LMIR: Circular to unitholders.

Two days ago, LMIR issued to unitholders a circular regarding the EGM to be held on 20 Oct with regards to the proposed acquisitions of Pluit Village and Medan Fair as well as the proposed 1 for 1 rights issue.

The management provided two sets of numbers, one which looks at FY2010 and another looks at 6M 2011. I would like to be a bit creative with the numbers to determine if LMIR is worth buying into at today's closing price of 45c per unit.

FY2010 had a DPU of 4.44c. If the DPU were to be replicated in FY2011, we would have a distribution yield of 9.87% at today's closing price of 45c per unit.

Taking into consideration the proposed acquisitions and rights issue, the management arrived at a pro forma DPU of 3.54c. At 45c, the TERP (theoretical ex-rights price) would be 45c+31c divided by 2 = 38c. This would provide us with a pro forma distribution yield of 9.32%. Distribution yield accretive? I think not.

More relevant perhaps is to use more recent numbers provided for 6M 2011. This gives a half year DPU of 2.26c which translates to a distribution yield of 10.04% based on today's closing price of 45c per unit.

Taking into consideration the proposed acquisitions and rights issue, the management arrived at a pro forma half year DPU of  1.63c. At the TERP of 38c, we would get a pro forma distribution yield of 8.58%. Again, is this distribution yield accretive? Clearly no.

So, will I subscribe to the rights issue? Although it is not distribution yield accretive, I will subscribe to the rights issue for two reasons:

1. The even lower gearing, post rights, of the REIT will allow more acquistions in future to be funded solely by debt. Another rights issue soon after this is unlikely. Therefore, we are likely to see DPU increase and distribution yield improve, everything else remaining equal. Very likely, this exercise will pave the way for future distribution yield accretion.

2. With a TERP of 38c, the pro forma distribution yield is estimated at 8.58% (using 6M 2011's numbers). This is definitely still very attractive considering what our money will make in a one year S$ fixed deposit now.

For anyone who is investing for income and who would be happy with a distribution yield of 8.5%, buying into LMIR at today's closing price of 45c is a viable option.

Read circular here.

Related post:
LMIR: Will I subscribe to the rights issue?

ARA: A trading buy?

2,531.02/

-90.38/

-3.45%

2,531.02/

-90.38/

-3.45%

I remember reading an article recently in which Warren Buffet said he has his elephant gun ready and will scoop up undervalued companies if they should present themselves. With so much fear in the air and likely to get worse, we should do the same.

Do not feel fearful when there is so much fear in the air. Instead, get ready to load up on cheap stocks which, by the way, could get cheaper.

One company which I am eyeing is ARA Asset Management. By all accounts, this is a great company to invest in but at the right price, of course.

ARA is in a net cash position and has a net profit margin of 53.6% according to its 1H 2011 numbers! Yes, net margin, not gross! It also has a yearly dividend payout of 4.8c per share which seems sustainable.

NextInsight has two recent articles on ARA Asset Management. So, I shan't say more. Read: ARA Asset Management: resilient earnings, super high profit margins and steady dividends.

We have identified a good company to invest in. The question is what is a good price to buy at or when should we start buying?

On 23 Sep, I initiated a long position at $1.22 per share. Then, I said that although ARA is "a fundamentally sound company, its share price could weaken further from here. It might be a good idea to wait for the dust to settle before adding to my newly created long position." See blog post here.

On 26 Sep, I decided to add to my long position at $1.13 and these shares were divested on 29 Sep at $1.20 for a quick trade. Recognising that price could rebound before weakening again, the long position at $1.13 was more for a trade anyway. I was lucky it turned out nicely. See blog post here.

So, has the dust settled? It doesn't look like it. The MACD has continued its plunge deeper into negative territory as long black candles formed two days in a row on the backs of high volume. However, shares of ARA could be a trading buy. Why?

If we look at the Bollinger Bands and the MA Envelope, we will see that ARA's share price had in the past rebounded if it should break the lower limits. The rebounds tested and broke the 20dMA which acted as a weak resistance. The 50dMA then stopped the share price from moving higher. Could this happen again?

I added to my long position towards the end of the trading session today at $1.04, $1.035 and $1.03. If price should rebound to test resistance, I will offload these shares for a quick trade.  If price should continue to weaken, expect the next supports to be at 98c and 95c.

Looking at the weekly chart, it is clear that stronger support is at 89.5c. This is followed by 61.5c. If these supports should be tested, it will be some way to fall from the current level.

1H 2011 presentation slides here.