LMIR: 4Q and FY2013 results.

Exactly one year ago in 2013, I divested a big chunk of my investment in LMIR at 52.5c a unit. At the time, I said that selling at that price meant giving up a distribution yield of some 5.7%. The reason for the partial divestment was the unimpressive performance of the REIT since its rights issue.

Today, one year later, I made my first purchase in an S-REIT since the middle of 2012 as I increased my long position in LMIR, adding a quantum that is about a fifth of what I sold one year ago. So, you can say that, for various reasons, some of which have been discussed here in my blog before, I remain cautious.

At a recent lunch gathering with some friends, when asked, I said that LMIR was still not trading at a price that I would call cheap. Yes, the price I got in today was not cheap but I was looking at a prospective distribution yield of 8.6% which seemed like a fairer proposition compared to 5.7% a year ago but, everything else remaining equal, cheap would mean a 10% yield or higher. Impossible, you think?

When I remind myself that the lowest I paid for LMIR was 18.5c and that I got a huge chunk of rights at 31c, you see what I mean. Prices could plunge again for whatever reason or we could see another rights issue, again, for various reasons.

There was another reason from a FA perspective why I decided to add to my long position. When I blogged about LMIR in August last year, I said that the REIT's term loan maturing this year in June worried me but this concern was addressed when they used the proceeds from the issuance of a 3 year bond to repay the term loan a few months early. This also lowered the REIT's average cost of debt from 6% to 5.3%. A big improvement. Read it: here.

Technically, it also seems to me that the downtrend has been broken and that LMIR's unit price has been consolidating for a while. Of course, no one could tell that unit price has bottomed until after the fact but support seems to have formed at 39c. What is being formed now could be just a floor. We don't know but the momentum oscillators suggested that selling pressure had eased.

Now, the news.

LMIR released their full year results tonight. Here are some of the numbers for 4Q 2013:

DPU: 0.56c
Gearing: 34.3%
Occupancy: 95%
NAV/unit: 41c

The numbers are much weaker than expected. If we were to annualise 4Q DPU, we are looking at a vapid 5.53% distribution yield at 40.5c a unit, my buy price today.

Now, what do we do as unit holders? Press the panic button?

Taking in the bigger picture, what is affecting LMIR's performance in S$ badly is probably the weak Rupiah. However, the Rupiah will eventually bounce back. It always did in the past. In the meantime, the REIT's management will have to hedge the risk.

Looking at the REIT's numbers, it did not do too badly in terms of NPI, reducing 5.5% in S$ terms, thanks to contributions from new properties probably. What really caused DPU to reduce drastically year on year was the 37.5% increase in financial expenses related to the issuance of the MTNs. Now, if these expenses do not recur in the next quarter, then, DPU could improve by quite a bit in the same period.

The next time the REIT has to raise funds could be end of this year or early next year as a $200 million MTN matures in July 2015. So, it is very likely that DPU for the next quarter could be higher. How much higher?

All else being equal, I think that a DPU of 0.66c in the next quarter is realistic. Of course, if the management works hard at bumping up occupancy, DPU could even surprise on the upside. All this is assuming that the Rupiah stays at current levels. Even a slight strengthening of the Rupiah could provide a lift to the REIT's performance.

Of course, there is no saying how Mr. Market would react although a sell off tomorrow would be quite natural. 39c could indeed be just a floor and not the bottom. Next support could be found at 35.5c, the low of 4 June 2012.

See slides presentation: here.
See financial statement: here.

Related posts:
1. LMIR: Divested 42.5% at 52.5c.
2. LMIR: 2Q 2013 DPU 0.93c.

Saizen REIT: Is the half yearly DPU of 3.25c sustainable?

Saizen REIT has announced a slightly higher DPU of 3.25c compared to 6 months ago. Post consolidation, the DPU 6 months ago would be equivalent to 3.15c. This means DPU has gone up by some 3.17%. Income will be distributed to unit holders on 21 March 2014.

Unit price of Saizen REIT's closed at 92.5c. So, annualising 3.25c means a distribution yield of 7.03% per annum. This yield is quite attractive for freehold residential buildings in Japan.

I really do not have any major concerns with holding on to Saizen REIT as an investment for income. I believe it is a stable income generator in S$ terms even with the JPY at historic lows. After all, the REIT hedged the exchange rate risk at S$12.32 to JPY1,000. This is pretty darn low.

The REIT will be hedging exchange rate risk again for the next six months but will employ a range this time. S$12.20 to S$13.12 : JPY1,000. Everything else remaining equal, it means that we could see DPU 6 months later either declining by 1% or rising by as much as 6.5% in S$ terms. Sounds good? I think so.

The rest of the numbers, Saizen REIT has prepared very good presentation slides as usual and I am sure they are self explanatory. I am more interested in how more recent developments could impact DPU in future.

Remember that in November last year, Argyle Street Management, which holds 8.9% of the REIT asked for cash which the REIT was holding to be returned to unit holders? That amounted to JPY4.86 billion or more than S$60 million in cash at the time.

Now, if this were to happen, it would affect not just the NAV of the REIT but also its DPU. This is because Saizen REIT's loans are amortising in nature and why this is actually a good thing over the long run has been mentioned in this blog a few times before.

