Saizen REIT: 1Q FY2011 results.

Saizen REIT's 1Q FY2011 results did not disappoint. Here are the important points:

1. Gross revenue improved quarter on quarter from S$15,536,000 to S$16,274,000 or a gain of 4.75%.  This is largely due to a strengthening JPY against the S$.

2. Net property income (NPI) improved quarter on quarter from S$10,205,000 to S$11,389,000 or a gain of 11.6%! This is due largely to a reduction in property operating expenses.

3. Taking away fees and expenses shows net income from operations improved quarter on quarter from S$4,998,000 to S$6,012,000 or a gain of 20.29%!

What I find most bracing about the report is on page 6 which details the distributable income from operations for 1Q FY2011.  Distributable income for the period is JPY 204,943,000.  This amount could have been 50% higher if not for the amortising nature of Saizen REIT's loans. JPY113,397,000 was used for loan amortisation.

Loan amortisation will reduce funds used in interest payment for the REIT, going forward. This would translate to more funds available for distribution to unitholders in future, everything else remaining constant. There was also a one-off expense of JPY14,976,000 which was incurred due to the refinancing of GK Choan's loan. This is non-recurring. We could, therefore, expect the distributable income for 2Q FY2011 and subsequent quarters to be higher.

Everything else remaining constant, I estimate the distributable income for 2Q FY2011 to be JPY 220,000,000 or 7.4% higher than 1Q FY2011. Total distributable income for 1H FY2011 is, therefore, estimated to be JPY 424,943,000. Number of units in issue now at 1,111,003,000.  DPU estimated at JPY 0.38. Based on the rate of S$1 = JPY63.3, it means a DPU of 0.6c in March 2011.

Update on YK Shintoku loan

To-date, YK Shintoku has divested a total of 16 properties (5 properties in FY2010, 5 properties in 1Q FY2011 and 6 properties in October and November 2010) as part a deleveraging plan implemented to reduce the absolute amount of the loan of YK Shintoku and the leverage of the corresponding property portfolio, so as to facilitate refinancing efforts.

The loan of YK Shintoku has been reduced from JPY 7.1 billion (S$111.6 million1) as at 30 June 2010 to about JPY 5.6 billion (S$88.1 million) as at the date hereof. Taking into account applicable cash reserves of JPY 0.6 billion (S$9.4 million) maintained by YK Shintoku under the loan agreement, the net outstanding loan of YK Shintoku amounts to approximately JPY 5.0 billion (S$78.6 million). Several divestments of YK Shintoku’s properties are expected in the coming months to reduce the loan amount further.


The amount of S$14.9 million, or approximately JPY 0.9 billion, of warrant proceeds received as at 9 November 2010, have yet to be deployed. Saizen REIT has 328,082,705 warrants which are outstanding and could potentially result in S$29.5 million, or approximately JPY 1.9 billion, of further warrant proceeds being raised1. These warrant proceeds may be applied towards the refinancing of the loan of YK Shintoku (if such refinancing is possible). Saizen REIT also has an aggregate of approximately JPY 12.0 billion (S$188.7 million) of unencumbered properties which can be used as collateral for new loans.

Update on next distribution

Property operations are expected to remain stable, generating steady cash flow to enable Saizen REIT to continue paying out semi-annual distributions. The next distribution payment is expected to take place in March 2011 in respect of distributable cash accumulated in the six months financial period ending 31 December 2010.

Results announcement here.

Related post:
Saizen REIT: AGM on 19 Oct 10.

First REIT: Rights issue.

For a while now, there has been expectation of First REIT doing some acquisitions and in the process would have the need to raise funds. First REIT's management announced on 9 Nov 10 a 5 for 4 rights issue at 50c per unit.

The Mochtar Riady Comprehensive Cancer Centre (“MRCCC”) is being acquired from Wincatch Limited, an unrelated third party, for S$170.5 million, and Siloam Hospitals Lippo Cikarang (“SHLC”) is being acquired from the sponsor of First REIT, PT Lippo Karawaci Tbk, for S$35.0 million.Read announcement here.

Including fees and expenses, MRCCC would cost S$174.6m while SHLC would cost S$35.9m.  Total acquisition cost: S$210.5m. The rights issue would raise gross proceeds of $178.2m. First REIT would take a 4 year term loan facility of S$50m from OCBC to make up the balance.

The rights issue would more than double the number of units in issue to 624,104,000 units. So, although the NAV increases to S$474,200,000, post rights, NAV per unit would decline from 98c to 76c. Gearing level is largely unchanged and remains low as much of the funds required for the acquisitions is obtained through equity and not debt.

Of greater interest to unitholders is the distributable income which would increase 84% post acquisitions from S$20,964,000 to S$38,542,000. The annualised DPU would, however, reduce from 7.62c to 6.18c due to the larger number of units in issue. So, is this rights issue a good deal for existing unitholders? To answer this question, look to distribution yield.

The theoretical ex-rights price (TERP) is calculated to be 70c based on a CR price of 95c.  At 95c, the yield, with an annualised DPU of 7.62c is 8.02%.  At the TERP of 70c and an expected annualised DPU of 6.18c, XR, the yield is 8.83%. So, this acquisition is distribution yield accretive and is good for current unitholders.

Unitholders have the option to sell their nil-paid rights when trading starts if they do not wish to pay for them. Based on the exercise price of 50c and the TERP of 70c, we could see the selling of the nil-paid rights at 20c or so. This could be viewed as a return of capital.

Assuming that a unitholder has 4 lots in First REIT and is entitled 5 lots of rights. By selling the nil-paid rights at 20c per unit, he would get $1,000. This is the difference between the CR price of 95c and the TERP of 70c (i.e. 25c x 4,000). There is no capital gain per se. However, the distribution yield on his existing investment will actually improve from 8.02% to 8.83% without him having to cough up more funds. So, am I saying that we should sell the rights? Well, if we do not have enough funds to pay for the rights, this is not a bad idea.

