Perennial China Retail Trust: DPU 1.96c.

PCRT declared a DPU of 1.96c that will go XD on 21 February 2013. It is payable on 18 March 2013. My long position initiated at 47.5c a share about half a year ago is very much in the black.

I have readers asking me whether this REIT is a good investment for income but this is not a REIT. It is a business trust that acquires, develops, owns and manages mostly shopping malls in China.

So, is investing in PCRT risky? Why am I invested in PCRT?

From a top down perspective, with domestic consumption only a third of GDP in China, there is much room for it to grow and China will need more malls. This is especially so with the government's determination to make domestic consumption another engine of growth for the economy.

From a bottom up perspective, PCRT's numbers have improved and so have its prospects. Regular readers might remember how I did not think PCRT attractive at IPO. It was offered at 70c a unit at IPO with a distribution yield of 5.3% which I thought was too low for the level of risk investors were being asked to take on. This was in the middle of 2011, if I remember correctly.

Anyway, we know what then happened to the unit price of PCRT in the following months.

I initiated a long position in PCRT at 47.5c because the distribution yield of 8+% at that price offered a more acceptable level of compensation for the risk I would be asked to assume.

I also took comfort from the fact that the Trust saw Pua Seck Guan increasing his stake and Kuok Khoon Hong and Martua Sitorus becoming substantial shareholders. They have a very strong incentive for the Trust to do well.

To invest in PCRT is to believe that it will generate stronger cash flow in the next few years. We will need a longer time horizon as by 2015, we could see 4 more malls operational. 

Now, the management has to work hard to increase the occupancy of the malls which are already operational. With occupancy at about 70%, there is much room for improvement.

What are the negatives, currently? Much of the profit declared comes from fair value gains at the moment. Much of the distributable income comes from earned out deeds at the moment. These are probably points of contention.

However, when we invest in growth stocks, if we have looked at the probable downside and find the numbers acceptable and we have to be a bit more adventurous in certain instances, we just have to be patient. If we have taken care of the downside, the upside should take care of itself.

In PCRT's case, gearing is at a comfortable 19.9%. Interest cover ratio is more than adequate at 6.9x. Weighted average interest rate is 4.62% with no debt due till 2014 and 2015. NAV per unit is at 70c and a case has been made that it should be at least 6c higher.

The management, in the presentation slides, states that the development risk present during the Trust's IPO in 2011 has been largely reduced as more than 90% of its IPO assets are now operational. This is a fact. Two more malls will be operational this year and they are working hard to secure tenants. This is also a fact.

I like the story and I like how investing in PCRT is less risky now than back in 2011.

Would I buy more at the current price? I don't think so. Why? Because I am corrupted by TA and the negative divergences I see suggest a possible pull back sometime in the future. 59.5c at XD? Could happen. If I wasn't already invested, I could initiate a smallish long position as a hedge which I sometimes do.

See presentation slides: here.

Related post:
Perennial China Retail Trust: Weak debut?

Mark Mobius on China.

The long weekend saw me doing more reading than usual. I also read why Mark Mobius, the executive chairman of Templeton, thinks the time is ripe to invest in Chinese equities.

Consumers have more disposable income:
Many consumers in China have been getting annual increases in wages of 20% or more. More personal assets could be funnelled into savings and investments.

Government spending:
The government is devoting more resources to infrastructure and subsidised housing as well as extending social security, education and health benefits to new migrants to the cities.

Fuel for the economy:
Between 2010 and 2011, interest rate in China increased 5x and are now at a 6% lending rate. The government has a lot of room to reduce rates if they need to stimulate the economy.

Volatility brings opportunity:
This year is likely to bring volatility which brings opportunity. We plan to go along for the ride.

I am holding on to my investments in Sound Global and China Minzhong, believing that they are good proxies of the continuing growth story in China. If Mr. Market should decide to offer much lower prices for their stocks in the meantime, I would buy more.

Related post:
China Minzhong: Share price to go higher.

LMIR: Divested 42.5% at 52.5c

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

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

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

I made fewer purchases in 2010 and 2011. 





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

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

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

What is immediately positive about the divestment?

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

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






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

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

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

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





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

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

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





Related post:
LMIR: An unimpressive 4Q 2012.

"We do not deserve to be disadvantaged this way." (FKA "Take the good with the bad if we retire to Malaysia.")

This is taken from a letter sent to The Forum Online in The Straits Times:

"My wife and I recently retired to Malaysia due to the property rules as well as the high cost of living in Singapore.

"We come back to Singapore to visit relatives and friends and attend medical appointments every two to three months.

"However, the LTA has informed me that as I am not an employee in Malaysia, my wife and I - a Singaporean and Singapore PR - are not allowed to drive our Malaysia-registered car into Singapore.

"I understand that this ruling is to close the loophole in the control of the vehicle population in Singapore, but I hope that the LTA can allow me to drive our Malaysia-registered car in based on the following..."

The writer went on to list 5 reasons, all of which I do not find convincing, ending the letter saying "We do not deserve to be disadvantaged this way."

I feel that since the writer understands that the rule exists for a good reason, then, he should not expect Singapore to make an exception for him.

I know people who moved to stay in Johor Bahru and rent out their HDB flats in Singapore for passive income. Not all are retired. In fact, a good number commute daily to Singapore for work.

I have always wondered why this is allowed since I believe that HDB flats are subsidised public housing and if these people are not staying in their flats, they should sell them to Singaporeans who need them more. It could possibly help to bring down the prices of resale flats too.

For Singaporeans who have chosen to make Johor Bahru their new home, I understand all their reasons for doing so with the lower cost of living in Malaysia usually at the top of the list.

However, understand that every choice made in life comes with consequences and we have to live with those consequences. 

We should not think that exceptions have to be made for us so that we can have our cake and eat it too, especially not when the exceptions will exact a cost on fellow Singaporeans.

5 rules for successful stock investing.

I would like to present a book on successful stock investing that comes highly recommended by a reader, Jojo.

US$ 22.95 each. Free shipping globally.

See Jojo's comments in an earlier blog post: here.

The book explains how to read financial statements, how to analyse companies and how to do valuations. It also shows mistakes to avoid and how to detect fraud.

AIMS AMP Capital Industrial REIT: Interview with CEO.

This was an interview session with Nicholas McGrath, CEO of AIMS AMP Capital Industrial REIT's management, on CNA late last year:



I like the explanation why the REIT took on a slightly higher cost of debt with its MTNs as compared to the secured bank loans which it retired. This is somewhere 2m 40s into the clip.

If my hearing serves me well, the advantages are three:

1. Broaden and diversify funding sources with dozens of debt capital market investors.

2. Able to borrow on an unsecured basis.

3. Increased the debt tenor of the REIT with 4 different maturity dates over the next 4 to 5 years.

It sounds to me like the REIT is paying a bit more on borrowings for a higher level of funding flexibility in both source and tenor. This could be a pre-emptive move against the almost certain increase in bank borrowing cost that would accompany a credit tightening in the USA if unemployment level drops to 6.5% by 2015.

Related posts:
1. AIMS AMP Capital Industrial REIT: 4.35% Fixed Rate Notes.
2. AIMS AMP Capital Industrial REIT: 3Q FY2013 DPU 2.58c.