Amortisation or principal repayment should be from income generated by the REIT's properties. This is only logical. The REIT, however, uses its cash resources to effect this principal repayment which enables it to distribute more of the income generated by its properties to unit holders. Out of the half year DPU of 3.25c, this measure accounted for 1.19c or some 36.6% of DPU. This is significant.

Annual amortisation approximates JPY 633 million. So, this means that with the cash the REIT has in hand, it could continue to use its cash resources to effect principal repayments for almost 8 years which would help to maintain a higher DPU.

However, if the cash were to be returned to unit holders instead, then, we should expect DPU to decline to approximately 2c every 6 months or 4c a year. I would not expect unit price to stay at 90c then either. I would expect unit price to fall to the region of 70c a unit or a bit lesser and with a DPU of 4c, we would then be looking at a distribution yield of some 5.71%.


A distribution yield of 5.71% is still pretty good for the kind of assets the REIT owns, especially when the loans are amortising in nature. Of course, one has to remember that in such a scenario, existing unit holders would most probably have had received some 20c per unit in "special dividend" too. This is not bad at all especially if we got in at the lows.

Blogging about the results in this way is really to remind myself of what is the underlying reality in Saizen REIT's DPU and to prepare myself for change which could be on the way.

See slides: here.

Related posts:
1. Saizen REIT: DPU of 0.63c.
2. Saizen REIT: A special dividend?

FCOT: Distribution Reinvestment Plan (DRP).

Received another DRP offer and this time it is from Frasers Commercial Trust (FCOT). This is probably not going to see any take up because the price of $1.2389 per new unit to be allotted is higher than what we could get from Mr. Market now which is $1.235 per unit.

It is probably good to be reminded that the headwinds for REITs could get stronger and if we want to invest in REITs, we have to recognise this. One of these headwinds is an environment of rising interest rates.

So, the DRPs which S-REITs are pushing out now make sense because, if taken up, they will lead to lower gearing levels. The REITs could pay down their debt with the funds as well when they fall due. This is probably a good thing for unit holders too.

To me, it only makes sense to take part in DRPs if we want to increase our long positions in the REITs concerned. However, with rising risk free rates, unit prices of S-REITs will continue to experience downward pressure, everything else remaining equal. So, to me, it doesn't seem very prudent to take part in DRPs at this point in time or in the near future.

I am not against others taking part in the DRPs to strengthen the balance sheets of the S-REITs I am invested in, however. In the meantime, I am quite happy to continue receiving income from these S-REITs and possibly increasing my investments in them only when Mr. Market makes offers too attractive to ignore.

Related posts:
1. Distribution Reinvestment Plan: First REIT and CIT.
2. AIMS AMP Capital Industrial REIT: DRP.

CapitaMall Trust: Buy the retail bond or the REIT?

CapitaMall Trust is offering $200 million worth of bonds. They will mature 7 years later in 2021 and will have a coupon of 3.08%. Is this a good thing?

Well, as the REIT has quite a bit of debt due for repayment this year, this fund raising effort is necessary and timely. The coupon of 3.08% is also lower than their average cost of debt of 3.4% as at 31 Dec 2013. So, this is a good thing for unit holders of the REIT. DPU won't be negatively affected.

As S$150 million of the retail bonds will be offered to the public with the minimum investment sum set at only $2,000, it is within reach of regular retail investors like you and me. If we look at this as a kind of forced savings, a pseudo-CPF if you will, and hold it for the full 7 years period, I think it is not that bad a proposition. Why?

Well, if we hold it for the full 7 years, we won't suffer any capital loss which could happen if we decide to sell before maturity.

You mean we might lose money if we cannot hold for the full 7 years? Yes, possibly, especially with expectations that interest rates will continue rising.

So, if the risk free rate should rise by 1%, investors might expect a 4.08% return from this instead of the 3.08% being offered now, for example. The bond price would have to fall in order to offer this higher return. How much must the bond price fall to give this return? Approximately 25%.

Pause.

Pause.

Pause.

Yes, 25%. The good news is that if we were to hold to maturity, then, we are safe. So, what to do? We buy the bond with money we don't need for the next 7 years. We will get back our principal when the 7 years is up, well, if CMT doesn't go belly up. (See comments by Charlie and AK71 in the comments section below.)

So, this retail bond offering could benefit anyone investing for income in two ways. Invest in the REIT for a distribution yield of 5.64% (unit price of $1.815 at closing) or to buy the bond for a coupon of 3.08% over the next 7 years.

Wah! AK71 so silly. Of course, invest in the REIT. The yield is so much higher! Well, remember that REITs are leveraged investments. Without the gearing of about 35%, the distribution yield wouldn't be so much higher and would be closer to 3.75%. Gearing is a fantastic thing, isn't it?

Wait a minute, 3.75% is still higher than 3.08%. So, investing in the REIT is still a better choice. Indeed, it seems to be the case and that would be my preference too.

Remember that this analysis has taken place in a vacuum, totally ignoring other factors which could have a bearing on the performance of the REIT or the retail bond. However, comparing the two options thus gives us a clearer picture of which option an investor for income might want to lean towards.