Personally, I would pay for the rights. This is because the distribution yield would improve 10% from 8.02% to 8.83% with the acquisitions and rights issue. So, the additional funds I am putting in would enjoy a most attractive yield.

Furthermore, from the recent experience with the rights issue of AIMS AMP Capital Industrial REIT in which the TERP was 21c, the XR unit price ended higher and it is currently trading at 22.5c. So, with First REIT, we could see the XR price higher than the TERP of 70c. How much higher? Based on the assumption that units should trade closer to 8.02% yield, the CR yield at 95c, we could see First REIT's unit price going 10% higher to 77c, XR. Accepting and paying for the rights could, therefore, lead to capital gains.

Good luck to fellow unitholders.

See slides here.

Related post:
First REIT: This one is for keeps.

Saizen REIT: Divestment of Jewel Town Suehiro.

Saizen REIT divested another property, Jewel Town Suehiro, which is located in Hakodate. It was built in August 1991 and comprises 30 residential units and 8 car park lots.

The property was sold to an independent private investor for a cash consideration of JPY 146,042,400 (S$2.3 million).  This was at a 2.1% premium to the property's valuation of JPY 143m. Selling at a premium to valuation is good news and supports the argument that there is strengthening demand for Japanese real estate.

Referring to the annual report, as of 30 June 2010, Jewel Town Suehiro was 100% occupied and brought in a total annual rental income of JPY19,327,440. This means a gross yield of 13.2%. A good deal for the buyer.

Following loan repayment from sale proceeds of the Current Divestment, the remaining balance of the YK Shintoku Loan is estimated to be approximately JPY 5.6 billion (S$88.6 million).

Taking into account applicable cash reserves of JPY 0.6 billion (S$9.5 million) maintained by YK Shintoku under the loan agreement, the net outstanding loan of YK Shintoku amounts to approximately JPY 5.0 billion (S$79.1 million). 

Read report here.

Is this the return of the bull market?

On 3 Nov, when I blogged about Macquarie's SiMSCI warrants, a reader, AT, mentioned that "Macquarie runs regular warrant workshops at the SGX, I found the speakers honest and knowledgeable." Seminars are taking place again on 22 and 23 Nov:

Date: 22 Nov 10 (Monday)
Partner: DBS
Location: SGX Auditorium, Level 2, Shenton Way.

Date: 23 Nov 10 (Tuesday)
Partner: Philips Securities
Location: NTUC Auditorium, 1 Marina Boulevard.

Time: 6.30pm to 8.00pm

Light refreshments would be available after each session.

Macquarie's Equity Strategist, Mr. Mark Matthews, will give his view on the market outlook for Singapore and the region in this special presentation. There will also be a short presentation on Singapore warrants.

Admission is FREE. Sign up now as seats are limited.  Register at http://warrants.com.sg/en/home_e.cgi

Related post:
The best way to trade the Singapore Index: SiMSCI warrants.

Advertorial.

Golden Agriculture: Breaking resistance.

CPO hit a 27 month high and this has pushed the prices of CPO counters higher on expectations that they would report better than expected results.  Golden Agriculture is the most levered to CPO prices and could be the biggest beneficiary of higher CPO prices.

On 5 Nov, I mentioned that "On 4 Nov, the following session, this counter traded the whole day at 70c or higher. Closing at 70c seems to have confirmed it as the new support." and that "With improving CPO price now a reality, it seems less risky loading up on CPO counters and that is precisely what market participants have done. Loading up on a pullback would be the prudent thing to do, however."

I still think that loading up on a pullback is more prudent but the rising wedge pattern has failed and price has pushed higher. 70c support is confirmed and should be something to watch out for in case of a pullback in price.

Golden Agriculture will be reporting its results on 11 Nov. If results disappoint, we could see the 70c support tested.  If results are better than expected, we might see its share price go even higher.

Even though a very long white candle formed today to close at the day's high of 78c, it is worth noting that volume was not as high as 13 Oct. The picture of negative divergence between volume and price is still present. Price moved higher today due to a lack of sellers and not an abundance of buyers. It would take a very brave person to load up to go long at this stage.

Saizen REIT: AK71 responds to a forum.

This is almost all of my very long comment in Wealth Buch in response to certain things said in a forum on Saizen REIT:

I have talked about the Japanese debt situation and how this has no impact on Saizen REIT before:

Japan's debt issue and Saizen REIT

As for the S$/JPY exchange rate and how the strong JPY is likely to weaken in time, we have to remember that exchange rate is bilateral in nature. The JPY could also weaken if the S$ strengthens.

MAS is allowing the S$ to strengthen in order to contain inflationary pressures. Will it allow the S$ to strengthen much more? If it does, would it not impact our exporters negatively? MAS is likely to be very cautious.

The residential real estate which Saizen REIT is vested in is below replacement cost. This means that no one in his right mind would construct new buildings. The supply side has stalled. The demand for inexpensive accommodation is strong and I have a blog post on this recently.

Asterisk Realty: Advisory for Japanese real estate

Saizen REIT owns freehold properties. Income distribution is therefore perpetual, ceteris paribus.

As for rental rates lowering 4% in Saizen REIT's latest tenancy renewals, how much of its total tenancy were so affected? Would such a trend continue?

The assumption that rental rates would continue to lower in Japan is just an assumption and is something waved around by people who think that Japan is going to the Land of the Dodos.

Jim Rogers is long JPY and believes that it will remain strong.  Marc Faber believes that people are so bearish on Japan and have written it off that it is a strong contrarian play. The JPY is still viewed as a safe haven.

