Suntec Reit

The shareholders have already approved the motion to purchase 1/3 the interests of MBFC. Funding will be through a mix of debt and equity. But existing shareholder will be bypassed as a private placement will be made.
I sincerely hope the management will take existing shareholder's interests to heart and not succumb to too large a premium on the private placement just for the sake of executing this deal.

I also expect DPU for Suntec Reit to decrease next year due to rental reversions. The MBFC deal, if it go through, will not accrue too much benefit in 2011, at least.

 I am also concern that gearing will hit 37% after the MBFC deal.

Two Trillion Dollar Meltdown

I have been reading the book "The two trillion dollar meltdown"  by Charles Morris recently.

Quite a good book that explains how complex financial instruments can be built layer upon layer to squeeze every ounce of profit for greedy bankers and hedge funds. Instruments that are created to spread out the risk of debt ended up being the percolated to every aspect of daily life and almost pushing the world economy to the point of collapse.

I am convinced after reading the book that banking should be kept boring and exotic innovation should be kept out of our banks.

In banking, I rather they earn less (and my dividends of course) but play it safe.

DBS Pref Shares

I applied for 500 lots of DBS Pref Shares. I allocated 20 lots. Right now, I own Pref Shares for UOB. OCBC and DBS. Together, they make up about 30% of my portfolio. I treat them like bonds as I am not looking at the capital appreciation but rather the regular interest payment bi-annually.

I have look at the balance sheet of local banks and come up the conclusion that they are still conservatively managed. Right now, the local banks cannot pool mortgages into collateral debt obligations that can be sliced into multi-tier bonds and offloaded from their balance sheets. During March 2009, during the depths of the recession, NPL peak around 3%.


These Pref Shares may not be risk free but they are probably the "best" fixed income instruments you can get locally next to holding SGS bonds. I do own some SGS bonds but the yields have come down quite a bit over the last one year. In addition, at least I am not exposed to currency fluctuations as opposed to holding fixed income instrument denominated in other currencies.

I should be receiving dividends for the following this month:-

China Merchant Pacific
First Reit
AscendasIndiaTrust
Suntec Reit
LMIR
Starhill Global
SMRT

First Reit

The suspense is finally out. First Reit is acquiring two additional properties in Jakarta (MRCCC and SHLC) via a 5:4 rights issue at 50 cents per share. On top of that, it will raise a $50million debt from OCBC. Implied TERP is $0.70.

First Reit sponsor, PT Lippo Karawaci Tbk will be the master tenant for both properties.

I view this deal positively as the funds raised are used to acquire additional yield-accretive assets and not to par down existing debt. In fact, First Reit gearing, after this acquisition is still low relative to peers.

The main thing is do you trust the business environment in Indonesia? Will it degenerate to the days in 1998? After watching it for more than a decade, I think it would be worthwhile to make some small bets in the country especially in business that support domestic consumption. About 70% of the economy is domestic and it was hardly scathed by the financial crisis in 2008/2009.

I will be going for the rights.

Meanwhile , I have divested Cosco and vested some additional lots in SMRT.

GLP and MIT

Applied for GLP (10 lots) and MIT (30 lots). The idea is just to make some coffee money.

Only got 1 lot of GLP and nothing for MIT.

These IPOs are hot. I have let go GLP at 2.30. So, make a modest profit of around $310.

I do not think IPO provide a good entry price for stocks. I would rather wait for 6 months or more and let all the enthusiasm to settle down first before examining the merit to accumulate or not.

Time Tested Advice

I read this recently and think it will be really useful to reinforce them from time to time when things get overly optimistic.

1. Have a Plan
The old cliché is true. Nobody plans to fail, but many fail to plan. Having a comprehensive financial plan in place, understanding your goals, and proactively managing your investments are never bad ideas.


2. Have a Cash Cushion
The emergency fund is always a classic fashion. Like an insurance policy, you hope you never need to use it, but if you do, its there when you need it.


3. Live Below Your Means
If you make a habit of spending less that you earn, it will be much easier to survive if your earnings decline. Losing your job is never fun, but losing your house and car too make the situation significantly worse.


4. Nothing is Risk Free
Even money market funds can be problematic. Don't even put money in an investment, even it is being sold to you by your best friend, with the idea that there is no way you can lose money. Bernie Madoff's friends learned that lesson the hard way.


5. Nothing Rises Forever
From the S&P 500 to real estate prices, this little truism has proven itself over and over again. If there was ever a safe bet, this is it.


6. If it Sounds Too Good to be True, it is
Hope and greed cause investors do put their faith in the strangest things. Apply common sense before handing over your money.

Share Buyback or Dividends?

When a company you have invested have excess free cash flow, do you prefer that they use the excess cash to buyback shares from the market or give them out as special dividend?This is especially true in the case when good investment opportunities are not readily available.

The way I see it, engaging in share buyback reduces the amount of outstanding share in the market and hence will lead to an increase in eps. However, there is a danger that this may be used to mask a stagnant performance by dressing up the eps by the management. In addition, it is possible that the company could have given out substantial share options to employees earlier at a lower price. ( Singpost given out 800K share options at $1.02 in Jan. It then subsequently does a share buyback of around 10M shares at around 1.12/1.13 about 2 months ago). It is able to do so probably by taking advantage of the low interest rate for debt by raising $200M in Fixed Rate Notes which bear an interest of 3.5% per annum). I am of the opinion that the recent improvement in singpost share price has less to do with any significant improvement in business outlook than to mere finance rejiggering.

By giving out special dividends, it basically return the excess cash to to shareholders an let them decide what to do with it.

As a retail investor, I prefer special dividend anytime as I can decide what to do with it.