REITs: Simply explained?

The diversity of opinions in this world is what makes it colorful and interesting.  Everyone is free to express his opinions on diverse subjects.  We should remember, however, it is not just what is said which is important.  Of equal importance is how it is said.

I have been following a series of posts on the subject of REITs by a certain local blogger. Are his posts on REITs objective? I don't think so but I respect the blogger's right to express his opinions and I am sure readers will arrive at their own conclusions.  However, I do hope that this blogger would exercise restraint and not make insinuations beyond what is civil.

In his latest post, he took a quote from the writings of another blogger:

"For those existing investors who could raise the capital to subscribe for their rights, they are returning most (if not all or more) of the dividends they had collected back to the REIT. Don’t let the discounted price fool you as you are essentially paying just to maintain your percentage shareholding in the REIT." -Lion Investor

The blogger whom I am taking issue with went on to say:

I can't agree more with the truth on "the discounted price fool" as I recently overheard some joys near the Temple of Cows over AIMS AMP Capital Industrial REIT's right issues - discounted price fools?

Firstly, Lion Investor was expressing an opinion about how we should exercise caution and not let discounted price of rights fool us into thinking we are getting a good deal.  The word "fool" is used as a verb.  The blogger in question has twisted it and used it as a noun. Calling people names isn't very nice, is it?

Secondly, going beyond language, let us objectively evaluate what Lion Investor has said and consider the proposed rights issue by AIMS AMP Capital Industrial REIT in the same vein.  Are we paying more money just to maintain our "percentage shareholding in the REIT"? 

In the case of AIMS AMP Capital Industrial REIT's rights issue, the objectives are clearly communicated. 

We are putting down more money to participate in the REIT's income accretive activities which would benefit us as unit holders. 

We are paying more money but NOT just to maintain our percentage shareholding in the REIT. 

See: AIMS AMP Capital Industrial REIT: Rights issue.

At a level that is of greatest importance to most, unit holders could choose to participate and enjoy a higher yield in future or unit holders could choose to sell away their nil-paid rights when they start trading. 

This was what I said:

REITs are income instruments.  Therefore, we must remember that we are investing in REITs for regular income.  The DPU per unit would decline from 2.15c to 2.08c, post rights.  This is a DPU loss of 0.07c a year.  It is not dramatic.  We would also be able to sell away the nil-paid rights when trading starts.  At an exercise price of 15.5c and with expectations that price would see a modest decline to 21c per unit, post rights, we can expect the nil-paid rights to trade at around 5.5c each.  Selling these away would bag 30 months' worth of DPU (post rights) straightaway!  Now, is that such a bad thing?

On top of that, our current investment would still make an annual DPU of 2.08c!  This is provided that everything remains constant, of course.

Accept and pay for the rights or sell away as nil-paid rights, either way, unit holders end up winners.  There will always be detractors but as long as we are clear headed and know what to do in any given scenario, we will be fine.

Unit holders could sell away their nil-paid rights as compensation for dilution and their remaining units in the REIT would still enjoy a very high yield.  

Unit holders who choose to accept and pay for their rights would see their future income increase in dollar terms and at a higher yield.  They are paying more money for greater returns.

Respect has to be earned but sometimes we accord respect to people based on seniority.  Respect should also be reciprocated. Being civil is a great way to start.

Related post:
AIMS AMP Capital Industrial REIT: Sell the rights.

Be a real estate owner the easy way.

I have blogged about the importance of wealth building especially at a rate which would beat inflation.

I also mentioned that investing in real estate is part of a complete approach towards wealth building and how it could be a hedge against inflation.

I have shared on how this could be achieved and how there is no short cut.  Rome was not built in a day and for the vast majority of us, wealth building is an incremental process.

Recently, a customer whom I have known for many years had a conversation with me. He was quite excited and told me that there is a way to own real estate with no money or very little money. 

Right away, I remembered some ads I saw in the newspapers with some similar proposal.  I have always ignored the ads because there is simply no way one could own real estate without any money, or own anything for that matter without any money.

However, then, I was a captive audience and I listened as my customer went on to say all we had to do is to get 120% financing for a piece of real estate. Simple. With interest rates at record low and with rental yield at record highs, it is a no brainer. 

My customer is from Malaysia but I am not sure if he was referring to the situation in Kuala Lumpur. Rent out the property, pay the banks the required monthly repayment and the balance is ours to keep.  Simple again.  It sounds great from a cash flow perspective.