In recent months, China's purchase of JGBs caused the Japanese government some concerns. The Chinese recognise the safety of JGBs compared to US Treasuries and have been diversifying away from the latter. As long as there remains a strong demand for the JPY for various reasons, the JPY is likely to stay strong. It's simple economics of supply and demand.

The recent revival of interest in Japanese real estate because of the sector's amazing yield is likely to increase demand for the JPY too. People who want to invest in Japanese real estate must pay in JPY.

It is not wrong to say that the high yield is normal for real estate in Japan but such high yield is not normal for real estate in some other countries, countries in which investors would like to get better returns for their money.

Related posts:

Saizen REIT: AGM on 19 Oct 10.
Japanese real estate: Has it bottomed?

REITs lower portfolio risk.

Apart from the attractive combination of income and capital return, REITs also offer diversification advantages. Real estate securities have a low correlation to general equities. This creates significant benefits when it comes to improving the efficiency of investors’ portfolios. It means the increasing of potential returns while at the same time lowering the level of risk, which is the underlying aim of every investor.

Unlike other sectors like tech or commodities, there is also a low correlation between the real estate markets across different countries. While global stock and bond markets tend to move together, real estate is basically determined by local factors and what affects the real estate market in one country will not necessarily affect the markets in other countries.

What is likely to have an impact on all REITs is the interest rate environment. As bond yields rise, the relative attractiveness of REITs tends to fall. This is because many investors, especially institutional ones, value REITs by comparing them with long term interest rates.


Source: UOB Asset Management.

Related post:
High yielding REITs.
Increasing demand for S-REITs.

REITs, depreciation and FFO.

The REIT business model is simple. REITs own real estate and they collect rent. For an investor to determine the investment potential of a REIT, one factor he would need to consider is earnings.

Asset value diminishes over time. Real estate is however a special class of assets because land and buildings are not like machines. Their values do not necessarily decline over time but tend to rise or fall depending on market conditions even if they are leasehold properties.

The concept of 'Funds From Operations' (FFO) gets around this problem. FFO excludes historical depreciation costs from net income. FFO has become the industry standard for measuring a REIT's operating performance.

Source: UOB Asset Management.

FFO is calculated by adding depreciation and amortization expenses to earnings, and sometimes quoted on a per share basis. The FFO-per-share ratio should be used in lieu of EPS when evaluating REITs and other similar investment trusts.

Source: Investopedia.

Related post:
Replies from AK71: REITs and their assets.

Asterisk Realty: Advisory for Japanese real estate.

This is a Japanese real estate brokerage that I came across. Its website provides views of the real estate market in Japan from within.  It is a perspective which I find bracing.  

From the beginning of fiscal year 2010 in April, we expect CMBS and lenders to offer some excellent properties one by one throughout the year. 

With more confident buyers, we may see a gradual rise in market level. In 2009, there were a couple of very attractive properties that were on sale at discount prices in order to take precaution against oncoming financial pressures, however many properties were unsold due to strict financing conditions during recession. 

This year, a number of these properties successfully underwent transactions as a result of optimism that the worst of the recession has passed. Economic recovery is imminent and the overall attitude towards buying seems to be becoming optimistic. 

Many non-Japanese Asian investors are taking initiative to acquire Japanese prime trophy properties. They are expected to have a significant future presence in the Japanese prime asset market. Japan real estate market generates strong demand from global buyers for its maturity, stability and one of a kind trophy assets in all of Asia.


Due to stable and high occupancy rate, residential is still the most popular investment sector for all investors relative to office, retail, and hotel markets


 We are recently seeing less opportunities of residential opportunities of 300 million to 1 billion JPY in Tokyo. Large size  residential properties (above JPY 3 billion) will be available one by one from loan lenders and merged REIT for downsizing debt. 

Middle class residential occupancy remains stable due to sustainable demands and some upper class residential occupancy start recovering due to an overall decrease in rent prices.


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

Tea with AK71: A couple of thoughts.

Thought number 1:

Most of the time, I am so self absorbed that I do not think about socialising. Blogging has given me a means of socialising with many more people than I could ever imagine possible while remaining self absorbed. The internet is truly an amazing place. Virtual reality it might be but it is still a form of reality.

Thought number 2:

I spend a lot of my time thinking about things. I have always been a thinker. I remember those long bus rides between home and school and how I would spend time thinking about stuff. I was not a physically active kid. The ECAs I joined were rather bookish in nature: English LDDS, Chinese Society and the Library in secondary school; Drama Club and Chinese Society in JC.

I have always believed that the pen is mightier than the sword but perhaps I am just hiding my indolence.

Tea with AK71: Envious? Find our own way.

I recently had a conversation with a friend about how a friend of his keeps saying that he is envious of how rich my friend is and so on.

My friend keeps telling his friend that he is not rich and that he is using leverage to improve his cash flow.  My friend got fed up with his friend on one occasion and told him to stop whining and to do something about his life.

Make changes and be richer. 

This calls to mind a recent blog post of mine which asked "Do you want to be richer?"

Apparently, this person in question is in his early 30s and has a comfortable salary of $6K a month.  He is single, stays out and spends quite a bit of money having a good life.

So, to me, for him to become richer, he does not really have to work much harder to increase his income. He should work at reducing his expenses. He should think of planning for the next stages in his life.

For a person like him, if he is willing to listen, I would tell him that there are many roads to Rome and there are many roads to becoming richer. I have a couple of blog posts which were written with this in mind: "Roads to wealth creation in the stock market" and "Seven steps to creating passive income from the stock market".

For sure, there are many more ways to make money and my friend has found his own way to do so and that is to invest in real estate and renting them out for cash flow, taking advantage of the very low interest rate environment. It is something he does well and something he is comfortable with.

