Sabana REIT: Resistance to watch.

One month ago, I mentioned that Sabana REIT's unit price saw higher lows formed since August 2011 and that it was repeatedly testing gap resistance at 91c and 91.5c. I wondered then whether its unit price could break resistance to go higher. It did, going on to break resistance at 93.5c, and, in the last few sessions, tested resistance at 95c. It ended the day at 96c a unit with a massive buy up after market closed today.

Sabana REIT is my largest investment for passive income and what I have now is part of my core investment for passive income. So, it is unlikely that I would sell unless its unit price becomes very much over valued. Keeping the status quo, Sabana REIT would generate approximately 38% of my passive income from S-REITs alone this year.

I am expecting a higher DPU in the next quarter as contributions from acquisitions made in recent months as well as savings from lower cost of funding for newer loans kick in.

Technically, if the bullish momentum continues, 99.5c could be the next level to be tested in time.

At 99.5c, its distribution yield is still a very attractive 8.84%. I still feel that a fair value for the REIT's units is closer to $1.10 per unit which would see its distribution yield compressing to 8%.

Related post:
Sabana REIT: 4Q 2011 results.

AIMS AMP Capital Industrial REIT: How much higher?

People are waking up to the stronger numbers as well as the attractive and potentially growing income streams of AIMS AMP Capital Industrial REIT.

It is interesting also to note that some analysts are reporting that the REIT has not one but two strong sponsors. In the distant past, few would even talk about the REIT in a positive light, much less the sponsors. This shows how durable the negativities created by the recapitalisation of the former MI-REIT were.

Personally, on hindsight, I am thankful for the negativities which made people avoid the REIT as it allowed me to accumulate more units of the REIT at prices way below its fair value.

The REIT is currently my second largest investment and is an important passive income generator for me. Keeping the status quo, it is expected to generate some 32% of my total passive income from S-REITs alone this year. Will I keep the status quo?

My current investment in the REIT forms part of my core investment for passive income. It is not for trading. Unless its unit price rises significantly, I am likely to keep the status quo.

Although fundamentally attractive, we can only wait and see how much higher Mr. Market is willing to pay for the REIT's units. $1.10 is the resistance to watch. Overcoming this convincingly could see $1.125 and $1.15 tested next.

Related post:
AIMS AMP Capital Industrial REIT: 3Q FY 2012.

First REIT: To sell or not to sell?

I have received questions from readers and friends if they should sell their units in First REIT given its stellar performance of late. I can't really advise if they should sell or hold on to their investments. I am not qualified to give advisories and neither do I have the inclination to do so.

I would say the following:

Fundamentally, First REIT is rock solid. One should, however, remember that its bumper income distributions in the last two quarters were due to contribution from the sale of its Adam Road property. If this contribution were removed, we are more likely to see a DPU of 1.6c per quarter. This means an annualised DPU of 6.4c. At today's high of 87c per unit, that would be a base distribution yield of 7.35%. Its larger peer, Parkway Life REIT, has a distribution yield of about 5.26% at a unit price of $1.825.

Technically, First REIT's unit price is continuing its march higher on strong volumes. There is vigorous accumulation going on if the OBV is anything to go by and although price action looks like it is becoming parabolic, the bullish momentum could push price higher to test 88c or even 89c. However, fatigue would very likely set in and a pull back to support at 82c could take place in time.

My remaining investment in First REIT is part of a core investment for passive income. It is unlikely that I would sell my remaining position. If I were trading First REIT, however, 87c to 89c would seem like very attractive prices for divestment. There, I have said it.

Related post:
First REIT: FY2011 results.

Beauty & the Beast, the 3D experience.

Walt Disney Animation Studios’ magical classic “Beauty and the Beast” returns to the big screen in Disney Digital 3D™, introducing a whole new generation to the Disney classic with stunning new 3D imagery.

The film captures the fantastic journey of Belle (voice of Paige O’Hara), a bright and beautiful young woman who’s taken prisoner by a hideous beast (voice of Robby Benson) in his castle.

Despite her precarious situation, Belle befriends the castle’s enchanted staff—a teapot, a candelabra and a mantel clock, among others—and ultimately learns to see beneath the Beast’s exterior to discover the heart and soul of a prince.

Featuring unforgettable music by Howard Ashman and Alan Menken, and an enormously talented vocal ensemble, “Beauty and the Beast” was the first animated feature to receive a Best Picture nomination from the Academy of Motion Picture Arts and Sciences and is also the first animated feature to cross the $100 million plateau in its initial release.

For trailers and more, visit Disney Studios Singapore: here.

China Minzhong: Initiated long position.

Anyone who is a follower of Jim Rogers would know that he is always asking people to become farmers and he is quite serious. Jim is of the opinion that farm incomes will increase exponentially in the next few decades. This stems partially from his belief that we should be invested in real assets like agricultural commodities which would retain their value in the face of heightened inflation around the world.

Recently, I have been looking at China Minzhong, a company which the Government of Singapore Investment Corporation (GIC) has a 17% stake in. Prudential reduced its stake to less than 5% while Templeton increased its stake to above 5%.