Read: CapitaMall Trust launches retail bond offering.

Related post:
Saizen REIT: Risk free rate and unit price.

Croesus Retail Trust and Perennial China Retail Trust.

I had a discussion with a friend over dinner last night regarding Croesus Retail Trust (CRT) and why I feel relatively good about it as an investment for income. 

In the conversation, one of the things I did was to compare it against Perennial China Retail Trust (PCRT).

When PCRT had its IPO, I said that only "Red Star Macalline Global Home Furniture Lifestyle Mall, Shenyang, which was completed on 30 Sep 2010 is income contributing at listing date. The rest of the initial portfolio is expected to be completed from 3Q 2010 to 2Q 2014. If we are investing for income, this is not very reassuring."

And I also said that a "distribution yield of 4.88% to 5.51% in the years 2011 to 2012 also does not provide enough compensation for the risks which investors are being asked to bear, in my opinion."
See: Perennial China Retail Trust.

Mr. Market sent PCRT's unit price down 12.86% on its first day of trading from its IPO price of 70c to just 61c. See: PCRT: Weak debut.

Unit price went on a continual decline and was under 40c at one stage. Pua Seck Guan increased his stake while Kuok Khoon Hong and Martua Sitorus became substantial shareholders. I initiated a long position some time later at 47.5c a piece.

"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."
See: PCRT: 1H 2013 DPU 1.9c.

Mr. Market is rather efficient in pricing PCRT's stock. The latest reported NAV/unit is 77c which means PCRT's stock is now trading at a 31.2% discount to NAV! 

Why? Mr. Market has priced in a risk premium.

Although annualising the half yearly DPU of 1.9c will give us a distribution yield of 7.16%, most of the distributable income is from earn out deeds and I highlighted that "current DPU is being sustained by earned out deeds which will be exhausted by end 2014". 

So, what happens then? Income distributions to investors will most probably take a hit. 

See: PCRT: Progress in Q3.

Now, for readers who have been following my recent blog posts on Croesus Retail Trust, they will be able to see the difference I am trying to point out between CRT and PCRT easily. 

CRT's portfolio consists properties which are mature and generating income, all of them. The level of risk which investors are being asked to assume here is very low compared to PCRT's.

Having said this, investing in CRT is not without its risks and I blogged about it briefly before. See: Croesus Retail Trust: Motivations and risks.

I am invested in both PCRT and CRT. So, to some, it might appear silly that I am talking down PCRT but, in my opinion, I am not talking down PCRT or talking up CRT, for that matter. I just say it as it is.

PCRT could do better over time but unit holders must be prepared for a much lower DPU next year as earn out deeds are depleted by end of this year and if the properties completed are not able to pick up the slack fully by then.

CRT offers a much higher level of certainty for the next 2 to 5 years for anyone investing for income and although it is a business trust like PCRT, it is not the same as PCRT. This is why my investment in CRT is about 8x bigger than my investment in PCRT now.

Both PCRT and CRT are business trusts. Same but different. We should not over-generalise.

Related posts:
1. Croesus Retail Trust: What is my plan?
2. Croesus Retail Trust: Overnight BUY order filled.
3. Croesus Retail Trust: Initiated long position at 87c.

Second Chance Properties Ltd: REIT timing.

When I blogged about Second Chance Properties Ltd in December 2012, I said:

"As an investment for growth, we have to be prepared for some headwind as real estate prices have very likely peaked. With more supply coming on stream, rental rates and property values could face downward pressure in the coming years."

Well, the company has done something very clever! They are selling "all 45 properties in its portfolio to REIT manager Celestine Management Pte Ltd for $175.4 million with the intention of listing the property fund as a REIT."

And this is what they said in a press release:

"Going forward, the board thinks that it is prudent to significantly reduce the group’s exposure to its investments in properties. Additionally, the opportunity to sell the properties en masse is a rare one and provides the group with an easier and more expedient means of disposing the properties as compared to selling each property individually." Source: The EDGE.

To me, it is quite obvious that they are exiting at a high. Do you think that the proposed REIT will be good value for money for investors like you and me at its IPO? I wonder.

Related post:
Second Chance Properties Ltd.

SMRT: Breaking every support.

The one and only time I ever blogged about SMRT's stock was in January 2012. Back then, I said that the downtrend was intact and that we could see the share price go lower. That was really a reading of the short term charts. Nothing could have prepared me for what I see today.

SMRT's share price is breaking every single support level and I won't be surprised if it should test the next support at $1.035 soon.

Click to enlarge.

If Maybank Kim Eng is right, SMRT's stock is now only worth $0.60 a share and they arrived at that target price using a PE ratio of 14x. So, even at $0.985 a share which is another support level, SMRT's stock is way too expensive. Yikes!

In the short run, there could be a bounce in the share price as I see higher lows in the momentum oscillators. Selling pressure could ease a bit for a while but the downtrend is very much intact.

Short sellers could renew their efforts in the event of a rebound in share price and they would probably do so as close to the resistance as possible. They could use the 20d MA as a guide and that is at $1.16 now.

Looks like it is going to be a long and bumpy ride down for SMRT's loyal shareholders.