For me, a personal experience at a very young age of twelve when my family was on the verge of bankruptcy taught me that banks are fair weather friends and I try my best not to owe the banks large amounts of money if I can help it.

I do understand the need for leverage sometimes in order not to miss out on money making opportunities but I would try to repay my debts in the shortest time possible.

What am I saying? Everyone is different. Certain methods which are comfortable for some might not be so for others.

Finding the most comfortable path which would meet our goals in life is most probably a journey of self-discovery. Having reliable guides on this journey would be most helpful but decisions have to be made ourselves.

Ultimately, we have to find our own way.

NOL: Multi-month uptrend.

On 1 Nov, I suggested that "Taking in the Fibo lines, we could see 138.2%, which coincides with the high of 15 April, retested.  This is at $2.35. This, of course, is based on the assumption that the current bullish momentum follows through."

On 3 Nov, the counter hit a high of $2.32 before closing at $2.30. So, the closing price was just 5c shy of the 138.2% Fibo line. Volume expanded significantly, providing the fuel which created an impressive white candle. With the MACD rising strongly above the signal line in positive territory and the MFI yet to break into overbought territory, it looked as if it would retest resistance at $2.35.

On 4 Nov, price action formed a hangman (a black hammer at a peak) which suggested the presence of selling pressure. However, the relatively low volume suggested that the selling pressure was weak. Indeed the OBV confirms a lack of distribution. With MFI and RSI both in overbought territory, this counter could face some short term resistance in moving up further in price. A pullback to $2.16 would be a good price to accumulate if we believe in the multi-month uptrend.

NOL +5.0%; Fed, liquidity behind rally: DBS Vickers 
Wednesday, 03 November 2010

© 2010 - The Edge Singapore

Related post:
NOL: $2.21 and moving higher?

Japanese real estate: Has it bottomed?

Many asked me if I think the real estate prices in Japan has bottomed. After 20 years of decline, I believe it has.  Why am I so confident? Well, I do not have a PhD in Economics but I understand that price is a function of demand and supply.

The Japanese are fearful of buying any real estate because anyone who bought a piece of real estate in the country within the last 20 years would more likely than not have lost money and this could be as much as 50% of the original purchase price! If the person had taken a bank loan to buy that piece of real estate, including interest on the mortgage, the losses could be even higher.

Little wonder that 40% of the Japanese population rent the roofs over their heads.  Little wonder why Japanese residential real estate's rental rate declined little relative to the decline in real estate prices over the years.

OK, so the rental demand is strong and this means that rental rates would remain resilient but what about the prices of real estate in Japan? Well, the US$ is probably going lower in time. With QE2 (quantitative easing part 2) by Mr. Ben Bernanke, the fate of the US$ is sealed. Anyone who wants to get a better rate of return would be bonkers to put any money in US Treasuries.

So, what are investors to do? They want to invest in assets denominated in currencies which would gain against the US$. They want to invest in assets which would generate cash flow in currencies with relative strength against the US$. Many Asian countries offer opportunities to these ends.

The fact that Saizen REIT managed to sell quite a few of their properties in their YK Shintoku's portfolio is testament to the fact that buyers are back in the Japanese real estate market and they are looking for better returns on their investments. Money will go to where it is treated best.  Borrowing at very low interest rates and getting more than 10% yield in net property income from Japanese residential real estate is a mouth watering deal!

Even if the market has not bottomed in Japan, I believe it nearly has. This could be the next big story.

Related posts:
Saizen REIT's properties: Would I buy?
Japan's debt issue and Saizen REIT.
Invest in Asian equities and inflation is here to stay.
Buy Japanese real estate.

Tea with AK71: Advertlets, owe money, pay money!

One way we bloggers get some income from blogging is through the selling of ad space in our blogs. Advertlets is an online advertising agency based in Malaysia which I signed up with in the early days of my blog. All their ads were metered which means that the higher my blog's traffic, the more they pay.  No clicking on ads required. 

I lost my Glitterati status (aka exclusive status) with Nuffnang, another online advertising agency, by signing up with Advertlets, thinking that it made more sense. The earnings from Advertlets grew quickly and even though I could cash out at every RM100, I chose to wait.  In March this year, I decided to cash out after reading some negative comments regarding Advertlets and how they did not pay.  I waited the requisite 45 to 60 days and did not get any payment.  So, I sent them a ticket (an online enquiry) but did not get any reply, confirming my fears. 

Date          Username Amount   Status

Mar-16-10 AK71        159.42     Unpaid

Removing all ad space for Advertlets, I recovered my Glitterati status with Nuffnang shortly.  Since then, Nuffnang has given me a few metered ads which usually run for 4 days to a week on top of the usual pay per click ads.  Nuffnang also got me to do an advertorial for a financial seminar by an Australian bank a few months ago. I have yet to cash out because every time I cash out, I have to pay a small fee.  Hearing very good things about Nuffnang from fellow bloggers makes me confident that Nuffnang would pay when I choose to cash out. Not worried.

Why did I wait so long before blogging about my negative experience with Advertlets? Honestly, I didn't think of blogging about it. Just another bad experience in life was how I thought of it. However, while chatting in LP's cbox a couple of days ago, I learned that other finance bloggers also didn't get paid by Advertlets! So, I am taking up LP's suggestion to blog about it and tell the world! We should not let Advertlets off so easily! Grrr! 

I found this very creative artwork on WayangTimes.com, another victim of Advertlets

Really apt! Owe money! Pay money! O$P$! Ok, ok, I shall stop here.

Golden Agriculture: Toppish.

On 1 Nov, I asked "Would the rising 20dMA be able to push the price higher? My suspicion is that sellers would turn out in force if price moves closer to 70c as it is a thrice tested resistance in recent memory.  Therefore, 70c remains the resistance to watch."  That resistance was breached on 3 Nov, the second time in 7 sessions. It suggested that 70c was no longer as strong a resistance as before.  However, closing at 70c means that it was still the resistance to watch. With the 20dMA still rising, immediate support moved higher to 66c from 65c.