There is an abundance of research which has been done on China Minzhong and it is mostly good. Here are links to some analyses:

1. CIMB (14 Feb 2012)
2. Kim Eng (14 Feb 2012)

China Minzhong has made some large capital expenditure last year and it would take some time to show positive results. The longer term picture looks promising and buying on weakness could be rewarding for anyone who takes a longer term perspective here.

See slides presentation dated 13 Feb 2012: here.

1. Net income margin is consistently above 25%.
2. NAV per share: RMB 5.70 (approximately S$ 1.14)
3. Net gearing ratio: 0.11x
4. Current ratio: 2.7x
5. Half year EPS: RMB 0.48 (approximately S$0.096)

Expectations are for second half of its financial year to show higher EPS.

Technically, China Minzhong's share price emerged from a terribly persistent downtrend at the start of the new year. It then took a while to overcome resistance provided by the 100dMA before hitting a road block set by the 200dMA. It is now supported by the 50dMA and if that goes, we could see a retreat to the 100dMA which is currently at 93c.

Notice that volume has been higher on white candle days and lower on black candle days in recent sessions. Volume seems to be reducing as price pulled back. Consolidation could continue for a while more as weaker holders are shaken out.

I have initiated a long position today at 98.5c. If its share price were to weaken to 93c, I would probably add to my position. 93c is, in my opinion, a very important support if it should be tested. If it should break, we could see price retreating to test the lows of 2011 with 84c as an immediate target.

Perpetual bonds: Good or bad? (Read comments too.)

With interest rates so low these days, one would not be wrong to wonder why are companies and even a REIT issuing perpetual bonds to raise funds with coupons of up to 7%. To a layman like me with very rudimentary understanding of economics, it could be one of two reasons:

1. The business or REIT concerned is not able to get loans because its business is too risky.

2. The amount of liquidity available in the banking system is drying up.

I do not have the necessary knowledge to do an in depth analysis on the reasons why. Indeed, I do not have the inclination as well. I am more interested in how these bonds might benefit me as an investor.

Generally, investors want to be correctly compensated for the risks they are asked to undertake. So, the riskier the investment, the higher the expected compensation. Otherwise, it is a no go.

However, with imperfect knowledge, investors sometimes get the shorter end of the stick. There are examples aplenty of investments gone sour. With the benefit of hindsight, investors learn to avoid similar experience in future or we hope to anyway.

When something new comes along, relying on past experience becomes impossible. Indeed, investors are sometimes misled through creative labelling. Remember the "mini bonds"? The resulting losses were in no way mini.

Now we have "perpetual bonds". What are these?

Perpetual bonds are bonds with no maturity date and investors are not allowed redemption. A glaring disadvantage of such an instrument is the lack of liquidity. Therefore, people with very deep pockets who would never be in an urgent need of cash are more suitable investors.

No matter the depth of one's pockets, however, there is a universal problem of inflation. With inflation in Singapore at more than 5%, if one should park one's money in a perpetual bond that yields 5% or less, it does not make much sense. Add this to the lack of liquidity of such an instrument, more or less, it amounts to an almost complete loss of control over one's dwindling wealth. Ouch.

Perpetual bonds are a no go for me. However, if the companies and REITs I am vested in should issue perpetual bonds to fund activities which would grow EPS or DPU, I would raise both hands in support.

Like anything in life, whether something is good or bad depends on where one stands.


UPDATES:

The absence of a maturity date means perpetuals usually offer higher yields than bonds with one. Companies are taking advantage of Singapore accounting rules that count the notes as equity and a tax law that exempts interest payments.

The lack of a perpetual's maturity date, in spite of the incentive to redeem at the first call, allows issuers to treat that debt as equity in their books. That reduces the companies' leverage even as interest payments increase.

"The impact on the market is hard to judge" if any issuers choose not to repay, said Dilip Parameswaran, the Hong Kong-based head of Asia Investment Advisors Ltd. "The Singapore dollar market is small and dominated by domestic institutional and retail investors. They may have invested based on an expectation of call, and may be disappointed if the bonds are not called."

As companies consider the cost of refinancing, he said, "if the secondary yields are higher than the step-up coupon, then it makes no sense for the company to call the perpetual."

Source: http://www.businesstimes.com.sg/banking-finance/singapore-perpetual-bond-investors-hope-never-means-three-years


AK says:

What we want to be wary of is also what rising interest rates would do to bond prices. As interest rates rise, bond prices fall. That is the relationship.

For bonds with maturity dates, we just have to hold to maturity and hope that the issuer does not default. We would get back our capital at maturity. With perpetual bonds, there is no maturity date.


Related posts:
1.  Dr Marc Faber: How not to lose money?
2.  To protect our wealth, we have to take risk.

Ben & Jerry's Free Cone Day!

To thank Singaporeans for making the world a fairer place and for their support of Ben & Jerry’s, we’re giving away free ice-cream on Free Cone Day!

Small, unnoticed, random acts of fairness make this world a better place.

We have captured some Singaporeans at their best, doing their small deeds to make the world a better place for that single person.

See who these people are and vote for the one that you think has done his or her Random Act of Fairness.

Get free ice-cream on Free Cone Day: here.