Cache Logistics Trust: Low gearing.

I have only mentioned Cache Logistics Trust (CLT) once before in my blog and it was in relation to AIMS AMP Capital Industrial REIT (AA REIT) in a blog post "Create more passive income with limited capital" on 29 May.

Anyone who has been following my blog would know that I like REITs with low gearing. On 29 May, I mentioned that AA REIT had the lowest gearing amongst industrial properties S-REITs next to the new kid on the block, CLT.  Of course, CLT is no longer the new kid on the block but its gearing level remains the lowest amongst industrial properties S-REITs.

In its report on 29 July, CLT's gearing level was at 25.5%.  DPU was 1.71c for the quarter (annualised = 6.84c).  NAV (excluding income for distribution) was 87c per unit. Interest cover ratio was 9.3x which is even higher than MLT's and this is definitely a positive.  See slides here.

On 29 July, CLT was trading at $1.01 per share. This would give a yield of 6.77% based on an annualised DPU of 6.84c. Its unit price is now 98.5c, not much lower. That's unattractive for me although I recognise that it is a relatively safe investment.

Price hit a low of 91.5c in late May which is still well above its IPO price of 88c per unit.  The price decline to late May showed classic signs of a low volume pullback and anyone who picked up some then got a fair deal.

Recent trading volume has been thin although the impending income distribution scheduled for later in November could give its unit price a nudge upwards.  Technically, the MACD has formed lower highs and lower lows while the 20dMA has gone flat after completing a dead cross with the rising 100dMA.  The 50dMA is still declining and seems set on forming a dead cross with the rising 100dMA.  All bearish signs although with volume so thin, we would be right to question the reliability of the charts.

CLT would be announcing its results on 28 October. Let's see how things go.

Related post:
Office S-REITs VS Industrial S-REITs.

Golden Agri, Kencana Agri and IndoAgri.

Crude Palm Oil has crossed the RM3,000 mark today. The long term resistance at around RM 2,780 which was taken out days ago is most probably the new support now.  The fortunes of CPO counters should continue to improve.

If not for its problems with the environmentalists, I expect Golden Agriculture to be a big beneficiary to strengthening CPO price.  If it loses more customers like it did in the past, it might not be able to ride on the improving CPO price firmly like the rest.  Technically, Golden Agriculture is correcting from overbought conditions.  It should see support at 61c and that would be a safer entry price.

A friend sent me an email a couple of weeks ago, maybe more, which he received from his broker. His broker recommended a buy on Kencana Agriculture which is much smaller than Golden Agriculture in many ways. Looking at the charts now, I am wary of this counter because it seems to display classic signs of negative divergence between price and volume, price and MACD, price and MFI as well as price and RSI.  The shorter term 20dMA seems to be flattening.  Could this loss of momentum suggest something more ominous?

IndoAgri has clear signs of being overbought.  $2.44 is the top of a double bottom like formation and it is also where the 20dMA is approximating soon. When we look at the Fibo lines, it is also the 138.2% line. It is the support to watch in case of a retreat in price. A fair entry price? It could be but it does not mean that price could not retreat further.  The longer term uptrend support is where the 100dMA is approximating.  This is currently about $2.31.

My very first post on Golden Agriculture:
Why Golden Agriculture?

FCOT: Turning around.

On 24 Sep, we observed some large volume buy ups, pushing the unit price of FCOT to 15.5c. I asked "Could it go higher in price?" and said, "From a technical perspective, it does look promising.  Volume is, after all, the fuel that drives rallies and today's volume was impressive."

FCOT released its full year results today and they are encouraging, which possibly explained the recent strength of its unit price. Total distributable income increased 78% year on year. 

The marked improvement in its distributable income has been put down to improving NPI and lower finance costs. The strong A$ also made its contribution.

DPU which is what matters to most unitholders is up 55% at 0.31c for the quarter.  This is after paying CPPU holders their due of 5.5%.  

For the full year, DPU is up 29% at 1.12c.  This is higher than my earlier estimate of 1c on 24 Sep when I said "the 3Q DPU was 0.25c. So, the annualised DPU should be about 1c. Based on today's closing price of 15.5c, the yield is 6.45%."  

So, based on the last closing price of 16.5c, the full year DPU of 1.12c represents a yield of 6.79%. (and based on 15.5c when I last did my analysis, the yield is 7.2%).

FCOT would be paying 0.5549c per unit on 29 Nov 10. FCOT's income distribution takes place half yearly.

Have things turned around for FCOT? Is it now a good investment at the current price of 16.5c? Let us look at some numbers:

1. Gearing level is now at 39.6%, lower than the 40.4% a quarter ago.  This is probably because its property portfolio saw an increase of 1.9% in valuation.

2.  NAV per unit is now at 27c due to the positive revaluation of its properties.  If all the CPPUs were converted, NAV would decline to 26c.

3. Interest coverage ratio is down at 2.48x compared to 2.74x a quarter ago.  This is a negative.

If we use FCOT's 4Q performance as a gauge as to how well it might do in the new FY, assuming that its 4Q DPU is sustainable, we would have an annualised DPU of 0.31 x 4 = 1.24c.  Based on the last closing price of 16.5c, that would give a yield of 7.5%.  This is an improvement.

Assuming that all the CPPUs are converted, it would provide FCOT with funds to the tune of $81m.  This is equivalent to about 10% of FCOT's gross borrowing.  This could bring gearing down to 36%.  Assuming that positive asset revaluation continues, gearing level could come down more in time.

However, if all the CPPUs are converted, we should also expect the total number of FCOT units in issue to increase by about 11%. This could water down the DPU of FCOT but it should not have a significant impact since FCOT would also be saving on distributions to CPPU holders at the rate of 5.5% in such a situation.

So, my answer? 

FCOT has probably turned the corner and the numbers speak for themselves. However, would I buy at the current price level? The encouraging numbers could give FCOT's unit price a lift upwards but it is obvious to any chartist that 17c is the immediate resistance. 

17c is the top of a base formation and a thrice tested resistance level in mid-January this year. However, if 17c resistance is taken out, we would have an eventual target of 20.5c.

From the looks of it, volume seems to be reducing since hitting a high on 24 Sep. In subsequent up days, volume had been lower. So, it could turn out to be a case of "sell on news". 

Immediate support is at 16c but I see a stronger support to be provided by the 50dMA which coincides with an uptrend line.  That might be a better entry price.  I do not like to chase.

