dMA, therefore.  Based on the weekly chart, the longer term picture looks fairly good.

These observations are based purely on TA which is about probabilities. You have been cautioned. ;)