Related posts:
1. SMRT: Downtrend intact.
2. Do not love unless it is worth the loving.
3. When to BUY, HOLD or SELL?

Distribution Reinvestment Plan: First REIT and CIT.

I received a few enquiries from readers as to what I am doing with regards to the Distribution Reinvestment Plans (DRP) offered by First REIT and Cambridge Industrial Trust. I think readers who have been following my blog for a long time would have guessed my answer.

I invest in REITs for income and I will take the distributions in cash, usually. Usually? Yes, usually and I would have said "always" if not for the single instance when I took part in the DRP of AIMS AMP Capital Industrial REIT's.

So, why did I do it then? Was I being inconsistent?

Well, if I could make money out of a situation and yet not stray from my original intention of investing for income, I am being consistent. That was the case then. So, it was a case of having my cake and eating it too. Why wouldn't I do it?

For those who are unfamiliar with the circumstances surrounding the DRP I am referring to, please read: AIMS AMP Capital Industrial REIT: DRP.

As for the DRPs offered by First REIT and Cambridge Industrial Trust now, I don't see how they are compelling offers apart from the fact that unit holders who take part will be saving on brokerage fees and other costs which would be incurred if they were to make the purchases in the open market instead.

First REIT is offering to allot new units at a price of S$1.0163 per unit. Market price is now $1.02 per unit.

Cambridge Industrial Trust is offering to allot new units at a price of S$ 0.6737 per unit. Market price is now $0.68 per unit.

As anyone can see, there is only a very slight discount to the current market price in both cases.

So, unless we are thinking of increasing our exposure to the REITs at current prices anyway for some reason, it would not make much sense to take part in the DRPs.

I have shared the reasons why I am not adding to my investments in S-REITs in earlier blog posts but those reasons are good for me. They might not be good for everyone.

Having said this, I still think that REITs are relevant investments for income and would not hesitate to add to my long positions if Mr. Market were to make me offers too good to refuse.

Related posts:
1. 9M 2013 income from REITs and more.
2. 2013 full year income from S-REITs.
3. Strategy to grow wealth and augment income.

A pleasant surprise from Nuffnang.

Today, I received a pleasant surprise from Nuffnang. I got a cheque from them in the mail!

Almost one year's worth of ad income from Nuffnang.

Although the amount is lesser than what I expected to be paid when I made the cash out more than 2 months ago, it is better than not being paid at all. Am I good at consoling myself or what?

A good sign, you think?

Gong Xi Fa Cai! Wan Shi Ru Yi!

Related post:
Accused of fraud and denied payment.

Croesus Retail Trust: The EDGE.

A reader kindly informed me that the latest issue of The EDGE has a write up on Croesus Retail Trust. The Trust is, of course, my latest investment and one of only two stocks I have bought in the last three months. So, what has The EDGE got to say?

"... amid the improved sentiments as Abenomics works its way through the world's third biggest economy, one counter considered to be the best proxy in Singapore to Japan seems to have gone unnoticed amongst investors."

1. The Trust's current distribution yield is amongst the best in the world of business trusts and REITs in Singapore and Japan. Current unit price: 87.5c.

2. Business trusts have not been well received in Singapore for various reasons, including their heavy use of debt and less predictable payout.

3. Books revenue in JPY but pays investors in S$.

4. Expects to charge higher rents from this year and the Trust plans to replace more than half of expiring leases with bigger brands.

Some other points were also made but, to be fair to the publication, you might want to get yourself a copy of The EDGE. Article is on page 16. The price went up recently: $5.00 a copy now.

If you want to find out more about Croesus Retail Trust right now, I have been blogging about the Trust lately. Just search for the articles in my blog. Free of charge. Wink, wink.

Actually, I believe that the current malaise in the Trust's unit price has also partly got to do with the fact that the initial euphoria we saw at the Trust's IPO and the eventual bursting of that bubble hurt many retail investors. I know some who were caught. Once bitten, twice shy or so the saying goes.

Well, I rather like to look at out of favour stocks with very attractive attributes for income investors (perhaps, with a dash of growth potential) and Croesus Retail Trust seems to fit the bill.

Related posts:
1. Croesus Retail Trust: What is my plan?
2. Croesus Retail Trust: Initiated long at 87c.
3. Croesus Retail Trust and Saizen REIT.

Croesus Retail Trust: What is my plan?

When I revealed that I had a BUY order queued at 85.5c, a reader was concerned. He said that he bought some units in Croesus Retail Trust at 87c because he read my blogs and how I first initiated a long position at 87c too.

From Winston Koh's FB wall.

Do I think that the unit price will fall a bit more?

Well, I don't know. My bowling ball has been rather quiet lately. Not talking to me. Maybe, I should give it a good rub later but that sounds like work and I am such a lazy guy. Bad AK! Bad AK!

What I do know is that selling pressure seems to have eased, looking at the higher lows in the CMF and the MFI.

Click to enlarge.

The moving averages are all bunching up which implies a very low level of volatility and this congestion in the moving averages will serve to be an important support or resistance in future. In future?

Yes, with the Bollinger Bands having narrowed, I would not be surprised if this period of low volatility should be followed by a big move in unit price in the near future.