See presentation slides here.

Related post:
FCOT, CCT and K-REIT.

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Frasers Commercial Trust’s distributable income for FY10 up 31% to $34.5m
Friday, 22 October 2010

© 2010 - The Edge Singapore

FSL Trust: US0.95c DPU.

FSL Trust has declared a DPU of US0.95c, payable on 26 November 2010. The EDGE has a good write up and the following provides some solace to unitholders worried about the early termination of charters by Groda for the two ships:

"Revenue for 3Q FY10 declined 4.9% year-on-year (y-o-y) to US$23.4 million compared to US$24.6 million in 3Q FY09. The 3Q FY10 revenue includes freight revenue of US$2.5 million earned by the vessels FSL Hamburg and FSL Singapore deployed in the product tanker spot market during the period.

"This mitigated the loss of bareboat charter lease rentals of US$3.8 million for the quarter due to the premature termination of bareboat leases for FSL Hamburg and FSL Singapore."

The decline in overall revenue is expected but it was not as bad as feared. This could possibly explain the strengthening unit price of the trust over the last couple of months.

Technically, it seems that price has hit resistance at 48c.  Could the rising 20dMA give a much needed nudge for price to move higher?  Could the more benign news plus income distribution be positive catalysts?

OBV has been gently rising which suggests that some quiet accumulation has been taking place. MFI, with its higher lows, suggests sustained demand.  Indeed, we could see the MFI decline a bit more to retest 50% and the uptrend would still be intact. MFI is a function of price and volume. So, a slight decline in price or volume or both would see it coming down.

The declining 200dMA should provide a rather strong resistance at 50c in the event of a further upmove in price. I would do a partial divestment if unit price should rise to that level.

Related post:
FSL Trust: Approaching target.

First Ship Lease Trust to distribute US0.95¢ per unit for 3Q
Friday, 22 October 2010

© 2010 - The Edge Singapore

Tea with AK71: ASSI is on Twitter!

Some time back, a reader, Chu Yeow, asked if I was considering getting a Twitter account.  Being an IT dinosaur, I was already caught up with blogging and I was not sure what Twitter did and I didn't see the need for it. What I do know is that it has a little bird logo.

Anyway, today, I decided to just register for a Twitter account and see how it goes (although I still do not know if it would be something useful or not).  After all, I see many blogs with "Follow me on Twitter" buttons too.  OK, ok, I know. I should not just do something because other people are doing it.

My Twitter ID is "AK71SG".  It is a shame that the ID "AK71" was already taken.  So, "AK71SG" is the next best thing since I am AK71 and I am in Singapore. Very clever, don't you think? ;-p

If anyone has any idea as to how I could derive benefits from having a Twitter account, please share with me by leaving me a comment.  I would be most grateful as, obviously, I am not the most IT savvy person around. :-)

Control of non-renewable resources!

I was first introduced to the concept of non-renewable resources probably during my days as an "A" level student.  It was believed that crude oil would be depleted in 30 years back then.  Well, 20 years have gone by but it seems that we have more proven reserves of crude oil than ever before but it does not change the fact that it is still a non-renewable resource.

OPEC has 12 members and between them, they control 60% of the world's proven crude oil reserves and produce 40% of the world's oil currently. OPEC's importance cannot be underestimated although there are more non-OPEC oil producers since the 1980s.  This is because oil output by non-OPEC oil producers is likely to fall over the next decade.

Although the world is still very much dependent on oil for its energy needs, there are many alternatives to oil.  The increasing awareness of global warming and climate change issues has encouraged efforts to produce energy cleanly and sustainably.  These efforts would only intensify over time.  So, crude oil might be non-renewable but it is replaceable.

Today, in the papers, I learned that there are some other non-renewable resources which are controlled to a large extent by a single Asian country. I first learned of this only a few weeks ago. Some of you might already know what I am talking about: rare earth minerals.  A quick check on Wikipedia reveals that "the majority of rare earth minerals are mined in Asia, with China producing 93 percent of the world's supply, and more than 99 percent of the most valuable supply!"

In the recent case of Japanese authorities arresting a Chinese fisherman in disputed waters, the Chinese stopped the export of such rare earth minerals to Japan. Apparently, these rare earth minerals are so important in the production of many advanced products that the Japanese authorities bowed to pressure and released the fisherman.

The papers today reported that the Chinese seem to have halted the shipments of these rare earth minerals to the United States and Europe as well.  This is in response to the rising trade and currency tensions China has with the West.  How long would this embargo last?

It is also reported that the Chinese plan to further reduce their annual export quota for rare earth minerals from next year.  Mining almost all of the world's rare earth minerals, non-renewable resources which seem to have no viable alternatives at the current point in time, makes the Chinese a force as formidable as OPEC and possibly more.

Cambridge Industrial Trust: Equity fund raising again.

Very quickly on the heels of its dismal third quarter results, Chris Calvert, the CEO of CIT, has given me more writing material.  This time, it is an equity fund raising which includes private placement (Oh, why am I not surprised?) of 56,498,000 new units at 53.1c per unit and a 1 for 25 "preferential offering" for a total of 38,483,354 new units to existing unitholders also at 53.1c.

The whole engineering effort plus the proposed acquisitions would increase the REIT's total assets by 7.5% from $926.2m to $995.9m.  However, the number of units in issue would increase 10.4% from 909,988,000 units to 1,004,969,000 units! This would lead to a further dilution of NAV/unit from 57.6c to 57c!

It is claimed that the distributable income would increase from S$10,813,000 to S$12,126,000 for a 12.14% increase after the acquisitions are completed.  DPU would, however, increase 1.5% from 1.187c per quarter to 1.205c per quarter. Annualised DPU is estimated at 4.82c which means that the yield based on the "preferential" price of 53.1c is 9.08% and, if based on the last closing price of 56.5c, it would be 8.53%.

Gearing is supposed to reduce from 39.2% to 38.6% after the transactions are completed. This is not genius but simple mathematics.  If we increase the size of assets under management by 7.5%, without paying down or taking on more debts, gearing which is a function of debt to asset size would reduce. CIT is, however, taking on more debt to fund the proposed acquisitions and the resulting decrease in gearing level is not significant.