Although volume improved, the picture of a negative divergence between price and volume was still obvious. The MFI and RSI were both descending and suggested that they could go lower to retest their respective uptrend supports. Momentum was weakening. The long upper wick on the white candle suggested some selling pressure beyond 70c.

On 4 Nov, the following session, this counter traded the whole day at 70c or higher. Closing at 70c seems to have confirmed it as the new support. The very low volume suggested a wait and see attitude ahead of the long weekend. Could we be seeing the formation of a rising wedge? This pattern could be valid if volume keeps decreasing which seems to be the case thus far and the downside target would be 61c.

With improving CPO price now a reality, it seems less risky loading up on CPO counters and that is precisely what market participants have done. Loading up on a pullback would be the prudent thing to do, however.

Palm oil plays rise again; CPO price catalyst 
Wednesday, 03 November 2010

© 2010 - The Edge Singapore

Related post:
Golden Agriculture: Up or down?

LMIR: Foreign exchange forward contracts.

LMIR reported stronger earnings for 3QFY2010. Distributable income at $11.7 million. DPU at 1.09c is higher than the 1.04c in the last quarter. This represents a marginal increase of 4.8% over the previous quarter despite revenue increasing 53% year on year. LMIR also managed to have rate increase in rental renewals to the tune of 16%! Indonesia is doing well, as I expected.

Unfortunately, the management lost $2.9m in foreign exchange forward contracts. Without these contracts, the distributable income would increase by 24%! A DPU of 1.35c for an annualised DPU of 5.4c? Now, that would be in line with its actual performance on the ground!

The management is singing the old tune that these contracts are a prudent measure to protect its income denominated in the Indonesian Rupiah. The very strong Rupiah has caused it to lose money quarter after quarter on these contracts. Who is making money, I wonder?

What do they expect from an economy that actually weathered the last financial crisis unscathed? Indonesia was one of only three Asian economies that did not go into a recession, the other two being China and India! These contracts should have been reduced significantly in the last three quarters! I have wondered on various occasions why the CFOs of LMIR could never last very long. Did they go against the idea of having foreign exchange forward contracts? I keep wondering.

Having said this, the REIT remains a relatively safe investment that should generate consistent income for unitholders although its inability to deliver significantly higher DPU is galling, given such impressive growth in revenue.

Lippo-Mapletree Indonesia Retail Trust achieves higher 3Q distributable income of $11.7m. In 3Q 2010, there was a realised loss on foreign exchange forward contracts of $2.9 million as the cross currency swap remained “out of the money”, compared to 3Q 2009 when a realised loss of $0.4 million was recorded as the IDR was weaker at that time.
Wednesday, 03 November 2010

© 2010 - The Edge Singapore

Related post:
LMIR: DPU reduced 20%.

Saizen REIT: Huge sell down in consolidation phase.

Just as I said on 2 Nov, "I noticed that there seems to be more buying interest in Saizen REIT today too. Of 3,260 lots that changed hands today, 2,968 lots were bought up at 16c. This could just be an anomaly or this could be the beginning of something bigger. Who can say for sure? A crack in the wall of worries? Perhaps.", the counter experienced heavy volume sell down on 3 Nov. The wall of worries was very much intact.

The golden cross between the rising 20dMA and the 50dMA failed to materialise as 20,291 lots were sold down at 15.5c out of 24,231 lots traded. MFI sank deeper into oversold territory, suggesting very weak demand.  This is confirmed by the OBV which showed extreme distribution activity that day. The consolation seemed to be that the selling at 15.5c was very well absorbed, considering that volume was at least 6 times more than the previous session which in itself was a rather high volume day for such a thinly traded counter.

On 4 Nov, I was kind of disappointed that the volume dried up.  I was hoping for more panic selling which might allow me to buy some at 15c.  Wishful thinking, it seems.

Related post:
Saizen REIT: More buying interest.

The best way to trade the Singapore Index: SiMSCI warrants.

Macquarie introduces a new warrant to the Singapore market. Macquarie's SiMSCI warrants allow investors to take a leveraged view on movements in the broader Singapore sharemarket.

Macquarie's warrants allow you to take a leveraged exposure to the SiMSCI with no margin calls or forced selling, thus limiting your capital at risk. Macquarie has listed both call and put warrants, so you can potentially profit from both rises and falls in the market.

99.9% correlation with Straits Times Index (STI)
The MSCI Singapore Index has a basket of 30 stocks and tracks the Straits Times index (STI) very closely. In fact, the MSCI Singapore Index has a 99.9% correlation with the STI over a period of two years, and a 99.6% correlation over five years.

SiMSCI - the only liquid alternative to the STI
The SiMSCI is the name for the futures over the MSCI Singapore Index, and tracks it closely. The SiMSCI is much more liquid than the STI futures in terms of volume traded. In fact, the SiMSCI is the only liquid alternative to trade a Singapore sharemarket index.

For both futures expiring in August, the SiMSCI had 228,287 contracts traded (for the month of Aug 2010) while the STI futures only had 6 contracts traded over the same period of time.

Why SiMSCI warrants?
As the SiMSCI is a liquid and efficient futures market it provides a live tradable market reference price for the warrants to track, this makes it a more transparent and easy reference point for warrant investors. Investors can now see the live SiMSCI price at this website and also the dedicated live SiMSCI pricing page which includes a list of the current warrants.

Read more about it at http://www.warrants.com.sg/en/warrants/simsci_live_e.cgi

FAQ: What are warrants?