Big move? Up or down? Well, if I should hazard a guess, with the CMF and MFI the way they are, I would say "up". However, if these should be negated and if unit price were to move down instead, using Fibo retracement lines, the 138.2% golden ratio is at 85.5c.

So, this solves the mystery of why AK71 has put in a BUY order at 85.5c. For those who say they feel safer if they buy at a lower price than me, well, 85c is a possibility too since that is where we find the 161.8% golden ratio.

At 85c or 85.5c, we are looking at a prospective 9.62 to 9.68% in distribution yield, according to guidance provided by the management. It would also mean getting in with a bigger discount to the Trust's NAV.

There is no way I can predict the price movement. However, I do know what I would do in each scenario.

Asking what would we do is more useful than asking what would the price do. 

After all, we have control of our faculties (I hope) but we do not have any control over Mr. Market's actions.

Some numbers (pre-MTN):

From: Presentation to investors (7 & 8 Jan 2014).

Related posts:
1. Croesus Retail Trust: Overnight BUY order filled. (I looked at how the S$100 million MTN could affect the Trust here.)
2. Why some were burnt badly.

Chinese New Year red packets!

Soon after midnight, I blogged a Chinese New Year greeting, wishing all readers a happy and prosperous Year of the Horse.

I guess everyone should be busy visiting family and spending quality time together today. For married people, they will be giving out red packets filled with good intentions and well wishes.

What? Money? Oh, yes, money too. Sorry, that slipped my mind.

Since I am single, I am still eligible to collect red packets and they are so pretty this year!

Hope everyone is having a great time today, the first day of the Chinese New Year!

 

天增歲月人增壽, 春滿乾坤福滿門!

Related post:
AK's photo to celebrate Year of the Horse 2014.

AK's photo to celebrate Year of the Horse 2014

This is my photo to celebrate Year of the Horse 2014:

AK71 says 新年快樂!

Yup, took it myself instead of using some stock photos from the net.

I won the doll in a scatch and win lucky draw. The mandarin oranges are from my sister's kitchen. The red packet is from my broker.

Gong Xi Fa Cai!

Huat ah! HUAT ah! HUAT AH!

4 numbers I saw on my desk: 9232.

4 numbers? What for? OK, if you think I am always lucid when I blog, you could be mistaken. Don't be so serious. I am just horsing around lah.

Start the Year of the Horse inspired! If you can spare 50 minutes, watch this video, if you have not done so yet:
The world's greatest money maker!

Have a huge amount of savings and still work till age 70?

It seems that for many Singaporeans, there is no problem with having an emergency fund. 

According to research by Manulife Singapore, their sample shows that Singaporeans hold an average of 33 months of personal income in cash!

A fifth of this is for daily and unexpected expenses. 

The balance, which is being underutilised, is losing value because of inflation. 





So, cash is a favoured asset. 

Guess which asset is in second place?

The property we own and stay in.

Being mostly in cash is a bad idea given the paltry interest income from the banks. 

Inflation is chipping away at our wealth.

Then, isn't our home a good investment? 

No, the property we stay in is not an investment. 

It is an asset but if it does not generate cash, it is a consumption item.





In the same report, it was revealed that Singaporeans expect to only retire at age 61 and continue working for another 9 years after. 

That means a grand old age of 70.

Work till 70 years old?

At age 61, if people continue working because they want to, I am happy for them, but if people continue working because they have no choice but to do it, then, it is rather sad.

The latter doesn't have to happen.





I have blogged about how the first step to wealth building is saving money which some find difficult to do. 

However, for people who already have substantial amount of savings but are holding themselves back from investing for income, it is really sad because their wealth is simply wasting away.

It is probably considered bad manners in Asia to talk about money but with the long weekend coming up, I am tempted to ask you to give it a try, to talk about this with people who are closer to you and people you care about. 

Or, perhaps, just email the link of this blog post to them.

Everyone's life could be and should be better.

“Never depend on single income. Make investment to create a second source.” Warren Buffet




Related posts:
1. Achieving financial freedom is a family affair.
2. A letter from a 66 year old retiree.
3. Inflation adjusted retirement income plan.
4. Secrets of Millionaire Investors.
5. Ambassadors of Financial Freedom.

Accused of fraud and denied payment.

After almost a year and 20c per click, my blog accumulated about $170 of earnings from ads put up by Nuffnang.

After waiting for two months for payment, they now tell me my blog is confirmed to be involved in click fraud. See letter:

If they suspected that my blog was guilty of click fraud, why did they bother to even tell me that a client was interested in running an ad campaign in my blog recently? I was even asked to send details of my blog's traffic to them.

$170. I don't believe how much money I tried to obtain through click fraud. I am dumbfounded.

Anyway, rather than running the risk of being accused of click fraud again, I have removed all of Nuffnang's ad spaces from my blog.

Related post:
Ad hoc annual report for ASSI.

Croesus Retail Trust: Why some were burnt and burnt badly.

Some have asked me if it is safe to buy into Croesus Retail Trust now. It has to be safe since I am putting my money where my mouth is, right? Sorry, but the truth is I don't know.

Huh?

Well, I feel that at the current price level, Croesus Retail Trust offers fairly good value for money and I explained why I thought so in earlier blog posts. I also said that 87c represents immediate support from a technical analysis perspective and this support seems to have strengthened today.