Existing unitholders should feel indignant because:

1. Most of the funds would be raised through private placement.

2. Existing unitholders are only given 1 "preferential unit" for every 25 units they hold.  Why not enlarge this to 3 units for every 25 units they hold and do away with the private placement (point 1 above)? This would be more equitable and would raise more funds.

3. The "preferential units" are different from "rights".  There is no window period for unitholders who might not want to subscribe to these "preferential units" to gain some compensation by selling away their entitlements, which they could do if they were issued rights instead.  Why did CIT not issue rights instead? (As informed by Musicwhiz in the comments section, CIT is issuing rights but they have chosen to call them "preferential units" and the difference is that these rights are non-transferable which means there is no window period to sell them away as nil-paid rights if unitholders choose not to subscribe and pay for them.)

4. The dismal third quarter results announced yesterday would likely have some downward pressure on the REIT's market price anyway and the offer price of 53.1c per "preferential unit" is not very attractive.

Unitholders would end up having their stakes diluted.  There is a promise of a "higher" quarterly DPU but seeing how the management could not deliver on promises made earlier in August as seen in the disappointing third quarter results announced yesterday, one could not be faulted for being unsure this time round.  This leads me to add one more point:

5. The DPU of CIT was 5.36c before all the recent placements and acquisitions were announced (starting in August 2010).  It would become 4.82c after this latest round of equity fund raising and acquisitions. This is more than 10% in reduction. It is immediately apparent that all the recent proposals by CIT's management have been value destructive for shareholders despite any claim to the contrary.

Read announcement here.

Cambridge Industrial Trust to launch an equity fund raising comprising of the private placement of 56.5 million new units to raise gross proceeds of $30 million; and a preferential offering of up to 38.5 million new units to raise gross proceeds of up to $20.4 million.
Thursday, 21 October 2010

© 2010 - The Edge Singapore

Related posts:
Cambridge Industrial Trust: Fails to deliver.
Cambridge Industrial Trust: Acquisitions and private placement.

Healthway Medical: Business diversification.

I received a circular from Healthway Medical. This is in respect to a proposed business diversification.  Diversification? Aren't they having enough trouble trying to keep their numbers from worsening? Well, maybe, I should not jump to conclusions. Let us take a look at what is happening.

A new company, Healthway Medical Development (Pte) Limited was set up on 22 Sep 2010 as an investment holding company. This joint venture company in which Healthway Medical holds a 25% interest, hopes to "capitalise on the numerous real estate opportunities in the region, in particular the PRC, by tapping on the Medical Development Business to develop real estate projects with medical and healthcare facilities with the aim of accessing new and emerging private healthcare services markets." (on page 9 of circular)

Honestly, this sounds attractive. Any risks? Just as in its proposal to expand its business into the PRC, Healthway Medical listed the risks involved in the proposed business diversification: a total of 12 points (3.4.1 to 3.4.12, pages 13 to 17)! It seems to me that the company is taking on too much risk.

Although it is stated that this proposed business diversification has no significant financial impact on Healthway Medical's NTA per share or EPS for 2010, it was further stated that "should there be any material impact.... for FY2011, the company will make the necessary announcements at the appropriate time."  Has this been deliberately left vague? I do not appreciate this.

I feel that Healthway Medical's management have their hands full. The numbers in the last two quarters have been disappointing, to put it diplomatically. Could this proposed business diversification put further stress on resources which could already be spread thin? If Healthway Medical's share price is anything to go by, its recent weakness hints that I am not the only shareholder who is unimpressed by its performance.

A gravestone doji formed today as price closed at 15.5c.  As the MFI is in very oversold condition, price could experience a brief rebound and it might be a good chance for stale bulls to lighten their long positions, if any. Strong resistance could be expected at 17c.  This is where we find the 200dMA and it is also where the falling 20d and 50d MAs would be approximating soon.

Related post:
Healthway Medical: Second quarter results.
Healthway Medical: Testing 16c support.

K-REIT: 10.2% DPU accretion.

On 11 Oct, I blogged that "the actual DPU forecast following the completion of the transactions will be disclosed in the Unitholder Circular which is not available yet. Will this swap agreement be DPU accretive?  It should be since we are seeing a more than doubling of gearing ratio from 15.2% to 39.1% and a boost to K-REIT’s assets to about $3.4 billion from $2.5 billion."

On 18 Oct, K-REIT's management announced that upon the completion of the transactions, the REIT's DPU would increase from 6.06c to 6.68c which represents a 10.2% DPU accretion for 2011. Although this increase is relatively modest given the fact that the REIT's assets would grow 36% because of the transactions, some other benefits of the said transactions could inject more stability into the REIT. A couple of such benefits are its weighted average debt maturity profile extending to approximately 4 years and its weighted average lease to expiry (WALE) extending from 5.7 years as at 30 June 2010 to 7.8 years.

However, as I try to optimise income from my investments, an annualised DPU of 6.68c or a yield of 5.02% based on the last traded price of S$1.33 per unit is not quite as attractive for me.  I have halved my smallish investment in K-REIT and will redeploy the funds.

Related post:
K-REIT: Swap agreement.

Cambridge Industrial Trust: Fails to deliver.

I have blogged about how I dislike CIT's share placements which dilute current unitholders' shares of the REIT.

On 14 August, I blogged that "Due to the acquisitions, total distributable income is expected to increase 5.7%.  However, in order to fund the acquisitions, the private placement would lead to an increase of 10.15% of units in issue.  This effectively dilutes the DPU of CIT, post acquisition. DPU is estimated to fall from 5.36c to 5.14c.  NAV per unit will also fall from 60c to 58c."

The 3Q2010 results released today show the following changes quarter on quarter:

1. Net assets increased from S$522.8m to S$554.1m.

2. Number of units in issue increased from S$873.2m to S$962.1m.

3. NTA per unit decreased from 59.9c to 57.6c.

4. Net property income decreased from S$16.1m to S$15.9m.

5. Distributable income remains unchanged at S$10.8m.  This is despite expectations that it should increase 5.7% due to acquisitions announced in August!

6. DPU reduced from 1.238c to 1.187c.

Although the REIT has grown in net asset value by 5.99%, the number of units in issue has grown by 10.18%. NTA per unit has, naturally, suffered a decrease in value.  Although net assets increased, the REIT suffered a decrease in net property income.  Overall, DPU which is what matters to most unitholders suffered a 4.1% decrease.