A warrant is a powerful investment tool that enables you to gain exposure to a security for a fraction of its price. Warrants can be used to either increase or decrease your level of risk and, unlike ordinary shares, they can be used to profit from both a rise and fall in asset price.

Macquarie Warrants are available over individual shares or indices, they are listed on the SGX and can be bought and sold like ordinary shares.

A warrant gives the holder the opportunity to buy or sell a share at a future date for a fixed price. The two basic types of Warrants are "Call Warrants" and "Put Warrants". Call Warrants give investors the potential to profit from share price rises. Put Warrants give investors the potential to profit from share price falls.

A Call Warrant gives the holder the right, but not the obligation, to buy the underlying share at a fixed price known as the "exercise price" at a future date or, in the case of a cash settled warrant to receive a cash settlement amount reflecting the amount by which the share is above the exercise price. A Put Warrant gives the holder the right, but not the obligation, to sell the underlying share to the Warrant Issuer at the exercise price, or, in the case of a cash settled warrant to receive a cash settlement amount reflecting the amount by which the share price is below the exercise price.

The price at which a warrant holder may buy or sell the underlying shares or the price used in determining the cash settlement amount is known as the exercise price.

A call warrant is said to be out-of-the-money when the exercise price is higher than the share price and in-the-money when the exercise price is lower than the share price.

A call warrant will be worthless if the share price is lower than the exercise price on the expiry day. However, with upward movements in the share price, the holder can still earn excellent returns trading the warrant prior to the expiry date.

The opposite occurs for a put warrant. It will be in-the-money when the exercise price is above the share price and out-of-the-money when the exercise price is below the share price. With downward movements in the share price, the holder can make profits trading the put warrant prior to its expiry date.

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Asian REITs 1H 2010.

The report by CBRE RESEARCH (ASIA) titled REITS AROUND ASIA 1H 2010 makes for interesting reading. See the following two paragraphs from the report regarding S-REITs:

The total market capitalisation of S-REITs stood at US$21.1 billion as of the end of the first half, making it the second largest REIT market in Asia after Japan. The outlook for S-REITs is stable as the sector continues to be supported by the strong rebound in Singapore’s economy, the stabilisation of rents across the retail, office and industrial property sub-sectors  as well as the steady performance and lower refinancing risk of many S-REITs.

The simplicity of S-REITs as an investment instrument, their strong underlying fundamentals and relatively risk averse nature continue to make them an attractive option for investors. The S-REIT market has developed and matured over the last eight years, in size as well as in complexity and depth. S-REIT portfolios now cover a wide array of assets in retail, commercial, industrial, healthcare, hospitality and residential sectors, all of which are situated in diverse locations around the region. Investors in REITs have also evolved and now look towards the potential of a REIT’s property portfolio. These include factors such as asset type, geographical location, occupancy rates, demographics, lease terms, tenant quality and diversity, all of which combine to provide support for the portfolio’s aggregate rental income and in turn the sustainability and stability of the REIT’s distributable income. Investors also consider the REIT manager as this directly involves the development and implementation of the REIT’s investment strategy, the management of its portfolio and capital structure to foster long-term profitability.

Read complete research paper here.

Saizen REIT: More buying interest.

I received an email from a reader today saying:

"Seems like u like japan. Saizen see pick up in vol today and yesterday"

My reply:

"I like Japan a lot. Beautiful country, nice people, good food. Everything works. It is like Singapore but costs more.

"Saizen REIT is very undervalued. It is a matter of time that more investors take notice. It also takes time for its troubled past to fade. I have been holding for a year. I can wait a few more months."

Reader's reply:

"About one of your question, if the yield at 6.5% is attractive. I think the current yield is not attractive, and if the price goes up, the yield will fall further?

"Even though it has upside potential due to the NAV, it may be cap by the yield, unless the revenues improve?"

My reply:

"6.5% is attractive because the properties are Freehold. It is perpetual. If the properties are leasehold, then, it is not very attractive.

"For such a portfolio, a fair yield should be 5% which means unit price should be about 21c."

This reader is not the only person with negative perceptions or reservations about Saizen REIT, I am sure. There are also those who are worried about Japan's future which includes its debts and its demographics. I have voiced my opinion about these concerns before and you might want to read it here.

How do I feel towards these negative feelings and perceptions? Glad. Yes, glad.  There are still many doubters and the wall of worries is still intact. When everyone is bullish about something, that is a sign that we should think of exiting.

However, I noticed that there seems to be more buying interest in Saizen REIT today too. Of 3,260 lots that changed hands today, 2,968 lots were bought up at 16c. This could just be an anomaly or this could be the beginning of something bigger. Who can say for sure? A crack in the wall of worries? Perhaps.

The very thin trading volume of this counter makes TA unreliable but, for want of a better tool, let us look at the charts anyway. In end May and early October, Saizen REIT touched a low of 15c. It is interesting to note that the MACD has formed a higher low in early October. This is interpreted as a positive. The MACD has, in fact, moved higher into positive territory which suggests the return of positive momentum.

The MFI, a function of volume and price, is in oversold territory. The OBV does not show any big moves of accumulation or distribution. All the daily MAs seem to be bunching together. I have seen such a gathering before and likened it to a spring coiling up with tension. The 20dMA is set to complete a golden cross with the 50dMA. Immediate resistance at 16c.  Immediate support at 15.5c.

Let us now look at the weekly chart which could be revealing for a counter with such thin trading volume like Saizen REIT. It is immediately apparent that 16c is a formidable resistance level as that is where we find the merged 20w and 50w MAs.  However, the gently upturning 100wMA and the rising MACD which just did a bullish crossover with the signal line suggests that the longer term trend of Saizen REIT is positive.

Related post:
Saizen REIT: AGM on 19 Oct 10.

Golden Agriculture: Up or down?