Sounds good, doesn't it? Yes, it does but it also pays to remember that Croesus Retail Trust has quite a number of substantial shareholders who most probably have their own agenda. There is no guarantee that they won't sell even at prices lower than 87c, for reasons unknown to us.

The lowest unit price ever was 84.5c but that was probably just some retail investor who threw in the towel. It happens, I am sure all of us know.

Anyway, I went through the filings of insider trades since the Trust's IPO last year in May.

AR Capital Pte Ltd acquired 7.54 million units from 10 May to 10 September 2013 at an average price of 96.3 cents per unit. Strangely, they sold 3.576 million units from 14 to 16 October 2013 at an average price of 86 cents each. Then, they sold 1.286 million units on 28 November 2013 at 87.9 cents each. Now, they still retain a stake of  28.757 million units or 6.73%.

Why would they sell at a loss in October and November? Did they make a mistake increasing their stake from May to September? Perhaps they had to do some portfolio balancing?

DBS Group Holdings Ltd became a substantial shareholder on 10 May 2013 after it acquired 34.929 million units or 8.21% of the issued capital via placement at 93 cents each. The group sold 12.84 million units from 28 May to 27 November 2013. The highest sell price was $1.07 and the lowest was $0.86.

While they were selling, DBS Vickers was issuing BUY calls with target price of $1.14. Now, try to reconcile that.

The only substantial shareholder who has been consistently increasing their stake is Target Asset Management. They bought another 1.9 million units on 30 May 2013 at 98 cents each. Then, they bought 530,000 units on 28 June 2013 at 95 cents each. The last time they bought more was on 27 July 2013 when they bought 450,000 units at 96 cents each.

They now hold 29.79 million units which places them ahead of AR Capital Pte Ltd.

Plenty more happened where insider trading is concerned at Croesus Retail Trust and it is obvious that many substantial shareholders took the opportunity to sell soon after the IPO as the unit price retreated from a high of $1.18 a unit.

Nikko Asset Management Asia Limited with a 22.25 million units stake then started selling on 14 May 2013 at $1.10 a unit. On 15 May 2013, they sold again at $1.09 a unit and on 17 May 2013, again at $1.08. At some point in May, they ceased being a substantial shareholder.

Similarly for Hwang-DBS (Malaysia) Berhad, they ceased being a substantial shareholder after selling from $1.08 to $1.10 a unit in May 2013.

The Amundi Group only started selling at the end of May 2013 and by 5 June 2013, they ceased to be a substantial shareholder. The prices they sold at were from 98c to 99c a unit.

Now, I didn't spend the last hour and a half going through all these and presenting them in a blog because I had a morbid fascination for SGX filings. It is very obvious that there are lessons to be learnt from this and I think I don't have to spell them out.

I also do not want to spell them out in case trouble comes knocking on my door.

I have no doubt that some people were burnt and burnt badly. Imagine getting in at $1.10 or higher. However, if I were in their shoes, I might want to look at Croesus Retail Trust again as it is a more attractive proposition at 87c now.

Oh, my goodness. I have been sleep blogging again. I need to see a doctor before my condition worsens.

Related posts:
1. Stock market analysts. (I was just beginning to blog.)
2. When to BUY, HOLD or SELL?
3. Buy Japanese real estate. (Another oldie from 2009.)
4. Croesus Retail Trust: Overnight BUY order filled.
5. Nobody cares more about our money than we do.

Croesus Retail Trust: Overnight BUY order filled.

I entered several BUY orders last night and one of these was a BUY order for Croesus Retail Trust at 87c which was the price at which I initiated a long position last year.

I decided that the expected market weakness today would be a good opportunity to increase exposure to the Trust because of an encouraging set of numbers. Using the information provided at its IPO, I estimated the distribution yield to be 8.5% when I got in at 87c a unit last year.

However, with a higher than forecast DPU now expected, distribution yield at 87c a unit has bumped up. According to the management's annualised figure, distribution yield should approximate 9.46% at 87c a unit. This is very attractive for the kind of assets the Trust holds.

Even if we are a bit conservative which was my attitude towards estimating the DPU back in November, for anyone buying in at 87c a unit, a 9% distribution yield is quite realistic.

Given the fact that most of its income is hedged against foreign exchange fluctuations for two years and that the bulk of its loans are locked in for 5 years at a very low interest rate, DPU level in S$ terms is more or less protected. This is probably an important consideration for anyone investing for income.

What might change the DPU level is the S$100 million 4.6% MTN issued just a few days ago. These notes are due in 2017.

4.6% is pretty high compared to the interest rates of the Trust's JPY loans. However, just like in the case of AIMS AMP Capital Industrial REIT which also issued notes last year attracting higher costs compared to conventional bank loans, the access to a different funding source increases the level of funding flexibility and, some might say, security. The higher cost of funds is justifiable.

If I were to hazard a guess, I would say that the management has identified potential acquisitions and with NPI yield for malls in Japan hovering at about 6% in general, any acquisition is likely to be DPU accretive. If this were the case, then, there is no fear of distribution income being negatively impacted.

We must, however, still keep an eye on the numbers.

