Portfolio Review 3Q11

Currently holding on to 8 counters (see Portfolio Review 1Q10 for 1-3, Portfolio Review 2Q10 for 4, Portfolio Review 4Q10 for 5-7 and Portfolio Review 1Q11 for 8):

1. FrasersCT
2. PLife
3. Starhill
4. Cache
5. First REIT
6. Pacific Shipping Trust
7. Sabana
8. Cambridge
   

Next portfolio review due after 31 December 2011.

Note to self: only simple P/L calculated

Remark: first quarterly decline in portfolio net value since inception (refer to spreadsheet) =(

Stock Portfolio Update Aug/Sep 2011

Continuing on from Stock Portfolio Update May/June 2011,

• August 2011
  Added to PST and Sabana existing holdings
  
• 25 August 2011
  Collected dividends from Cambridge
• 29 August 2011
  Collected dividends from FCT, Starhill, Cache, First REIT and PST
• 6 September 2011
  Collected dividends from Sabana
• 8 September 2011
  Collected dividends from PLife

REITs Performance II

Out of curiosity, I investigated how selected REITs performed against the STI during the recent market volatility this past week or so.

From the chart, it appears to me that:

• Ascendas and PLife were the top performers from this list during the reference period;
• Ascott, FCT, K-REIT and perhaps Suntec generally performed better than the STI;
• CMT and MLT more or less tracked the STI closely;
• CCT generally performed worse than the STI; and
• CDLHT was the bottom performer from this list during the reference period.

Hope this might be interesting to some =)

AUD / NZD Update July 2011

It has been some time since my brother and I started our AUD & NZD fixed deposits, more specifically we are just one quarter short of 3 years.

Despite being hit by the financial crisis worldwide interest rate cuts, the interest rates have stabilised at around 4% and 2% respectively (source: OCBC 3-mth tenure rates). Although these are not fantastic returns, AUD and NZD remain the highest-yielding foreign currencies.

The main risk for foreign currency investment of course is that the exchange rate with your home currency becomes unfavourable for changing back (i.e. the worst case scenario will be that the home currency strengthens so much that the interest does not even cover back the shortfall, giving an overall loss of capital).

ILP Update July 2011

Having reached three years for my ILP, it was useful for me to take stock of where it currently stands. The reason for this is simple: in Year 1, a hefty penalty is imposed where only 15% of premiums paid is allocated to investment, this increases to 60% in years 2-3 and to 102% from years 4-6, thereafter from year 7 onwards, 105% is allocated to investment.


Looking at the graph plotted for premiums paid (blue) and amount allocated to investment (red), one can see the change in gradient of the red line to reflect the higher percentage in years 2-3 compared to year 1. What is disappointing to me is that the green data points for cash values are not consistently above the red line. This means that after deducting all expenses, the fund is not yet making money for me. For now I am continuing to monitor. After all, with the Europe and US debt situations not being healthy, this has had a toll on equity markets which have been pretty range-bound.

Ultimately, I would hope for the green points to go above the red line first and then the blue line over the long run. Only time will tell if these ILPs are worth it for private investors like myself.

REITs Screening Criteria II

For some time, REITs have been my preferred investment instrument. As mentioned in an earlier post, some screening criteria which I had formulated are:

1. Low gearing, i.e. < 35%
2. Presence of a sponsor, preferably a strong one, eg. Capitaland, F&N, etc
   
   
3. High yield, preferably > 8% p.a.
4. Discount to NAV, i.e. paying less for more
   
   
5. Quarterly distributions (as opposed to semi-annually)
6. Portfolio mainly in Singapore

The reader can perhaps notice that the list of 6 is split into 2-2-2. My current thinking is that 1-2 now form the 'pre-requisites' (i.e. the counter should possess these two characteristics before I even begin to consider entering), 3-4 would then constitute the 'buy signals' (i.e. they will indicate to me when to enter the market) and 5-6 are 'preferables' (i.e. good to have but not a must for me at this point in time).

Pre-requisites
These should be self-explanatory, although the strength of a sponsor can be debatable. For me, I should frequently remind myself of the 2008 financial crisis during when credit had dried up to a trickle. During such times, low gearing helps REITs to remain on a stable footing and having a sponsor would perhaps increase the REIT's chances of securing hard-found credit.