Golden Agriculture's share price staged a recovery today, forming a short white candle, closing at 68c. Note that the price moved higher today on relatively low volume. Since 18 Oct, this is the counter's second attempt to move higher. We need to see volume expansion to have a meaningful upward movement in price that is sustainable at the same time.

Would the rising 20dMA be able to push the price higher? My suspicion is that sellers would turn out in force if price moves closer to 70c as it is a thrice tested resistance in recent memory.  Therefore, 70c remains the resistance to watch.

Critical support is at 65c. If this were to break with high volume, we could see price retreating to 61c, a possible resistance turned support and this is also where the rising 50dMA is approximating soon.

Golden Agri +5.3%; Positive press helps a tad: Analyst. Analyst adds, fundamentally, no impact on company, RSPO compliance actually a money-losing issue, estimates RSPO compliance cost at U$3/tonne. “It’s a PR issue for Golden Agri, and now they’ve got some positive press, the stock has moved up.” $0.705 recent peak may cap medium term.
Monday, 01 November 2010

© 2010 - The Edge Singapore

NOL: $2.21 and moving higher?

NOL's share price pushed higher today, forming a nice white candle, to close at $2.21, just 2c shy of the intra day high at $2.23. Volume expanded nicely as well.

All technical indicators show that the uptrend has positive momentum: MFI has formed higher lows suggesting a sustained demand and this is reinforced by the OBV which shows consistent accumulation. Every single pullback in NOL's share price in the past few months was an opportunity to accumulate, it would seem.

Taking in the Fibo lines, we could see 138.2%, which coincides with the high of 15 April, retested.  This is at $2.35. This, of course, is based on the assumption that the current bullish momentum follows through. With the MFI poised to enter overbought territory, taking some profits off the table in such a situation is not a bad idea although in extremely bullish conditions, the MFI could stay overbought for a long while.

Rare earth minerals: A new old frontier?

On 21 Oct, I blogged about rare earth minerals and how China mines 93% of the world's supply.  I concluded the blog post by saying "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."

Well, the recent belligerent attitude of China towards its trading partners in the West could possibly backfire at least in the rare earth minerals trading department as I read this just now:

The rising global demand for rare earth metals - the elements needed to make items like hybrid electric cars and laptop batteries - have caused the value of rare earths mining companies to soar in just a few months.

We've told you about one company, Rare Element Resources, that saw its stock surge 1200% in the last year.

But China's outright monopoly in the industry, along with fears that it will cut down on its rare earth exports, are driving plenty of other stocks higher too.

Posted Oct 28, 2010 01:00pm EDT by Gregory White and Hannah Kim, Yahoo! Finance.

Read article here.

Related post:
Control of non-renewable resources!

Tea with AK71: Hand sanitiser.

I started using hand sanitisers after the SARS outbreak years ago. Basically, everyone became a bit more conscious of the need for good personal hygiene. It is very sad but we usually need some earth shattering tragedy to effect some positive changes in society. I guess society evolves more rapidly due to such seismic events.

For many years now, I carry in my sling bag a small bottle of hand sanitiser. I would use it before meals or after doing some work with my hands. It gives me a peace of mind.

In the last two or three years, I switched to Dettol's hand sanitiser as it is the only one that did not leave a sticky feeling after use. The stickiness from using hand sanitisers is what puts off some people.  Dettol's formula solved that problem although it costs more.

Today, while driving to work, I saw a large bus ad announcing that Dettol's hand sanitiser kills 99.9% of all bacteria.  I guess this claim must be on the bottle too but I never really bothered to think about it before.  99.9% of all bacteria? What are the 0.1% of bacteria that remain alive and well?

Is that statement just a quantitative one which means that the sanitiser kills all types of bacteria but some are lucky enough to fall through the cracks? Or is the statement a qualitative one which means it kills 99.9% of all types of bacteria but 0.1% of bacteria types are so strong that they could resist elimination?  I would be very worried if 0.1% of bacteria types are strong enough to resist elimination!

Mapletree Commercial Trust: IPO in early 2011.

For anyone who did not get any shares in MIT's IPO, here's a chance to own some of Mapletree Commercial Trust's. This is a S$1.3 billion IPO expected to take place early next year.

The commercial REIT will draw its initial portfolio from Mapletree Investments’ $6.4 billion worth of Singapore commercial properties, including assets like Vivocity, the island’s largest mall, and several office buildings west of the city-state’s central business district. 

Besides its plan to list its commercial trust, Mapletree Investments also intends to launch several private property funds including a US$300 million Japan fund focused on IT-related infrastructure, a US$300-500 million Vietnam fund in which Mapletree may inject existing commercial and residential projects, and a US$500 million China-focused fund that will invest in a wide range of sectors.

Read full article here:

Mapletree hires bankers for $1.3b IPO: Update
Friday, 29 October 2010

© 2010 - The Edge Singapore

Tea with AK71: A better car.

Reading the latest issue of Newsweek and this really makes sense:

"Instead of jumping through hoops to make an electric car that most people can't even afford, why not just develop an internal-combustion engine that gets really amazing gas mileage? That's the premise of Troy, Michigan based EcoMotors...."

"Our carbon footprint will be smaller than a full blown electric car running on electricity generated in the U.S., where about 50 percent of electricity is made by coal.  In places like China, where 90 percent of the electricity comes from coal, we'll be far below the carbon footprint of an electric car," says EcoMotors CEO Don Runkle.."

Source:  "Finding more in the tank" by Daniel Lyons in Newsweek, 1 Nov 10.

I have never heard people questioning whether electric cars are really environmentally friendlier, questioning how the electricity that would run the cars is produced.  This is a pertinent question.

There is also the question of wastage as other forms of fuel are combusted to produce electricity which would in turn run the electric cars.  How much is wasted in the conversion process? Would it not be better to build a more efficient internal combustion engine?