The hard numbers tell us that finance costs will jump by some 30% because of this S$100 million MTN and unless put to good use it will also reduce DPU by about 5%. So, the funds raised should not be left idle for too long.

This is how I would look at the issue of the S$100 million MTN. Simply saying it is not cheap or it is expensive is not very helpful in our decision making process or is it?

If Mr. Market should continue to feel depressed and decide to sell even more cheaply, I would probably be buying more. There would be an even greater margin of safety then.

See slides presentation of 13 Jan 14: here.

Read about the $100 million 4.6% MTN: here.

Related posts:
1. Croesus Retail Trust: Initiated long position at 87c.
2. Croesus Retail Trust: Motivations and risks.

The one and only AK Cup Ramen!

During my vacation in Japan last month, I went to the Instant Ramen Museum.

The Momofuku Ando Instant Ramen Museum Insutanto-rāmen Hatsumei Kinenkan) is a museum dedicated to instant noodles and Cup Noodles, as well as its creator and founder, Momofuku Ando. The museum is located in Ikeda in Osaka.

There is also a noodle factory where visitors can assemble their own personal Cup Noodles from pre-made ingredients for a small fee of 300 yen. (Source: Wikipedia).

This was what I made:

Tonight, I had it for dinner. Oishi!

If you are interested in looking at my travel photos, please visit my other blog: Travel Photos and Videos.

How do I view the plunge in the DJIA and what is my plan?

With the recent plunge in the DJIA, some could be feeling unnerved. Unless these people have invested with money they could not afford to lose, there is no reason to feel uneasy or is there?

Well, you know what they say about a market climbing a wall of worries and going down a river of hope. In plain English, it simply means that nothing goes up or down in a straight line.

After hitting a high of 16,576 on New Year's Eve, the DJIA has plunged to 15,879 yesterday. That is an almost 5% retreat. Now, a correction, by definition, could see the index retreat by almost 20%. More than that would be bear market territory. So, 13,260 on the DJIA? Wow!

Intuitively, it seems to me that there would be support at the 14,700 to 14,800 level.  That is about an 11% retreat from the top. Of course, this is just my bowling ball talking to me and it could just be another gutter throw. Always dreaming of strikes, I am.

Let us come back to Earth and see what this tapering business is doing.

Well, it is going to reduce the rate at which liquidity is being added to the economy. Notice that there is no tightening yet. Very important. There is still more money being added into the system but at a slower rate. So, to say that liquidity in the system is being reduced is incorrect and alarmist, even.
 

Then, there is concern that China could be experiencing an economic slowdown and this is also not something new. Plenty of Chinese GDP growth is from a red hot property market. It has been said that this is probably unsustainable.

However, the Chinese government has plenty of reserves and is able to do a lot more, if required. In fact, they just injected more money into the system last week.
 

Of course, people are also concerned about interest rates rising and, maybe, rocketing through the roof. Well, it could happen one day but it won't happen in the near future or for a considerably long period of time.

The Fed has indicated that interest rates will be kept near zero for an extended period unless it sees much higher inflation. We have to remember that the U.S.A. has a gigantic public debt burden and higher interest rates would make debt more expensive for them to service. Why would they want that?
 

Now, if we scale down and look at businesses, do we foresee companies operating as usual? Or do we see them going bellies up? I am sure that some businesses will suffer and talks of how property developers are having a hard time have made their rounds. However, it is also noteworthy that property developers have much stronger balance sheets now, generally. They might not do as well as two years ago but they would certainly still be in business.

Of course, there will be businesses which will still do well, tapering or not. Will the government cancel the plan to double the MRT lines by 2030? Will people stop consuming sugar and palm oil? Will people stop using their credit cards? Will the banks stop lending money? Will companies stop renting business spaces, industrial or commercial? Also, will people stop eating curry puffs? OK, I couldn't resist the last one. My bad.

These are just some questions that I randomly generated and I think it is safe to say that businesses will still be chugging along. A bit slower or a bit faster, they will chug along. Those with competitive advantages or which are experiencing an upswing in their business cycles will probably do better.

However, the same could not be said for their stock prices and this is where we have to remind ourselves of the difference between value and price. As stock prices fall and values remain unchanged, the stocks are becoming more attractively priced.

So, all else remaining equal, a correction is good for investors. In a nutshell, we get to buy more for less.

Of course, the next question is when should we buy?

All of us want to buy at the cheapest. Who wants to pay more? However, I will be quite happy to buy cheaper and, if possible, much cheaper. If I managed to buy something when it was at its cheapest, I would have to give thanks to the Goddess of Mercy or Tua Pek Gong. Maybe, to be safe, I should just thank both.

This is where a little knowledge of technical analysis is useful. I would use it to help decide on entry prices. Very importantly, remember, it is about probability, not certainty.

For example, I believe that banks will do better in an environment where interest rates are higher. So, a correction in their stock prices could see supports tested. Where are the long term supports for DBS and UOB, for examples.

The 100 weeks moving average for DBS is currently at $15.40 and for UOB, it is at $19.80. So, if we should see those prices tested, I could buy some. Some, yes. Pace ourselves. Don't throw everything in, including the kitchen sink. What if the supports broke?

