Sabana REIT: Bought more at 93.5c.

Today, I increased my investment in Sabana REIT once more. Price? 93.5c /unit. I still have the same question and that is why are people selling at this level?

I have a faint suspicion that a former substantial shareholder, Moore Capital Advisors, who last made a divestment which brought their investment in the REIT to less than 5% of the total units in issue back in December 2010, are still divesting. Of course, they no longer need to declare any sale of units although they still had some 29,752 lots on hand since that divestment in December 2010.

Why am I bullish on the REIT? The REIT is still trading CD with a DPU of 3.04c. Granted that this is an extraordinary payout as it represents distributable income from the REIT's listing in November 2010 to end March 2011. Quarterly, expect a DPU of about 2.2c as the norm. So, the distribution yield is about 9.4% at a unit price of 93.5c.

There are certain arguments that the REIT has a weak sponsor, an untested management and that the quality of its assets is questionable. However, looking at the strength of its balance sheet, its low gearing of 24.9%, its NAV/unit of 98c and its interest cover ratio of 7.9x, it would have to take a very incompetent manager to foul things up. Well, I can only hope that the CEO, Mr Kevin Xayaraj, is a competent one. He was with Ascendas Land (Singapore) Pte Ltd for two years in 2004 to 2005 before moving on to Cambridge Industrial Property Management Pte. Ltd. where he stayed till August 2009.

It is reassuring that the manager's performance fee is only payable if the REIT generates an annual growth in DPU of at least 10% over the previous financial year. If the DPU does not grow 10%, no performance fee. If the manager makes income accretive acquisitions which are financed through debt, DPU is likely to grow as well. However, if such acquisitions are financed through equity fund raising, the manager will have to be very careful to ensure that DPU does not suffer a dilution. How will the manager perform? This is a wild card, isn't it?

As for the quality of assets, DTZ revealed that Sabana REIT has some high quality assets such as Pantech 21 (72 years remaining) and Geo-Tele building (45 years remaining). In fact, 44% of the REIT's portfolio is made up of high-tech industrial buildings when compared to the number of warehousing buildings. The land leases on the REIT's high-tech industrial buildings do not start expiring until year 2051.

Investing in anything has attendant risks. Investing in Sabana REIT at its IPO price of S$1.05/unit might not have been the most prudent thing to do. With smallish REITs, there were better yielding alternatives out there. However, at 93.5c/unit, the risk premium has been watered down significantly. Could I be totally wrong about this? I think it unlikely but the possibility exists. After all, we can and should reduce risk in investments. It is near impossible to eliminate risk.

Looking at the chart, the lowest the REIT's unit price has been to was 92c while 93c can be said to be a rather strong, many times tested immediate support. Upon XD next Tuesday, we would probably see the REIT's unit price weaken.

Could we see 92c tested again? Possibly. Could we see price form a new low? Why not? How low? I do not know. However, I do know that if it gets much lower as to give a distribution yield of 10%, I am buying many more units. Unit price would have to be about 88c to give that kind of yield.

STI declines again: CapitaMalls Asia, Golden Agriculture and Sabana REIT.

I caught a hint of panic in the air today. It is not abject terror but a slight panic.

STI declines 1.3% to 3,113.76 at closing, lowest since 31 March 2011. Shares on the measure trade at an average 14.3 times estimated earnings, compared with about 15.6 times at the end of 2010, according to data compiled by Bloomberg. The world’s biggest builder of oil exploration and production platforms declined as crude oil futures fell for a third day on concern demand will weaken as stockpiles rise in the U.S., the world’s biggest consumer of the commodity.
Wednesday, 04 May 2011

© 2011 - The Edge Singapore

Is this hint of panic a good opportunity to load up some stocks on the cheap? Well, I took the opportunity to load up on some:

CapitaMalls Asia: The last time I bought some shares in this company was at $1.80 per piece. Today, my overnight buy order at $1.70 was filled. I had another buy order at $1.68 which was not filled. Incidentally, $1.68 was the low of the day. What is next?

Looking at the daily chart, expecting a more bearish scenario could see the 150% Fibo line, which coincides with the lower limits of the MA envelope, providing stronger support at $1.64 next. We might even see the strongest of the 3 golden ratios tested on the downside. The 161.8% Fibo line approximates $1.62.

Golden Agriculture: Look at the daily chart and find the uptrend support originating from 28 October 2008. This is a very long term support and likely to be a very strong one.

It is approximating the lower limits of the MA envelope which is at 62.5c in the next session. With the support at 65c, which is where I bought more of the stock today, compromised on higher volume, we could see price weakening again in the next session. With the fundamentals strong and the longer term uptrend intact, I am buying more on weakness.

Sabana REIT: I bought more units of this REIT today at 93.5c/unit. For reasons unknown, the REIT was sold down heavily today.  Two transactions, each with more than 1 million units, sold down the REIT at 93.5c /unit. It is strange that the individuals or institutions responsible for these two transactions did not sell in the last three sessions when unit price touched a high of 95.5c but chose to sell at 2c lower today instead. This is especially puzzling as the units are still being transacted CD.

A DPU of 3.04c will go XD on 10 May, next Tuesday. Paying 93.5c/unit today is a good deal, I believe, representing a discount of 5.6% to NAV/unit and a relatively secure distribution yield of 9.4%. Until next Monday, I am accumulating on any further weakness.