I asked if he would be buying a condominium unit using this method then.  He gave me a look that made me felt quite small and asked why only one?  Imagine the amount of money which could be flowing into our bank accounts every month if we had five or ten units! It is so simple!  It sounds irresistible from a cash flow perspective.

Easy money is always tempting but bearing in mind that there is no free lunch in this world, let us look at this proposal carefully.  Remember how I instinctively brushed away ads with similar proposals? 

Well, firstly, we cannot own anything unless we have paid in full for it with our own money.  If we had borrowed money to buy something, we do not own that thing, we simply have control and possession of it but we do not own it.  The lender could do a repossession if we failed to make repayments in a timely manner.

Secondly, 120% financing is leveraging in the extreme.  Yes, if the party continues for another decade, we could become quite rich.  The exact figures depend on how low the interest rate is for the loan and how high the yield could be from renting out the property in question. 

What if the party were to stop abruptly?

We would find ourselves suddenly under a ton of debt without any income. This would make Nightmare on Elm Street look like a walk in a park! Pardon my use of a piece of horror real estate as a comparison.

An environment of easy credit and rampant risk taking is helping to fuel inflation.  I continue to believe that we will see higher inflation in Asia (ex-Japan) over time. 

In Economics, linear relationships are the norm and this cycle will have its run.  Riding on this wave could be exhilarating but as any surfer would tell you, even the best surf would come to an end.

Related posts:
Grow your wealth and beat inflation.
Real estate as hedge against inflation.

Tea with AK71: Top 5 posts (Part 2).

On 17 April 2010, I mentioned that I was surprised to find that the most read post in my blog was one of my first blog posts written last year on Christmas Eve. That same post remained in the top spot until recently.  It is now in number three position.  Considering its age and having more time on its side, which later posts could have dethroned it?

The following ranking is based on the number of pageviews each post generated since the day they were published:

Number One:
Create more passive income with limited capital.
(29 May 2010)
- All of us have limited capital.  How do we make our capital work harder to give us more in return?  That is a question that many would like to have answered.  This post provides a possible answer to this question and this is probably why it is in the top position.

Number Two:
A minimum of 50k in annual passive income.
(5 Sep 2010)
- The interest this post has generated has been astounding thus far. The allure of passive income is unmistakable and when we put a value to what could be achieved annually if we work at it, it becomes a powerful statement.

Number Three:
High yield portfolio.
(24 Dec 2009)
- Previously Number One and the only post in the previous top 5 posts to retain a position in this ranking exercise.  The interest in building a high yield portfolio is perennial, it seems, and stronger than I could ever imagine.

Number Four:
K-Green Trust: A stable source of passive income.
(3 Jul 2010)
- Making it to the top 5 is my first post on K-Green Trust.  This is a very safe instrument for passive income generation.  I like this trust but wish it could be cheaper, of course.

Number Five:
AIMS AMP Capital Industrial REIT: Rights issue.
(23 Aug 2010)
- This is a post which could slowly fade into oblivion once the rights issue is done and over with.  For now, it is generating quite a lot of interest.

Related post:
Tea with AK71: Top 5 posts.

SPH: Touched $4.20.

SPH touched $4.20 today but that price saw few transactions although volume expanded.  Few were willing to buy at that price, it would seem.  A short legged doji was formed and this could be interpreted as a day of tight price action with price closing ultimately unchanged from the opening. There is little conviction by either the bulls or the bears today although an increase in trading volume suggests that the tug of war grew in strength.

A rising OBV suggests more accumulation activities while the momentum oscillators are flattening in overbought territories. This suggests that demand is faltering and buying pressure is tapering off. A correction from oversold conditions could very likely be next.

Although a correction could be avoided if volume expands in the next few sessions as price pushes upwards, such a move would have a formidable sell queue to clear at $4.20. If ever this resistance was cleared, SPH's share price could fly.  At the moment, chances are slim that this would happen.  TA is all about probability after all.

Related post:
SPH: Waiting for elusive $4.20.

Hock Lian Seng: Ready to break resistance?

Hock Lian Seng isn't the most exciting counter in the market, for sure. However, today, volume expanded as all shares transacted were traded at one price and one price only, 30c.  To me, this suggests that all the weak holders have been weeded out.  If anyone wants to buy shares of this company now, buying at 30c per share is the only choice.  This is a resistance level which has been tested a few times before in the last one month.  Could this resistance level be taken out soon? I believe so as the massive 30c sell queue was wiped out today.