The annualised DPU has decreased to 4.709c.  This is much worse than the estimates in August which was for the DPU to fall from 5.36c to 5.14c. A DPU of only 4.709c gives a yield of 8.33% based on the last traded price of 56.5c before trading was halted at 3.08pm.  This pales in comparison to AIMS AMP Capital Industrial REIT's DPU of 2.08c which translates to a yield of 9.24% based on a unit price of 22.5c.

Although the REIT's gearing has been reduced to 39.2%, it is still much higher than AIMS AMP Capital Industrial REIT's 34.8%.  Its interest cover ratio of 3.8x is also lower than AIMS AMP Capital Industrial REIT's 4.21x. With NTA per unit at 57.6c, it is trading at less than 2% discount while AIMS AMP Capital Industrial REIT is trading at a 13.5% discount to NTA per unit of 26c.

If I have to choose between the two industrial S-REITs, it is quite clear to me that CIT is a distant second to AIMS AMP Capital Industrial REIT.  Indeed, I have chosen, having divested all my interest in CIT while increasing the size of my investment in AIMS AMP Capital Industrial REIT.

See presentation slides here.

Related post:
Office S-REITs VS Industrial S-REITs
Cambridge Industrial Trust: Acquisitions and private placement.
AIMS AMP Capital Industrial REIT: Buying more?

Saizen REIT: AGM on 19 Oct 10.

I managed to take leave from work to attend Saizen REIT's AGM with a friend today. The AGM started on time and there were few surprises for me as I have been tracking this REIT for about a year now. Nonetheless, I picked up some interesting points which might not be apparent from the presentation slides.

The management took pains to impress upon unitholders that even if YK Shintoku were to suffer a foreclosure, the rest of Saizen REIT would not be affected. The DPU of 0.26c for the months of May and June 2010 did not have any contribution from YK Shintoku. We could expect this DPU to be sustainable. So, even if YK Shintoku's loan remains unresolved, we could expect a DPU of 0.26c x 6 = 1.56c per annum, ceteris paribus.  This is a yield of almost 10% based on a unit price of 16c.  However, I would expect this to be diluted somewhat if all the warrants are exercised. A 7% yield could be more realistic then.  When we take into consideration that Saizen REIT owns freehold properties, this becomes quite attractive.

Depending on whether YK Shintoku's CMBS is refinanced and the size of its portfolio at the point in time if refinancing happens, yield would be adjusted upwards but the magnitude of such an adjustment would remain guesswork for now, at best.

The management's energy is now focused on the re-financing of YK Shintoku's CMBS. The main difficulty in getting the loan re-financed is the cautious stance of lenders. This explains why they are gradually divesting properties in YK Shintoku to lower the absolute quantum of the loan. This is a preferred alternative to having the portfolio foreclosed by the CMBS holders.

A smaller loan quantum would also make it more palatable to potential lenders, of course. In fact, Mr. Raymond Wong mentioned that a bank in Tokyo is willing to lend them more money provided that they resolve the YK Shintoku CMBS first. A chicken and egg problem, it seems.

Mr. Wong further revealed that in the last two years or so, they met up with about 60 different banks and managed to refinance all but YK Shintoku 's CMBS. The absolute size of this CMBS remains a challenge although it has been reduced through divestment of properties over time from the original JPY 7.953 billion to the current JPY 5.9 billion. It was also said that YK Shintoku has a cash reserve of JPY 0.6 billion which would reduce the outstanding loan balance to JPY 5.3 billion.

The problem with CMBS is that it has to be fully repaid and there is no amortising feature. So, the challenge is now to find a lender willing to lend JPY 5.3 billion to refinance YK Shintoku's CMBS.

The management revealed that it collected $14.56 m from warrant proceeds as of 18 Oct. Potentially, it could receive another $30.18m if the rest of the warrants are exercised. If enough properties from YK Shintoku were divested to make the outstanding loan balance payable using warrant proceeds, we might not even need to refinance the loan. JPY 5.3 billion is (at today's rate of 1 JPY = 0.01575 SGD) equivalent to S$83.475m.  For such an option to work, it seems that Saizen REIT would have to divest another $40m worth of properties from YK Shintoku's portfolio.

Both Mr. Raymond Wong and Mr. Chang Sean Pey agreed that it is not the best time to sell properties in Japan. In fact, it is a time to buy properties in Japan (which could explain partially why GLP and MLT bought so many properties this year in the country). Unfortunately, the lack of willing lenders for YK Shintoku's refinancing bid leaves them little choice but to continue divesting properties until a time when it is no longer necessary. Like Mr. Wong said, it beats having the portfolio foreclosed.

The successful refinancing or discharging of YK Shintoku's CMBS would represent a bonus for unit holders since it would resume contribution to the REIT's distributable income. This is not, by any means, certain. Therefore, I would not buy Saizen REIT with this as the primary motivation. It is just a bonus that could very well materialise.

The management's tact to present the REIT as a safe income generating instrument was not lost on me. However, some unitholders were clearly not impressed and asked if there were plans to have greater coverage of Saizen REIT by brokerages and whether there would be further re-rating upwards by Moody's. It is a fact that Saizen REIT's units are trading at a huge discount to NAV and the yield is very high.  This was explained by Mr. Raymond Wong, quite candidly, because of the market's perception of the REIT which has remained unfavourable as well as the negative perception of the Japanese economy as a whole.

Having said this, understanding the need to have increased coverage for Saizen REIT, the management has met up with the largest retail brokerage in Singapore yesterday and will conduct a briefing for analysts today. Of course, positive coverage could give Saizen REIT's unit price a shot in the arm.  After all, it remains a strong value proposition.

Mr. Chang made a very good point that the depressed value of Japanese residential real estate is not because rental rates have plunged. Rental rates have remained relatively stable. It is because liquidity has dried up but this is slowly changing. The recent successful divestment of various properties in YK Shintoku shows that buyers are back and liquidity is returning. Things could only get better from here, in my opinion.

So, was there anything I did not like about the AGM? Resolutions 3 and 4: Allowing the manager to make or grant convertible instruments and to issue by way of placement at a discount of 10 to 20% of the unit price at the point in time. Although Mr. Raymond Wong assured unitholders that it is a formality and that they would not do any placements at such a steep discount to the current very depressed unit price, I voted against these resolutions.  I do not like share placements as they exclude small investors like me from taking part in the enlarged capital base.  I much prefer a rights issue.