Buy signals
I have an untested and unproven theory that the market prices of REITs generally have upper and lower bounds. Based on my own observations, there are possibly two metrics:

• Yield
  Defined simplistically as (quarterly DPU x 4 / market price), each individual REIT's price might fluctuate within a certain range. This range would vary from REIT to REIT depending on the strength of its sponsor, past reputation, etc. When the market price falls to a point where the computed yield based on the last announced DPU reaches the upper bound of the range, this may present a buying opportunity.
  
• P/NAV
  Similarly for the P/NAV ratio, this might again fluctuate within a certain range which would vary depending on the sponsor, reputation, etc. At the low end of this range, a buy signal may be detected.

Preferables
Just to remind myself, quarterly distributions are better for me in terms of my personal cashflow and having its portfolio mainly in Singapore will enable me to have a more intimate feel of a REIT's operations.


For future posts on this topic, my self-assigned homework is to collate past records of yield and P/NAV to verify or disprove my theory on buy signals.

Cheers!

Disclaimer: these represent merely my own personal amateurish views on the subject =)

Portfolio Review 2Q11

Currently holding on to 8 counters (see Portfolio Review 1Q10 for 1-3, Portfolio Review 2Q10 for 4, Portfolio Review 4Q10 for 5-7 and Portfolio Review 1Q11 for 8):

1. FrasersCT
2. PLife
3. Starhill
4. Cache
5. First REIT
6. Pacific Shipping Trust
7. Sabana
8. Cambridge
   

Next portfolio review due after 30 September.

Note to self: only simple P/L calculated

Stock Portfolio Update May/June 2011

Continuing on from Stock Portfolio Update Jan/Feb 2011,

• May 2011
  Added to PST existing holdings
  
• 30 May 2011
  Collected dividends from FCT, Cache, First REIT and PST
• 31 May 2011
  Collected dividends from Starhill
• 8 June 2011
  Collected dividends from PLife
• 14 June 2011
  Collected dividends from Cambridge
• 16 June 2011
  Collected dividends from Sabana

Rights Issue

Thus far, I have twice had the opportunity of participating in a rights issue. For an investor in REITs, one should always be prepared for such exercises, especially in the current climate of acquisitions and increasing gearing levels (read Debt turns from foe to friend for many Reits).


When a REIT is seeking funds, there are various avenues open to it:

• Debt
  This is the most straightforward and directly results in an increase in gearing level. Recall that the subprime crisis in 2008 had resulted in the collapse of the CMBS market and caused some S-REITs to face refinancing woes (more specifically, Saizen comes to mind). Being neither a financial expert nor economist, I do not claim to understand the subprime crisis nor CMBS at all but to my simple mind, continually taking on debt can't be a good thing.
• Private placement
  My earliest experience of an acquisition by one of the REITs which I was holding was with FCT, Northpoint 2 & Yew Tee Point malls. FCT went the route of private placement with institutional investors. For the retail investor such as myself, what one should probably look out for is that the placement shares are not overly discounted and that the institutions to which the shares are placed out to are reputable ones. The advantage here is that the retail investor does not need to fork out any money for the acquisition(s) but faces a certain amount of dilution risk.
• Bonds
  Recently, CMT issued the first retail bonds by an S-REIT. This was overall 1.9 times subscribed and in particular, the public offer portion was 4 times subscribed. Going forward, tapping on the fixed income market might be an increasingly viable option for S-REITs now that a precedent has been set.
• Rights issue
  Possibly the most popular means of fund-raising with retail investors, this offers the chance of accumulating more units at a discounted price to the market. On the flipside, if one does not have the means of participating in the rights issue, one might face the double whammy of loss of capital (in a rights issue, the share price will drop to the TERP or thereabouts due to simple dilution) and a drop in dividend stream (again due to dilution but the extent largely depends on the purpose to which the funds are used for, ranging from acquisitions to AEI to paying down of debt, etc.)

This is not an exhaustive list and there are more exotic fund raising means such as CPPUs as well as combinations of the above.