I am not an engineer but this idea makes a lot of sense to me. Any thoughts?

AIMS AMP Capital Industrial REIT: 2Q FY2011.

The REIT saw lots of buying interest today as more than four fifth of the 49 trades were Buy Ups at 22.5c, a total of 1,613 lots out of a total of 1,923 lots that changed hands. I guess market participants were expecting a good set of numbers today as the management reported on its 2Q FY2011 results after market closed at about 7pm.

DPU for the quarter which would be payable on 17 Dec 10 is 0.3968c instead of the anticipated 0.52c.  This is because of the issue of 513.3 million rights units on 14 October 2010 and 7.2 million units to the Manager on 19 October 2010 for payment of the acquisition fee in relation to the acquisition of 27 Penjuru Lane.

Distributable income from 27 Penjuru Lane would be included in the next distribution, not this one, since the acquisition was done in 3Q FY2011 and not in 2Q FY2011.  Expect the DPU for 3Q2011 to be much higher, therefore.

Substantial Unitholders:
16.07%  AMP Capital Investors (Luxembourg No. 4)
11.46%  Dragon Pacific Assets Limited
9.45%   APG Algemene Pensioen Groep N.V
8.24%   Universities Superannuation Scheme Limited
7.65%   George Wang

I have mentioned a few times before that I am waiting to accumulate more at 21.5c. The last time I said this was on 25 Oct: "A reason why I am not in a hurry to accumulate is because I already have a sizeable investment in this REIT. I don't need to accumulate at 22c. I can wait. The technicals suggest that waiting might not be a bad idea too."

If there should be some panic selling next Monday, I would be ready to buy more.

See presentation slides here.

Related post:
AIMS AMP Capital Industrial REIT: Accumulation price?

FCOT: Testing supports.

On 22 Oct, when I blogged about FCOT turning around, I suggested that 17c is a formidable resistance and we know that buying at resistance is not a good idea. We want to buy at supports and, strictly speaking, these supports should be confirmed.

"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....

"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."

Closing today above the 20dMA at 16c shows that the shorter term uptrend is still intact although price did touch an intra day low of 15.5c.

What are the chances of price declining further? No one can say for sure but it is obvious that upside momentum is somewhat limited with the RSI forming a lower high and the MACD poised to form a bearish crossover with the signal line.

Although the MFI has formed higher lows, which suggest sustained demand, we could see it retreating to retest its uptrend line or 50%.  So, I won't be surprised to see price declining a tad more and/or volume declining further.

With the fundamentals having improved, buying in at 15.5c or 15c seems like a good idea for a possible annualised DPU of 1.24c, assuming that the last quarterly DPU of 0.31c is sustainable.  This would translate to a yield of 8% at the entry price of 15.5c.  Pretty decent.

Related post:
FCOT: Turning around.

Saizen REIT: Divestment of Kamei Five.

Saizen REIT's YK Shintoku portfolio divested a smallish property, Kamei Five, today for JPY 70,401,250 (S$1.1 million). This piece of real estate is located in Hiroshima, was built in July 1989 and comprises 22 residential units, 2 commercial units and 2 car park lots.

A quick check in the annual report shows that Kamei Five was 92% occupied as of 30 June 2010 and took in JPY 9.9 million in annual rental income. That represents a gross income yield of 14%! What would I not do to buy a building from YK Shintoku's portfolio.

"Following loan repayment using sale proceeds from the divestment of Kamei Five, the remaining balance of the loan of YK Shintoku is estimated to be approximately JPY 5.9 billion (S$94.6 million). Taking into account applicable cash reserves of JPY 0.6 billion (S$9.6 million) maintained by YK Shintoku under the loan agreement, the net outstanding loan of YK Shintoku amounts to approximately JPY 5.3 billion (S$84.9 million)." Read announcement here.

On another matter, Saizen REIT’s quarterly financial results for the period ended 30 September 2010 will be released before market opens on Wednesday, 10 November 2010.

Related post:
Saizen REIT: AGM on 19 Oct 10.
Saizen REIT's properties: Would I buy?

Suntec REIT: BUY calls.

Suntec REIT is enjoying BUY calls from DBS Vickers and CIMB even as it prepares to acquire a one third stake in MBFC. Some salient points:

DBS Vickers

The group revalued up portfolio by 3.6% translating to NAV of $1.828/share. Going forward, Suntec has c14% of office and 27% of retail NLA due for reversion in 2011 and we expect office rents to show some uptick while retail component to remain stable.

Recent refinancing exercise of $700m due in FY12 are likely to lower its current overall cost of debt of 3.77% as the new loans were concluded at a lower spread of 1.5%, as well as smoothen out the group’s debt maturity profile.

We are tweaking our FY11 numbers by 3.1% to reflect the impact of recent refinancing exercise but exclude the effect of the MBFC1 acquisition. Maintain Buy call pending more information on the transaction. Based on FY10 and FY11 DPU of 9.8cts and 9.7cts, Suntec is trading at decent DPU yields of 6.3-6.2%. Our target price of $1.66 offers 12% total return.

CIMB

3Q10 NPI grew 7.6% yoy, led mainly by a 2.1% yoy increase in gross revenue on stronger office contributions and a lower property tax. Portfolio occupancy continued to strengthen on the back of better office occupancy which mitigated lower retail occupancy in the quarter.

Our DDM-based target price, however, has been raised to S$1.63 (discount rate 8.1%) from S$1.60 as we roll over to end-CY11. Maintain Outperform on further improvements in the retail and office outlook. We see near-term catalysts from more concrete signs of DPU accretion from the latest acquisition.

I would wait for the circular on the proposed acquisition and method of financing to be released to unitholders before commenting further.

Related post:
Suntec REIT: MBFC.