Of course, if we should ever revisit price levels seen during the Global Financial Crisis a few years ago, I hope I would be brave enough to throw in everything, including the sinks (yes, why stop at one) and, maybe, the bathtub (which I do not have). In case you are wondering, chances are I won't be brave enough. Just being honest.

Things could change in the future and it could be things that we have no control over. What is the point of worrying about things like that?

Know your own circumstances and your own abilities.
There are many ways to cross the seas.

What we have control over is to ensure that our investments are fundamentally sound and that they will continue to do what we expect them to do. Since I am primarily invested for income, with a shopping list in hand now, I am quite happy to be paid while I wait.

Related posts:
1. Have a plan, your own plan.
2. When to BUY, HOLD or SELL?
3. Be comfortable with being invested.
4. Be fully invested in the stock market?
5. What should I do when I am down 25%?
(If you can't convince yourself "When I'm down 25%, I'm a buyer" and banish forever the fatal thought "When I'm down 25%, I'm a seller," then you'll never make a decent profit in stocks. - Peter Lynch)

Should an average person be "playing" the stock market?

Is investing in the stock market a game?

And if we play the game well, will we be rich?

Should an average person play the game?



In a nutshell:

Buy index funds and keep for 20 to 30 years.

(AK71 being kaypoh: And hope we don't suffer a lost decade or two.)

Related posts:
1. Dollar Cost Averaging.
2. POSB Invest-Saver Account.
3. OCBC Blue Chip Investment Plan.
4. Common Sense Investing.
5. Retiring a millionaire is not a dream.
6. Is investing in stocks suitable for you?

K-Green Trust: Zzzzzzzzzzzzzzzzzz.

This blog post is in response to a comment from a reader.

When was the last time I blogged about K-Green Trust? One year ago!

See:
K-Green Trust: DPU 4.69c.

K-Green Trust seems to me to be quite lazy.

I have been waiting for them to gear up and make DPU accretive acquisitions forever! The management did not take advantage of the ultra low interest rates in the last 3 years at all to acquire assets. It is baffling.

Their portfolio of assets will run out of time gradually and some alarmists wave around banners saying "No more assets in 11 years!"

Well, not exactly. I looked at this in detail before.

See:
K-Green Trust: A bad investment?

I remember the Trust listed 4 assets to which it has ROFR. I will wait and see how things pan out but I could fall asleep while waiting.

Please wake me up if they buy something. Thank you.

Sabana REIT: After the 4Q 2013 results, am I buying or selling?

Someone asked me why I didn't blog about Sabana REIT's latest results.

Answer?

There isn't much to say, really.

I did a piece on 17 October 2013 shortly after its 3Q results were released. In that blog post, there was a paragraph which said:

"Taking the DPU of 0.18c from 24 Sep to 30 Sep 13 as a guide, I estimate a DPU of 2.16c for 4Q 2013. This is a 10% reduction from 2.38c for 3Q 2013."

To find out how the estimate was made, read:
Sabana REIT: 3Q 2013 results and outlook.

Sabana REIT announced a DPU of 2.19c for 4Q 2013 which is 0.03c, some 1.38%, higher than my estimate. Not a good enough reason to bring out the lion dance troupe, perhaps, but at least it did not fall below my estimate.

The REIT is now trading at its NAV of $1.07 a unit and I would not be surprised if its unit price were to fall by a few cents upon the REIT going XD. Mr. Market is not feeling optimistic about REITs lately and Sabana REIT's performance has been disappointing.

Although it would be too optimistic to think that Sabana REIT could achieve 100% occupancy again in the near future from the current 91.2%, to think that there would be no improvement over the next 12 months would be too pessimistic.

So, if Mr. Market expects at least an 8.5% yield from Sabana REIT which is some 2% higher than what market leader Ascendas REIT gives, then, it would be reasonable to expect Sabana REIT to trade at $1.03 a unit upon going XD, annualising its current DPU.

Sabana REIT's unit price could recover in the course of the year if the management could fill up some of the vacant space and improve its DPU, everything else remaining equal.

So, although I do not see any compelling reason to add to my long position in Sabana REIT at current price, I will remain pragmatic. There is no compelling reason to reduce exposure too.

Related post:
Added more Croesus Retail Trust and reduced Sabana REIT.

A case of "Sorry No Cure" for Mr. Anton Casey?

I understand the need to have more foreigners in Singapore due to our declining birth rate. Learn from Japan's experience. Don't make the same mistake.

I accept that it is a necessity but I also expect that foreigners respect their host country and not cause trouble for us just like how we respect them and welcome them.

People will make mistakes and, generally, if they are sorry, we should give them another chance. However, if the "mistake" is not a mistake. Then, if we give them another chance, it will be a chance to make the same "mistake".

What is the difference between murder and manslaughter?

If we know the difference, then, we know what we should do in the case of Mr. Anton Casey.

The Straits Times:

British expatriate apologises for calling commuters 'poor people'.

Foreign media reports:

1. British expatriate mocks 'poor people' and called taxi driver 'retard'.

2. British businessman forced to issue an apology.

3. Death threats for British banker after calling 'commuters' poor.

Related post:
First large scale riot in Singapore in 40 years.