As mentioned in the opener, I had participated in two such rights issues: First REIT and Cambridge. These two occurred in contrasting situations. For the former, I was not a unitholder and specifically bought into the counter so as to be allocated the rights units; for the latter, I had bought into the counter just before the rights issue was announced and for better or for worse, decided to simply go along with the exercise.

On hindsight now, both turned out to be profitable moves as the two counters managed to stay above the TERP after the rights units started trading pari passu. Furthermore, I tried my luck at excess rights for Cambridge in an attempt to round up my odd lots and was successful. Speaking of which, this last brings me to a final point on odd lots.

On occasion, retail investors may be stuck with odd lots in a rights issue exercise. To remedy this, there are a few possible ways:

• During the CR period, buy or sell units such that the number of lots held is a multiple of y in an x-for-y rights issue. For instance, in a 1-for-8 rights issue, one should hold 8, 16, 24, ... lots to avoid being allocated odd lots.
• During the trading period of rights, there will usually be a separate counter to trade rights, including one for odd lots denoted by a number at the end which indicates the board size. To continue with the 1-for-8 example, this will mean that there is a counter zzz 25 for trading in board sizes of 25. One thing to note though is that the overheads for trading rights can be significant since the dollar amounts will be smaller than that for trading the mother share.
• Arguably the most cost-effective and convenient way is to apply for excess rights when making the payment at the ATM for the rights units, since one will directly reap the benefits of the discounted price without going through the hassle of trading on the market.

Happy Easter to all =)

Stock Portfolio Update Jan/Feb 2011

Continuing on from Stock Portfolio Update Nov/Dec 2010,

• 5 Feb 2010 - 4 Jan 2011
  Bought Saizen warrant at $0.070 and sold at $0.075
• 28 Feb 2010
  Collected dividends from FCT, PLife, Starhill, Cache, First REIT and PST
  

Portfolio Review 1Q11

One transaction completed:

1. Saizen warrant
   
   • Buy
     Probable DPU resumption in 2010 -> possible share price re-rating by market
   • Sell
     See Portfolio Review 4Q10
     

Currently holding on to 8 counters (see Portfolio Review 1Q10 for 1-3, Portfolio Review 2Q10 for 4 and Portfolio Review 4Q10 for 5-7):

1. FrasersCT
2. PLife
3. Starhill
4. Cache
5. First REIT
   
6. Pacific Shipping Trust
   
7. Sabana
   
8. Cambridge
   
   • Buy
     Gearing has been progressively lowered through periodic repayment of debt and is around 33.4% after the latest round of paying down approximately S$20.0 million on 17 February 2011 (cf. gearing level of >40% in the early part of 2010, see From the Beginning...), but continues to offer high yield of >9% at ~50cents
     Cessation of Distribution Reinvestment Plan -> no DPU dilution resulting from DRP ("Distribution Reinvestment Plan
     The Manager has been informed by the Ministry of Finance on 17 December 2010 that the Distribution Reinvestment Plan (“DRP”) for REITs will not be extended beyond 31December 2010.")
     

Next portfolio review due after 30 June 2011.

Note to self: no P/L and NAV calculations due to ongoing rights issue by Cambridge

Sixth time (un)lucky?

Previously for IPO applications...

CMA - unsuccessful
Ryobi Kiso - unsuccessful
Cache - successful (see Third time lucky)

MIT - unsuccessful
STX OSV - unsuccessful
Sabana - successful (again only allotted one lot as is the norm for applications of less than 10 lots)

Alas...

"Sabana REIT falls on market debut

Sabana Shariah Compliant REIT , which owns industrial properties, fell on its debut in Singapore on Friday, weighed down by jittery market sentiment.

At 2:05 p.m., Sabana REIT was traded at $1.00 with 15.9 million shares traded. The shares traded as low as $0.97 -- 7.6% below the initial public offering price of $1.05.

Sabana REIT, Singapore’s first Islamic REIT and the world’s largest shariah-compliant property trust, sold 508 million units at $1.05 each in its IPO. The IPO was 2.5 times subscribed.