In general, I enjoyed the AGM. Both Mr. Raymond Wong and Mr. Chang Sean Pey were polite and shared information freely. They answered questions candidly, acknowledging the difficult circumstances surrounding their efforts to refinance YK Shintoku's CMBS. Mr Arnold Ip, the Chairman, whom I have always imagined to be a Chinese gentleman but turned out to be Eurasian, said that they are now a lot more optimistic about the REIT and its future when, only a year ago, they were thinking of the worst case scenario.

After attending the AGM, I am more convinced than ever that Saizen REIT is a value proposition that is hard to ignore.  It is an income instrument that would continue to deliver a relatively high yield at the current price and the potential upside is more than any potential downside. I would continue to accumulate on weakness, if the opportunity presents itself.

AGM presentation slides here.

Related post:
Saizen REIT: Divestment of 3 properties.
Saizen REIT's properties: Would I buy?
Saizen REIT: Better than expected DPU.

K-Green Trust: 3Q 2010 results.

K-Green Trust announced the following today:

1. The profit after tax achieved for the period from date of listing on 29 June to 30 September 2010 was $4.6 million, 26.5% higher than forecast.

2. Profit after tax for the third quarter was $4.4 million.

3. EPS for the period from date of listing to 30 September 2010 was 0.73 cents.

4. Free cash flow for the third quarter was $19.2 million.

5. Net asset value per unit as at 30 September 2010 was $1.15.

The strong set of numbers is encouraging. Read announcement here.


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

Golden Agriculture: Upmove sputtering.

A valiant attempt pushed price higher by just 0.5c today.  Price touched a high of 70c before closing where it started the session at 67c. That this was achieved on the back of much higher volume compared to the previous session is ominous. This suggests strong selling pressure as buyers turned sellers and locked in gains.  In fact, a case could be made to say that we are seeing the formation of a negative divergence between price and volume over the last six sessions.

However, the higher highs on the MFI and RSI suggest strong demand and buying momentum. Keep in mind that these are lagging indicators and being in overbought territories, we could see the situation corrected and the share price retreating.  In the event of a correction, the immediate support at 66c would most likely give way and a stronger support could be found at 60c. This is also where the rising 20dMA is approximating.

The 20dMA, however, has been an unreliable support in the past. More likely than not, it would give way and the 50dMA, currently at 58.5c is a stronger support.  What if this gave way? Well, the merged 100d and 200d MAs could likely hold up as it is also where the uptrend support is approximating.  This could be ideal as an entry point to go long.

Related post:
Golden Agriculture: Going higher?

Healthway Medical: Testing 16c support.

It is quite clear on the OBV that Healthway Medical has experienced three continuous days of distribution. Volume today was the highest of the last three sessions as price closed at 16c, an important support level identified earlier.

On 14 Oct, I mentioned that "16c is likely to be psychologically important as a support.  So, if it could hold up, it could provide the base for a rebound" and "if the support at 16c breaks, the uptrend is well and truly over.  We could witness a massive selling down to 14c then (the 138.2% Fibo line), followed by 13c (the 161.8% Fibo line).  So, all eyes would be on 16c."

With the lower highs on the MFI and RSI suggesting weakening demand and buying momentum, it is likely that we would see price weakening further.  The chances of a rebound look poor especially when the weakening share price is accompanied by higher volume. The negative divergence between the uptrend in price and the downtrend in the MACD has yet to play out in full.

Keep an eye on 16c and if it breaks on high volume, we could see 14c tested as support sooner than later.  Any rebound in price from the current level is likely to be met with strong resistance at 17c, formerly a strong support and it is also where the merged 20d and 50d MAs are declining to.

Related post:
Healthway Medical: Uptrend threatened.

Portfolio diversification.

An email from another reader:

Hello AK

I was thinking about the investment portfolio and its exposure to the various countries and sectors.

S-REIT is good for the high dividends payout but I feel that there will be a time that I will have a high exposure to the property sector.

While the % of sector/counters per $10,000 to be invested is up to individual, what will be a recommended spread of counters that we could look at for portfolio diversification.

Note that I am still newbie to FA (still dunno what 200dma means) and will not watch the market like a hawk for the buy-sell quick profits.

Your thoughts appreciated.

Thanks
J

My reply:

Hi J,

My strategy is quite simple.

-There is a time to buy and a time to sell. When I hit my targets, I sell.
-If I cannot find any bargains, I don't buy.  I keep cash until bargains present themselves.
-I try not to be vested in too many sectors/countries for the supposed safety that would come from diversification. In fact, I would be burdened with the need to monitor too many things.

Just my way. ;)

Best wishes,
AK
P.S. 200dMA is "200 days moving average" and is part of TA, not FA.


Related post:
Risks and rewards: TA and FA.
Conspiracy of the Rich.

Investing for income or growth?

Here is an email from another reader recently:

For pple with substantial capital, they can just buy div stocks and  hold. For those with less, it's not so simple..Cheng must be really  bullish..99% in the market, I'm only 30+% in the market..

I am surprised by LMIR, it hit a high of 53c today. Despite, the so-so management , i guess pple are still attracted by the yield.  This one is for keeps..

My reply:

I do not think that investment strategy is totally a function of how much capital we have, it is also a function of how much we want. If a person with $10,000 wants to double it within a year, of course, investing for income could disappoint.  An active trading strategy is more appropriate.  If this person is happy with 10% yield per annum, then, my current strategy is OK. Question what do we want and employ the appropriate strategy.

With LMIR, I still have a substantial position in the REIT although I did pare it down to increase my position size in AIMS. What's left in LMIR, I would just hold for its quarterly income distribution since I doubt it could go lower than 4c per annum. Fundamentally, this is a safe and stable investment.

Related post:

Roads to wealth creation in the stock market.

How to choose stocks?

I received this email from a reader recently:

Hi AK,

just want to understand better with respect to the various stocks. I  understand how say a TRUST / REITS works..and noticed that the price does not fluctuate much- but in return there is steady dividends that is tied to the NAV.

How then does one determine the NAV of say a stock that is tied to a business like manufacturing, services etc etc? and also the PE ratio?

Say for e.g memstart which focuses on membranes for water treatment.  I do think that this is one sector  besides solar/ green energy that would have a strong demand in the future given the scarcity of natural resources in the  future. How does one decide whether this is a good stock to invest in. Are there  questions that one should ask if we're investing for long term vs short term?