We could draw an uptrend support line from 15 July and this would approximate the rising 20dMA.  Nice. Could we be seeing the formation of an ascending triangle? Possibly.  If this is this case, could we see price rising to 34c? We could but I would expect rather strong resistance at 32c.

The MFI has successfully stayed above 50% and the uptrend is still intact.  The OBV has risen very gently and consistently. Demand and accumulation are present. With this fundamentally sound counter, patience is definitely required.

Related post:
Hock Lian Seng: Steady accumulation.

Golden Agriculture: Triangle.

Accumulation of shares in Golden Agriculture seems to have come to a halt as the OBV flattens. Over a shorter term, momentum oscillators are still rising but this could change quickly.  The MACD histogram has turned red and volume shrank dramatically today as price action formed a doji, suggesting indecision.

The technicals are somewhat ambivalent at this stage.  Up or down?  The probability seems to be quite even either way.  If we look at the bigger picture, we would understand why.  It seems that price action is forming a large symmetrical triangle. Volume has also been declining.  Which way would its price go?  Being in a symmetrical triangle, price could go either way.

Personally, I am vested in Golden Agriculture because I believe in its fundamentals.  CPO price is up again today at RM2,674. This is an increase of 1.75%.  However, for anyone who is in doubt and feeling unsure, staying out is the best thing to do.

CapitaMalls Asia: Upgraded by Daiwa.

CapitaMalls Asia broke out of a downtrend on 2 Sep and touched a high of $2.25.  Today, Daiwa upgraded CapitaMalls Asia to outperform but the share price fell instead to $2.20.  Could price fall further?

The MACD histogram has turned red. This is a sell signal. MFI has formed a lower high which suggests weakening demand. OBV shows a slowdown in accumulation but there isn't any serious reversal.  RSI has dipped and left the overbought territory behind.  The current weakness could just be a correction from overbought conditions. If so, where is the next support?

I see the next support at $2.14, a many times tested candlestick resistance level and should be a strong support. This is also where we find the downtrend resistance line which the counter broke out of on 2 Sep. This price level is likely to be fresh on the minds of market participants.

CapitaMalls Asia upgraded to Outperform by Daiwa... says property group’s recent $788.9 million joint acquisition with CapitaLand (C31.SG) of Singapore’s Bedok Town Centre site, which can be developed into residential-cum-retail property, reinforces CMA’s dominance in local retail property market.

Wednesday, 08 September 2010

© 2010 - The Edge Singapore

China Hongxing: New target.

Yesterday, when Edmond asked if we should set a higher target for China Hongxing at 22c, I replied "22c is what could be the eventual target if 19.5c is taken out convincingly (ie. volume has to expand significantly as price rises). However, along the way to 22c, there are many minor resistance levels to overcome."

Well, 19.5c was demolished as the price touched a high of 20.5c before closing at 20c today. This was achieved on very high volume. 20.5c was a resistance level that broke in early January.  Based on Fibo lines, it looks like a minor resistance and we could see 22c tested next (138.2% Fibo line). Congratulations, Edmond. :)

OBV is still rising strongly signalling continuing accumulation. The uptrend in the MFI is intact as it formed higher lows.  Demand is still strong.  It is however on the verge of being overbought but this does not really mean anything apart from suggesting that we stay vigilant, especially with such strong underlying momentum.

This is possibly the reason for the breakout:

China Hongxing Sports bags $198m worth of orders from Xiamen trade fair. The order book of RMB 1 billion represented a 12.6% increase as compared to that held in August 2009.
Wednesday, 08 September 2010

© 2010 - The Edge Singapore

Related post:
China Hongxing: Pushing upwards.

SPH: Waiting for elusive $4.20.

On 1 Sep, I mentioned "if SPH does retest $4.20, I expect that to be a strong resistance as many who missed selling then would sell now.  So, I would sell some at $4.20 and buy back if price retraces to the 20dMA."

I reckon that many investors and traders are able to read charts and many know that SPH's resistance is at $4.20. When too many people anticipate something happening, then the event might not take place. Market participants are wary of buying too close to $4.20 as they recognise that as buying close to resistance.  Market participants waiting to sell at $4.20 might sell at a few bids lower just in case the resistance does not get retested.  In such a scenario, we need a day or two of massive buy ups to clear all the doubt and suspicions surrounding the major resistance.  In this case, it is $4.20.  How likely is this? Your guess is as good as mine.