Sabana controls 15 industrial properties in Singapore with an aggregate floor area of about 3.3 million square feet."

Guess only time will tell how this is going to turn out...

Note to self: Low of $0.97 on first day of trading, @$0.96 annualised yield for Sabana will be ~9% in 2011; with a purchase of a further two lots @$0.96, average unit cost for me will be $0.99 and blended yield of Sabana holdings will be 8.72% in 2011

Portfolio Review 4Q10

One transaction completed:

1. Suntec
   
   • Buy
     MBS and Esplanade + Promenade Circle Line MRT stations catalysts
     Retail strength in central CBD area
     Only mixed office and retail REIT -> diversification within a single REIT
   • Sell
     Decreasing dividends from falling office rentals and dilution through issuance of new units (placement and deferred)
     Proposed acquisition of one-third stake in MBFC financed by private placement and term loan will result in lower DPU for unitholders (10.915cents to 9.812cents) -> not at all beneficial to unitholders not entitled to placement units
     

Currently holding on to 7 counters (see Portfolio Review 1Q10 for 1-4 and Portfolio Review 2Q10 for 5):

1. FrasersCT
2. PLife
3. Starhill
4. Saizen warrant
5. Cache
6. First REIT
   
   • Buy
     Proposed acquisition of two Jakarta hospitals (Mochtar Riady Comprehensive Cancer Centre and Siloam Hospitals Lippo Cikarang) financed by rights issue and term loan
     Rights units priced attractively (discount of ~47% to closing price ~1 week before announcement) -> beneficial to new unitholders
     Healthcare is a defensive sector -> stable DPU (cf. PLife)
7. Pacific Shipping Trust
   
   • Buy
     Counter is traded in USD but settled in SGD (see Taking advantage of the falling US dollar)
     Acquisition of non-container vessels (two Capesize Bulk Carriers chartered to Jiangsu Shagang Group Co., two Multi-Purpose Vessels chartered to Cosco Xiamen and five Supramax Bulk Carriers chartered to Glovis) -> diversification of fleet and widening of charterer base
8. Sabana
   
   • Buy
     First Syariah-compliant REIT here in Singapore
     Luck with IPO balloting for public (see Sixth time (un)lucky)? entry)

Next portfolio review due after 31 March 2011.


Looking to hold
There were three counters which I held for the the entire 2010: Frasers Centrepoint Trust, Parkway Life and Starhill Global. Definitely, if distributions remain stable, I would continue to sit tight on these three and collect the quarterly dividends.

Looking to add
Of the remaining counters in my existing portfolio, four continue to have relatively high yields at current prices: First REIT, Cache Logistics Trust, Sabana and Pacific Shipping Trust. Cache and Sabana (and also MIT) are the new kids on the block for S-REITs and they remain largely unproven. First REIT has just undergone a rights issue to acquire two hospitals in Indonesia and there are always country risks to consider but otherwise, comments from the online community on the stability of its payouts have been favourable. As for Pacific Shipping Trust, of late it has been on a policy of acquisitions towards diversification of its fleet and I personally view this positively. Also, it has seemed to be the most prudent in its distribution policy and relatively free of counter-party risks compared to the other two shipping trusts (First Ship Lease Trust and Rickmers). However, as it is traded in USD, there are foreign exchange currency risks and one would have to keep an eye out for SGD/USD rates in addition to the share price.

Looking to release
The last counter which I am holding on to is the Saizen warrants. This was more of an opportunistic purchase to take advantage of a possible boost in share price from the resumption of distributions for this trouble-plagued REIT, so as to hopefully make some capital gains. Alas, I missed the window to sell when the price climbed for a bit earlier in the year and I will be looking to release it if there should be another similar window of opportunity to sell.


Finally, here's wishing everyone good fortunes in 2011 and a better year ahead!

~ Happy New Year! ~

Stock Portfolio Update Nov/Dec 2010

Continuing on from Stock Portfolio Update Aug/Sep 2010,

• 7 Aug 2009 - 15 Nov 2010
  Bought Suntec at $0.985 and sold at $1.47
• 29 Nov, 13 Dec 2010
  Collected dividends from FCT, Suntec, Starhill, Cache and PLife
  
  

Taking advantage of the falling US dollar

With SGD hitting an all-time high against the USD, I was very much interested to find out how I could turn this situation to my advantage.