It's good to get a FAQ on how to choose stocks for long term and  short term, and not just purely on TA or FA.

Cheers
D

My reply:

Hi D,

A FAQ on how could we value different companies in different sectors would be a gold mine.  Unfortunately, I do not have the expertise to do this.  I think we would probably have to assemble 10 to 20 different bloggers who are experts in their own stocks of interest. ;-)

Different sectors are valued differently. So, some companies could have PEs of 30 and is considered cheap compared to other companies in a different sector with PEs of less than 10.  So, comparing against peers in the same sector is something I do often.

If you are asking questions about NAV and PE, you are doing fundamental analysis (FA) and likely to care more about values (i.e. you are a value investor). These numbers are easily obtained in a company's financial report (quarterly) or annual report. NAV is usually found towards the end of the reports.

I believe that the idea of long term investment is actually flawed and made into a legend by stories of how Warren Buffet kept adding to his investment in Coca Cola, for example.  If Coca Cola's fundamentals should take a turn for the worse one day, I am sure Warren Buffet might sell out. Stay nimble because circumstances are very fluid.  They could and often change from time to time.

If you really like the idea of long term investment, you would need the kind of foresight that Warren Buffet has.  Take note that even he makes mistakes. You want to look for companies with big "moats" (strong competitive advantages which are hard to replicate). To this end, there are many books available about how Warren Buffet picks winning stocks for the long term. :)

Best wishes,
AK

Related post:
Looking for value.

Tea with AK71: My new car's fuel consumption.

My Mazda 2 is more than a month old now and I am still trying to get 15.5km per litre out of it.  This is the official number from Mazda.  Initially, I got only 12km and now, I am able to get almost 14km but it seems that I have hit resistance, so to speak.

With my old Mazda 6 which had a 2.0 litre engine, I was able to do 11km+ per litre which from the reactions I got from friends must have been pretty amazing.  In fact, the salesperson at Mazda was amazed as well.  Then, why am I not able to get 15.5km per litre out of the Mazda 2 which has a 1.5 litre engine?

This was one of the things I thought about over the weekend and I compared what I did to the Mazda 6 that I might have to do to the Mazda 2.  Precious little since I am not the type to spend money on bodykits, sound systems and HID lights. I did spend money to run my Mazda 6 on synthetic engine oil and I did spend money on some good tires which were supposed to reduce CO2 emission.  There, I have my answers.

Running my car on synthetic oil reduced internal friction and I didn't have to wait for the engine to warm up before I drove.  Since, my Mazda 2 is new and has a free service by the agent at 5,000 km, I would just have to live with mineral oil till the car hits 10,000km.  That's when I would make the switch to synthetic oil.  This should improve the performance of the car.

New cars are usually bundled with OEM tires.  Apart from keeping tires properly inflated, swtiching to better tires could reduce resistance when driving. There could be less friction and we could cover more distance without stepping on the accelerator as much. Hence, the claim that good tires could reduce CO2 emission. Since tires usually last for 2 years or so, I would not be changing them in a hurry.  Will make a mental note.

I am rather light footed and do not rev the engine.  So, in terms of driving behaviour, I think I'm safe.  I am not sure if there could be other ways of improving my car's fuel consumption. If you have an idea, please feel free to share it. :)

Related post:
Tea with AK71: Bought a new car!

AIMS AMP Capital Industrial REIT: Excess rights.

A friend who applied for 2,500 excess rights was given 100% of his application.

Another friend who applied for 365,000 excess rights was given 39,000 rights or 10.7% of his application.

A reader, SnOOpy88, commented this morning:
"Results are out in CDP A/C.
I got only 17% of excess over my rights. Good start for me.
Wonder what will be the pricing direction now, given that some of us had got shares at $0.155 ?
Huat ah..."

SnOOpy88 did not mention how many excess rights did he apply for.

From my friends' experience, it seems that the less excess rights we applied for, the larger the percentage of our application would be successful. I wonder how many excess rights I would be alloted.  I would know this evening when I open the mailbox, I guess. ;)

Congratulations to fellow unitholders who are successful in getting some excess rights.  Each lot of excess rights secured is equivalent to an immediate gain of S$65.00 based on the current market price of 22c per unit. That's a 42% gain! In the money! :-)

Related post:
AIMS AMP Capital Industrial REIT: Results of rights issue.

Healthway Medical: Uptrend threatened.

On 11 Aug, I blogged about how Healthway Medical's support at 18.5c had been compromised and that price could go lower. I said that "It is likely that 17c could be tested as a support sooner than later".  Then, for a few days in late August and early September, price actually sank below 17c before recovering.

Today, the support at 17c crumbled on high volume.  That 17c was taken out when it is where the rising 200dMA is approximating is very bearish since the 200dMA is supposed to be a rather strong support. The last time this happened was in the second half of May this year but price rapidly recovered.  How high are the chances of such a recovery this time round?

Take note that the volume today was very much higher than back in May as the counter was sold down.  Back in May, the MACD was also poised to do a bullish crossover with the signal line while, this time round, it is dipping into negative territory. Lower highs spotted on the MFI and RSI, suggesting a weakening demand and slowing buying momentum.

Drawing a trendline support connecting the lows of 30 Dec 09 and 25 May 10, we see this support approximating 16c which happens to be a many times tested support from March to April this year.  16c is likely to be psychologically important as a support.  So, if it could hold up, it could provide the base for a rebound.

If the support at 16c breaks, the uptrend is well and truly over.  We could witness a massive selling down to 14c then (the 138.2% Fibo line), followed by 13c (the 161.8% Fibo line).  So, all eyes would be on 16c.

I have a very small position in Healthway Medical left which consists of rights shares and scrip dividends, average cost should be in the region of 12c, having divested >95% of my investment in the company earlier this year.  Good luck to all shareholders.

Singapore to allow stronger currency; economy shrinks: Update
Thursday, 14 October 2010

© 2010 - The Edge Singapore

Related posts:
Replies from AK71: Entry price for Healthway Medical.

Saizen REIT: Divestment of 3 properties.

Saizen REIT divested 3 more properties in its YK Shintoku portfolio:

Higashi Hakushima Y Building was sold for JPY 145,000,000 (S$2.3 million).  This property is located in Hiroshima, was built in March 2003 and comprises 19 residential units and 4 car park lots. It has an annual property income of approximately JPY 15.1 million or a gross yield of 10.41%. This was sold at a discount of approximately 7.1% to valuation.