Technically, it is easy to spot a short term negative divergence between price and volume. This probably explains the weak push upward in price as volume is the fuel that drives rallies. Today, the MACD histogram turned red.  This is a warning that price could face more downward pressure in the near future. The MFI and RSI are rising strongly into overbought territory and such overbought situations could not last too long, normally. Notice how the rising OBV is much gentler in its gradient in recent sessions.  Although there is no distribution, accumulation is slowing down.

Should we panic? Should we sell? The uptrend is still intact.  I want to draw your attention to the orange color trend line support I have drawn.  This would approximate $4.10 soon.  You want to also take a look at $4.13.  This looks like a natural support level and should serve as immediate support but, of course, it needs confirmation.  I expect some semblance of support between $4.13 and the orange color trend line support in the immediate term.  If these supports break,  look to the individual rising daily MAs for the next supports.

Related post:
SPH: Another white candle.

STI little changed at 3,036.09 at closing
Tuesday, 07 September 2010

© 2010 - The Edge Singapore

AIMS AMP Capital Industrial REIT: Buying up.

There has been quite a bit of buying up activities in this REIT in recent sessions.  Today, of the 2,595 lots transacted, 1,763 lots were bought up and, of these, 843 lots were bought up at 23c.  From the transaction sizes, it would seem that there is some amount of interest returning to this REIT from retail investors.  Why buy some units of this REIT now?  The attraction, I suppose, is the entitlement to rights at a price of only 15.5c.  Of course, unit holders will also be able to apply for excess rights and in the process, possibly, improve the overall yield of their investment.

A while back, some readers asked me if they should buy in at 22c and my advice was that it was a fair price.  Buying 20 lots at 22c would give us 7 rights at 15.5c.  That would give us an average price of 20.31c.  With an estimated DPU of 2.08c per annum, XR, that gives us a yield of 10.24%.

Technically, the MACD has completed a bullish crossover in negative territory. If the MACD crosses into positive territory, that signals a return of positive momentum. The MFI has just emerged from oversold territory and has formed a higher low which suggests a return of demand. A recovering OBV suggests some accumulation is underway.

For a second session running, this REIT is trading above all the daily MAs.  22.5c could possibly be resistance turned support.  This needs confirmation.  The long term resistance remains at 23c but remember that this was compromised in early August.  So, it is not as strong a resistance as it once was.

Related post:
AIMS AMP Capital Industrial REIT: Sell the rights.

Genting SP: Staying cautious.

The cautious tone in Genting SP continues today. There is talk that speculators have moved from Genting SP to Genting HK, contributing to the latter's spectacular run up in price.

Technically, the negative divergence between price and action here is rather glaring. Price has detached from the upper Bollinger and moved sideways. This could be the start of another consolidation period.  The detachment from the upper Bollinger is accompanied by reducing volume which is a good sign for the bulls.

Look at the MACD and we see it still rising above the signal line in positive territory.  Bulls want to watch out for signs of a bearish crossover with the signal line.

The MFI, although declining, formed a higher high before doing so and is still above the longer term uptrend support. OBV has flatlined in the immediate time frame but its longer term rise is unbroken.  Demand and accumulation seem healthy.

For anyone with a long position here, congratulations but look to the support at $1.70 for guidance.  If this support breaks, it might be a good idea to take some profit off the table as the next support is at $1.50.

Related post:
Genting SP: Flip flop.

Genting Hong Kong +3.6%; Earnings growth priced in: UOB
Monday, 06 September 2010

© 2010 - The Edge Singapore

STI climbs 1.1% to 3,034.58 at closing
Monday, 06 September 2010

© 2010 - The Edge Singapore

China Hongxing: Pushing upwards.

On 3 Sep, I suggested that China Hongxing might be taking a break with the near term resistance at 18c. Today, volume expanded significantly as the 18c resistance level was demolished.

Momentum oscillators are trending higher, forming higher lows.  The MFI's rise shows strong demand while the OBV's upward climb shows accumulation continuing. The MACD is still rising above the signal line in positive territory and the distance between the two is growing, a sign of strength.

On the flip side, the RSI is going into overbought territory, suggesting that the buying momentum is getting somewhat overdone.  Jumping in at this juncture to go long might be a risky proposition as the immediate upside target identified some time back at 19.5c seems within reach.