After mulling over this for some time, I came up with the following list:

• Changing some SGD for USD at the moneychanger
  I was at Suntec over the weekend and saw a long queue at the moneychanger opposite Watsons, guess some people like to keep physical cash or they are going to the US for a well-timed holiday.
• Changing some SGD for USD and keeping it in a bank account
  I was looking at some foreign currency accounts and concluded that unless you have use of USD in your daily work or otherwise, there was not much point in opening such an account.
• Buying into USD-denominated shares on the Singapore stock exchange
  STI component stocks denominated in USD include Jardine Matheson Holdings and Jardine Strategic Holdings. However, valuations appear to me to be on the high side right now. Besides, I was also none too familiar with these two counters.
• Buying the upcoming American Depositary Receipts (ADRs) quoted on the Singapore stock exchange
  By chance, I came across this piece of news, saying that SGX will quote ADRs of 19 major Asian companies from 22 October 2010. Coincidentally, that was next week.

From the list, we can see some of the big companies in China right now. Personally, I am most interested in Baidu. Firstly, it has the highest 6-month daily turnover in the list, reflecting a high level of liquidity. Secondly, with the exit of Google from China, this opens up an opportunity for other search providers such as Baidu. Thirdly, the China growth story is arguably the current flavour of the times, and Baidu is well-placed to ride on this.

For now, I am content to adopt a wait-and-see attitude first but definitely, I am looking to get in on a slice of the action. Good luck to all!

Portfolio Review 3Q10

Currently holding on to 6 counters (see Portfolio Review 1Q10 for 1-5 and Portfolio Review 2Q10 for 6):

1. FrasersCT
2. Suntec
3. PLife
4. Starhill
5. Saizen warrant
6. Cache

Next portfolio review due after 31 December.

Note to self: NAV includes realised P/L, fees and dividends. Performance vs. STI measures only paper value.

Stock Portfolio Update Aug/Sep 2010

Continuing on from Stock Portfolio Update May/June 2010,

• 27 Aug, 9 Sep 2010
  Collected dividends from FCT, Suntec, Starhill and PLife
  

REITs Performance I

Due to the uncertainty surrounding the strength of the global economic recovery, the general consensus seems to be that the STI is pretty much range bound. In such an environment, stock picking becomes even more crucial in sieving out the likely outperformers.

REITs are no exception to this.

The table shows the month end prices for selected REITs with the STI as the last row for reference. To illustrate the point more clearly, a graphical form in terms of percentages is presented next.

I observed that amongst these, there were three that consistently outperformed the STI:

1. PLife
2. CDLHT
3. MLT
   

In a previous post, I had already highlighted CDLHT's potential.

MLT's strong performance could be attributed to its string of recent yield-accretive acquisitions. PLife is not so clear to me though. On 27th of August, it jumped 9c from 1.44 to 1.53 on volume of 1.262m and on 31st of August, it jumped 7c from 1.51 to 1.58 on volume of 3.48m, both days without any announcements.

Going forward, I would favour a sectorial-cum-sponsor approach in the S-REITs market.

The hospitality sector is clearly benefiting from the IR tourism effect, which could spill over into the retail sector. Industrial rents seem stable enough and office rents appear to be bottoming. As for healthcare, its rental has all along been pegged to CPI and can be seen as a defensive play.

Strong sponsors would include Capitaland, Ascendas, CDL, Keppel Land, Mapletree, F & N, Parkway, in essence all those which I deemed fit to include in the table and graph.

One last thing I would keep my eye on is the Mapletree Industrial Trust IPO planned for later this year. I would definitely subscribe for it if and when it does materialise =)

AUD / NZD Update July August 2010

Status quo on the AUD front, whilst NZD rate continues to rise (see below).

Reserve Bank of Australia (RBA) media release statement on monetary policy decision found below:

At its meeting today, the Board decided to leave the cash rate unchanged at 4.5 per cent.
... (statement continues in a similar vein to previous releases)

Reserve Bank of New Zealand (RBNZ) news release on the Official Cash Rate (OCR) found below:

The Reserve Bank today increased the Official Cash Rate (OCR) by 25 basis points to 3.0 percent.