Otemachi Y Building was sold for JPY 170,170,000 (S$2.7 million). This property is located in Hiroshima, was built in March 2001 and comprises 24 residential units and 2 car park lots. It has an annual property income of approximately JPY 17.0 million or a gross yield of 9.99%. This was sold at a discount of approximately 5.5% to valuation.

Kinyacho Y Building was sold for JPY 180,542,826 (S$2.9 million).  This property is located in Hiroshima, was built in February 2002 and comprises 24 residential units and 2 car park lots. It has an annual property income of approximately JPY 18.3 million or a gross yield of 10.14%. This was sold at a discount of approximately 4.0% to valuation.


A total of JPY 495,712,826 (S$7.9 million) was fully paid up by the buyers on 13 October 2010. The proceeds will be used for partial repayment of the YK Shintoku CMBS.

Read announcement here.

Related post:
Saizen REIT's properties: Would I buy?

SPH: Negative divergence.

SPH's volume exploded as it declared a dividend of 20c to be paid in December. However, the explosion in volume only managed to produce a doji yesterday.  Not good.  Higher volume but price remained stagnant which means that the bears were too strong for the bulls.  Today, price plunged below the 20dMA ($4.20) to close at $4.18 on comparatively high volume.

I guess the market does not like the announcement that SPH "will restore the remaining portion of the pay cuts introduced in April 2009. In addition, SPH will give a special one-off sum to staff to thank them for the sacrifice and contributions they have made. These payments will take effect by January 2011 and will effectively restore the pay cuts in full. They will be paid together with the usual increments, and profit and performance related bonuses." Read announcement here.

Looking at the MACD, we see lower highs formed as price formed higher highs.  This negative divergence is a warning that recent price appreciation in the blue chip could be unsustainable.  $4.20 could be support turned resistance.  This needs confirmation.  

Next support is at $4.13 which is underpinned by the rising 50dMA on top of being a natural candlestick support level.  The uptrendline approximates the 50dMA and the lower Bollinger band at $4.10.  A break below this trendline would signal the end of the existing uptrend.  We could see a new and gentler uptrend forming if the 100dMA (now at $4.00) or the 200dMA (now at $3.91) hold up as the next support levels.

I remember someone asking me if it was too late to buy into SPH yesterday, if it was too expensive.  I guess the answer could either be found in the fundamentals or the technicals.  Technically, $4.10 to $4.13 seem to be pretty ok entry prices but if these go, there could be as much as a 5% downside which could be covered by the 20c dividend in December anyway.  Just my thoughts.  Not an inducement to buy. Vested. ;-)

Related post:
SPH: Final dividend.

>1000 unique visitors in a day!

Not too long ago, I was impressed when a local investment blog proclaimed it was visited by 1000 unique visitors on that day. That was really something! After all, local investment blogs are usually not known for generating high traffic. We are in a very small niche and, to make it tougher, it is a very small niche in a very small country. ;)

Anyway, yesterday, on 13 October 2010, Wednesday, A Singaporean Stockmarket Investor (ASSI) was visited by 1069  unique visitors.  This is another milestone for my blog and I sincerely thank one and all who helped to make this a reality! I hope you enjoy reading my blog as much as I enjoy blogging. :)

14 Oct 2010 (Thursday)

 

Raffles Education: Golden cross.

On 4 Oct, I mentioned that "it looks to me like a positive divergence is forming between the downtrend in price and the MACD.  As price formed lower highs, the MACD has been forming higher lows". This picture has not changed.  The positive divergence is still quite obvious.

Price has been moving in a tight range between 28c and 29.5c of late.  The declining 100dMA is adding pressure to resistance at 29.5c.  To move higher, the resistance provided by the 100dMA would have to be taken out decisively.  Could this happen soon?

The rising 20dMA which recently completed a golden cross with the 50dMA tells us that the shorter term price movement has an upward bias.  The 20dMA is still rising and seems on track to form a golden cross with the declining 100dMA next. 

Today, volume expanded as a doji was formed, a hint that a reversal could be on hand.  This happened as a higher low was formed on the MFI, suggesting strengthening demand, and the RSI shows a similar pattern, suggesting stronger buying momentum.

The Bollinger bands are squeezing and the channel seems to be pointing upwards.  If price does break through the 100dMA to move higher, it would meet with initial resistance at 31c.  This is followed by the eventual target of 34c.

Related post:
Raffles Education: A trading opportunity.

Golden Agriculture: Going higher?

On a day that saw the STI broke the 3,200 mark, Golden Agriculture's share price shot through resistance to touch a high of 66.5c, closing at 65.5c as CPO made a new high at RM 2,930 (up RM30 or 1.03%). 65.5c was the high reached on 11 Jan 2010.

The question on many punters' minds is whether it would go up higher.  The upmove is accompanied by explosive volume (>60% higher than the volume two sessions ago).  Volume is the fuel that drives rallies. The MFI, a momentum oscillator based on volume and price, although has moved higher has yet to reach overbought levels.  Demand could push price higher but it is definitely riskier to go long at this stage.

The longer term uptrend is intact but I would be wary of a correction which could bring the price to test the 200dMA as support in time. To those who are still vested, stay nimble and good luck.

Palm oil companies rise on firm prices
Wednesday, 13 October 2010

© 2010 - The Edge Singapore

Related post:
Golden Agriculture: CPO at a new high.

SPH: Final dividend.

SPH is declaring a final dividend of 20c per share, comprising a Normal Dividend of 9c per share and a Special Dividend of 11c per share in respect of the financial year ended 31 August 2010. These dividends are on tax-exempt (one-tier) basis and will be paid on 23 December 2010. Together with the Interim Dividend paid during the year, total Dividend payout for FY 2010 will be 27c.

SPH remains my largest investment in a blue chip company. I continue to favour SPH amongst blue chip companies because of its generous dividend payouts.  At $4.22, the full year payout of 27c represents a 6.4% yield.

Highlights:

1. Net investment income of S$39.3m was a turnaround from a loss of S$6.2m for FY 2009.

2. Equity holdings consist mainly of M1and Starhub.

3. Paragon was revalued at S$2.28b as of Jul 2010.

4. Rental income increased by S$11.3m (9.2%) mainly from Paragon.

5. Final profit of S$154.2m was recognised for Sky@eleven, which obtained its Temporary Occupation Permit in May 2010.

6. Print advertisement revenue surged S$84.8m (13.1%) to S$733.1m.

7. Circulation revenue decreased by S$5.1m (2.4%).

See presentation slides here.