If price action starts detaching from the upper Bollinger and if the MACD's distance from the signal line starts narrowing, we could be seeing precursors of a reversal. So, we have to stay cautious and keep our eyes peeled.

Related posts:
China Hongxing: Taking a break.
China Hongxing: Retesting resistance.

Blog statistics: January to August 2010

It has been more than eight months since I started this blog and I am still blogging away. By now, regular readers could probably read me like a book.  I am, after all, almost forty and probably quite set in my ways.  The following is a summary of how my blog has performed in the last eight months:

The number of monthly unique visitors reduced dramatically in the month of June, from 19,449 in May to 15,500. That's a 20.3% decline!  The number of returning visitors fell from 10,297 in May to 8,173.  A 20.6% decline!  Terrible.  What could be the reason?  Well, I had the least number of posts in June, relatively.  Only 46, to be exact.  So, maybe, that has something to do with it.

The numbers recovered modestly in July and improved dramatically in the month of August when the number of monthly unique visitors formed a new record at 19,578.  This trumped the high formed earlier in May which saw 19,449 unique visitors.

I have no doubt that I have some very loyal readers who are spreading the word.  Your support is encouraging and you can bet that I will continue blogging!  Thank you. :)

Related posts:
Blog statistics: January to April 2010.
Alexa.

A minimum of $50k in annual passive income.

Anyone who has been reading my blog would know that I seek to build a strong stream of passive income through my investments in the stock market. On 29 May 2010, more than three months ago, I mentioned that "between LMIR and AIMS AMP Capital Industrial REIT, the annualised income distributions I receive could be as much as 4x my monthly salary".  In aggregate, this has not changed.  However, I have made some changes in allocation and shifted funds from LMIR to AIMS AMP Capital Industrial REIT.  This is because I am a little disappointed with the former and at the same time, I am feeling more optimistic about the latter.

In my post of 29 May 2010, I also said that "things should get better from here as from the month of September, income distribution from Saizen REIT would add to my passive income stream. I might just stop trading the market and sit back, relax and let the passive income stream in.  Of course, it remains to be seen if my calculations as to Saizen REIT's potential income distribution would come to pass."

I was pretty confident that things would go the way I think they would but we can never be too sure of anything. As things turned out, happily, Saizen REIT's results and DPU were better than expected.  It seems that their CEO is much more astute compared to LMIR's and did not engage in any 100% currency hedging.  To recapt, "LMIR announced a DPU of 1.04c payable on 27 August 2010.  This is lower than the 1.2c paid in the last quarter. This is due to a higher realised loss on the foreign exchange forward contract."

I did some back of the envelope calculations as to the passive income I would be receiving from my investments in Saizen REIT, AIMS AMP Capital Industrial REIT and LMIR in future:

Assuming that all of Saizen REIT's warrants are converted to regular units and assuming that YK Shintoku's CMBS is successfully refinanced with a conventional bank loan with an interest rate of about 4%, I estimate the DPU to be about 0.4c per quarter or 1.6c per annum from December 2010.

As for AIMS AMP Capital Industrial REIT, with the impending rights issue, I would probably increase my investment in the REIT by at least a third and enjoy a higher yield at the same time.  This would increase the amount of passive income I receive from this REIT from December 2010.  DPU is estimated at 0.52c per quarter or 2.08c per annum.

For LMIR, although I believe in the strength of the Indonesian economy and the strength of its currency, the management's decision to continue using foreign exchange forward contracts is likely to limit any DPU growth.  In fact, it has led to a DPU reduction in S$ terms so far as the Rupiah strengthened against the S$.  However, I expect the S$ to appreciate more robustly in future and it is unlikely that the DPU would reduce much more.  Conservatively, I estimate the DPU to be 1c per quarter or 4c per year from December 2010.

With Saizen REIT's contribution, I would probably exceed the target I have set for myself which is "to create a minimum of $50k in annual passive income from investments in the stock market alone."  I shared this aim here in my blog on 27 Feb 2010, more than half a year ago. Like with everything, however, this needs confirmation. Let us see what happens in December 2010.

Related posts:
Create more passive income with limited capital.
LMIR: DPU reduced 20%.
AIMS AMP Capital Industrial REIT: Steady performance.
Saizen REIT: Better than expected DPU.
Seven steps to creating passive income from the stock market.