Reserve Bank Governor Alan Bollard said: “While the outlook for economic growth has softened somewhat, it is still appropriate to continue to reduce the extraordinary level of support implemented during the 2008/09 recession.

“The world economy continues its fragile recovery. Trading partner growth has turned out stronger than we predicted, however, future prospects for growth have deteriorated. While still at high levels, our commodity prices have moderated.

“In New Zealand, domestic demand is subdued. Households are cautious, with retail spending growing only modestly, housing turnover in decline and household credit growth weak. While this caution has been evident for some time, the recent slowing in net immigration will act to further dampen consumer spending. Business investment remains very low, with corporate lending continuing to be subdued.

“The New Zealand dollar has appreciated in recent weeks. This appreciation is inconsistent with the softening in New Zealand’s economic outlook and moderation in our export commodity prices.

“Overall, we continue to predict respectable near-term GDP growth, with manufacturing confidence remaining elevated and forestry exports continuing to expand. An eventual recovery in business investment will assist growth over the medium term.

“Annual CPI inflation has been near 2 percent for the past five quarters. As the economy grows, inflationary pressures are expected to pick up.

“Given this, some further removal of monetary policy stimulus is appropriate at this stage. Even after today’s move, the level of the OCR is still very supportive of economic activity. The pace and extent of further OCR increases is likely to be more moderate than was projected in the June Statement. Our policy assessment will be continually reviewed in light of economic and financial market developments.

“The coming increase in the rate of GST and other government-related price changes are likely to temporarily push annual CPI inflation above 3 percent. The Bank does not expect this price spike to have a lasting impact on inflation. However, the price and wage setting behaviour of firms and households will be monitored for evidence of any increase in inflation expectations.”

Discount to NAV / Analyst TP

In an earlier post on REITs, one screening criterion I mentioned was that of discount to NAV, akin to the notion of paying less than what something is actually worth. Recently, while reading through some analyst reports, another idea struck me, that of discount to analyst target price.

From what I can gather, most if not all of these analyst houses use some sort of discounted cash flow (DCF) method to arrive at their forward target prices (TP). Simply put, NAV is like the current valuation of a house (less the purchase loan), and a DCF TP is like what the house is worth based on the future rental income (forecasted) that it can fetch.

Below is a summary of the target prices gathered from 9 institutions for S-REITs.
Those highlighted in green are those with current discounts of >10% to both NAV and TP.
Those highlighted in red are those with current discount of >10% to NAV.
Those highlighted in yellow are those with current discount of >10% to TP.

Of the highlighted REITs, one in particular has caught my eye: CDLHT. It does not have the highest discount to the average TP at 14%, but shifting our attention to the other column, we see that it does have the highest premium to NAV of not just the highlighted selections, but of all the S-REITs, at 28%.

Evidently, the analysts must be seeing something that the market perhaps does not. Upon closer inspection of the analyst reports on CDLHT, I have picked out two main factors for the apparent optimism.

1. Strong balance sheet, especially after the recent placement exercise, points to probable acquisitions which would act as price catalysts
2. Singapore tourism boom with the improving global economy and further boosted by the opening of the two IRs

In my opinion, these seem sufficiently justified.

Normally, people pick stocks either as growth counters (for capital appreciation) or as defensive counters (for dividends). However, where possible, I would like to have a bit of both. Previously, I would choose a REIT primarily for its dividend yield, and then for its price appreciation as a secondary objective. Barring a double dip recession, which looks increasingly unlikely to me, the STI might just fluctuate within a range. In such a case, buying a REIT such as CDLHT would be first for price appreciation since the yield might not reach interesting enough levels for me when the market goes down. And if I manage to catch the CD period then even better, although that would only be at year end since CDLHT has a semi-annual policy and the first half dividends had been brought forward due to the placement exercise.

In the meantime, my rough guideline for entry into CDLHT would be the placement price of $1.71 plus minus, to be refined further with TA. Cheers!