Related post:
SPH: Closing above $4.20.

AIMS AMP Capital Industrial REIT: Results of rights issue.

Valid acceptances:
506,083,252 units (98.6 % of Rights Issue).

Excess applications:
163,926,201 units (31.9 % of Rights Issue).

"The balance of 7,226,529 Rights Units which were not validly accepted, will be allotted to satisfy excess applications. In such allotment, preference will be given to the rounding of odd lots (if any) while directors of the Manager (the “Directors”) and Substantial Unitholders1 will rank last in priority.

"Successful subscribers with The Central Depository (Pte) Limited (“CDP”, and the securities accounts with the CDP, the “Securities Accounts”), will be sent, on or about 15 October 2010, a notification letter from CDP stating the number of Rights Units that have been credited to their respective Securities Accounts."  

Read announcement here.

It seems that people who applied for massive numbers of excess rights would be disappointed, myself included.

Related post:
AIMS AMP Capital Industrial REIT: Rights issue.

AIMS AMP Capital Industrial REIT: Buying more?

A reader sent me an email saying that he bought more of this REIT at 23c recently and he is dismayed that price has retreated. He asked if I am buying more of this REIT.  Well, firstly, 23c is the upper end of the trading range for this REIT and buying at 23c is buying at resistance.  Never a good move, technically speaking.

On 8 Oct, I said "Looking at the trade summary, of the 58 trades done, more than half (36) were buy ups at 23c but the volume was only 260 lots out of a total of 2,339 lots which changed hands.  This suggests to me that the buy ups at 23c lacked conviction.  23c is still a significant resistance to watch, it would seem."

Fundamentally, however, I don't see a problem with buying at 23c. With a DPU of 2.08c per annum, it still gives a handsome yield of 9.04%.  However, I have been corrupted by TA and I use the charts to help me plan entry points.

Looking at the chart, one can roughly make out that the old trading range has been "revived", XR.  It is quite obvious that the range is still 20c to 23c with the midpoint of 21.5c being an important, many times tested support. 21.5c is also where the rising 50dMA would be approximating soon.  This should lend strength to the support. So? I would buy more at 21.5c if I feel inclined to add to my position in this REIT.

Both the MFI and RSI seem to have formed lower highs which suggest a weaker demand and a weaker buying momentum.  Volume is thinner compared to the first half of September.  This suggests that the recent upmove in price was to due to a lack of sellers and not an abundance of buyers.  Current holders are unwilling to sell and people who want a piece of the pie have to pay a higher price. However, most potential buyers are probably waiting to see what the units would trade at once the rights units start trading on the 15th.

Technically, the uptrend is intact but the momentum oscillators suggest that we could see continuing weakness in price.  Fundamentally, the yield is probably the highest amongst industrial S-REITs.  Its gearing level is acceptable and it is still trading at a big 20% discount to NAV, XR. Buying more at 21.5c? I might.

Related post:
AIMS AMP Capital Industrial REIT: Nick's FA.
AIMS AMP Capital Industrial REIT: Resistance.

Hock Lian Seng: 30c support.

I mentioned on 5 Oct that I sold off some shares of Hock Lian Seng at the 32c target.  On 8 Oct, I said "notice that the 20dMA has been guiding the price of this counter higher? See the uptrend support is in between the 20dMA and 50dMA? This would be at about 30c.  The 50dMA is at 29.5c.  I would buy more at these price levels." Today, I bought some at 30c as price retreated.

Although the uptrend is still intact, could prices weaken further? Why not? The MFI is still in overbought territory while the MACD has just completed a bearish crossover with the signal line.  We could see price weakening to test the 50dMA at 29.5c or even the 200dMA at 29c. The latter being a long term MA should provide a rather strong support and I would probably buy more at 29c, if ever tested.

Fundamentally, this company is sound and investors are accumulating shares in the company which is quite obvious when we look at the OBV.  The recent price weakness as the counter retreated from a high of 32.5c on relatively low volume is an opportunity to accumulate.  What we are witnessing is a low volume pull back which shakes out the weaker holders.

Related post:
Hock Lian Seng: Retreating.

K-REIT: Swap agreement.

"Keppel Land, the Singapore- based developer controlled by Keppel Corp., agreed to sell its stake in the first phase of Marina Bay Financial Center (MBFC) to K- REIT Asia for $1.43 billion, as part of a swap agreement...


"Keppel Land will buy two properties, Keppel Towers and GE Tower (KTGE), from K-REIT for $573 million for redevelopment into about 620 premium residences."

Keppel Land sells Marina Bay property stake to K-REIT: Update
Monday, 11 October 2010

© 2010 - The Edge Singapore

What does this mean for K-REIT?

On 24 Sep, in "FCOT, CCT and K-REIT", I mentioned that "K-REIT closed at $1.31 today. NAV as of Jun 10 at $1.47. K-REIT is trading at an 11% discount to NAV. Gearing ratio is at 15.2%.  This is very attractive to me as it gives the REIT plenty of room to leverage up for potential yield accretive purchases. 1Q 2010 DPU at 1.33c.  Annualised DPU should be 5.32c which means a yield of only 4% based on the current price of $1.31.  K-REIT has, arguably, the strongest balance sheet amongst the three office property REITs discussed here.  The low yield might put off investors but its low gearing paves the way for future acquisitions which could bump up its DPU." Well, it has happened.

Some effects of the swap agreement:

1. The aggregate leverage of K-REIT after completion of the MBFC Acquisition and the KTGE Divestment is approximately 39.1%.

2. K-REIT’s weighted average debt maturity profile will be extended to approximately 4 years. In addition, the portfolio’s average borrowing cost will also be reduced from 3.54% to approximately 3.05%.

3. Weighted Average Lease to Expiry (WALE) from 5.7 years as at 30 June 2010 to 7.8 years.

Read announcement here.

The actual DPU forecast following the completion of the transactions will be disclosed in the Unitholder Circular which is not available yet. Will this swap agreement be DPU accretive?  It should be since we are seeing a more than doubling of gearing ratio from 15.2% to 39.1% and a boost to K-REIT’s assets to about $3.4 billion from $2.5 billion.