Market Daily - 13 May 2013

Stock finished modestly higher last Friday as the record on the Dow & S&P continues. (what's new??)

In addition, there was board-base dollar strength. I personally think that there is a war out there right now in the FX market as currencies is entering into a competitive devaluation. It is just plain ugly. I think EUR should be a good short target if the German data weaken. Eurozone needs a strong Germany to bail them out and a strong EUR is just killing Germany's export business model.

It was a good week last week and I will like to see a healthy consolidation in the equity market this week to prove that the on-going uptrend on the market is intact. I will be worried if the market continues to go up any higher from here as it will seem like a irrational exuberance to me.

Data to watch this week:

Monday:

- NZD House Sales

- AUD Home Loans & AUD NAB Business Condition

- CNY IP & Retail Sales Data

- USD Retail Sales 

Tuesday:

- CNY FDI 

- NZD Retail Sales

- EUR German CPI & ZEW Survey; Eurozone IP

Wednesday:

- JPY Tertiary Industry Index & Consumer Confidence

- EUR German GDP; Eurozone GDP

- GBP Jobless Claims & ILO Unemployment

- USD PPI, Empire Manufacturing & IP

- CAD Existing Home Sales

Thursday:

- NZD Business Performance of Manufacutring Index

- JPY GDP & IP

- EUR Eurozone CPI

- USD CPI, Jobless Claims, Housing Starts & Building Claims

Friday: 

- NZD PPI, Consumer Confidence 

- JPY Machine Order

- CAD CPI

- USD UoM Confidence & Leading Indicators

Interesting Read of the day

- A MUST READ from one of my favorite strategist, David Rosenberg, whereby he thinks that nothing the Fed can do to save this dying economy: http://www.businessinsider.com/david-rosenberg-bernanke-wizard-potemkin-mauldin-presentation-2013-5 

- Paul Krugman in his weekly column disagree that a bubble is forming in stocks and bonds:  http://www.nytimes.com/2013/05/10/opinion/krugman-bernanke-blower-of-bubbles.html?ref=opinion&_r=1&

SREIT 101 - Part 1

Every Sunday, I will try to discuss different investment products or educational materials to educate and improve the investment knowledge for every one. For the first Sunday "educational" series, we will look at something close to my heart, Singapore Real Estate Investment Trust. (SREIT)

What is SREIT?

Basically SREIT stands for Singapore Real Estate Investment Trust.

It is a trust whereby a portfolio of real estates/properties is being listed on the SGX itself.

SREIT usually distribute at least 90% of their income to unitholders so as to enjoy tax concession from the Singapore authority.

As such, SREIT usually provides a stable and recurring dividend to their unitholders.

Why do developer list their portfolio of properties as REIT?

The reason why the big developers (the like of Keppel Land, Mapletree Investment, Capitaland and etc) decides to list their properties as REIT are as follow:

- Recycling on capital. By listing the properties as a REIT, the developer can effective liquidate the assets, unlocking the value and deleverage their balance sheet. With the cash proceed from the listing, the developers will have more bullet (ie cash) to grow their business. In addition, the REIT will also become their future investment vehicles whereby they can just inject the asset into the REIT for capital recycle.

- Retain majority share holding of the REIT & continue to benefit from the stable cash flow. Usually, the developers retain a sizable holding on the REIT so that it can retain the benefit of the cash payout of the REIT. With this sizable holdings, they are usually known as the sponsor of the REIT as effectively they provide an "implicit" guarantee to the REIT.

- Ability to earn a fee income on managing the REIT. The sponsor will eventually become the asset manager of the REIT and this provide the sponsor with another sources of stable management fee. This is another source of income for the sponsor. 

From my observation, only matured properties are listed as REIT as all the value has been fully enhanced and they are matured enough to generate stable payout for the unitholders

Why invest in SREIT?

Stable and recurring payout. Due to the 90% payout and the strong property market in Asia, SREITs has in generally been paying stable unit distribution/dividend. Thus REITs offer a stable and recurring payout which is largely suitable for a investor who wants to build up their passive income.

Visibility of the asset. Another reason why REITs especially those with high exposure in Singapore properties are being well liked /bid is because of the visibility of the assets. Basically as a local you know the assets and it is easy for you to see and feel them. Thus the easy understanding of the properties and business model results to a huge following and buying activities in the SREITs.

Implicit guarantee from sponsor. In addition, some of the biggest SREITs listed are by well known local developers. With the strong sponsorship of this well known company, it provides a sense of comfort due to the implicit guarantee the sponsor provides.

Understanding and Investing in SREIT

Net Asset Value

Net Asset Value is basically:

(Total Asset, valued at Market Value - Total liabilities)/(Total number of outstanding share)

Example:

A company with investment properties of 100K book value, market value of 120K.

With a total liabilities of 60K and have outstanding number share of 6K.

Thus NAV = (120k - 60K)/6K = 10/share

Taking the example above, if the share price of the REIT is 11, the REIT is trading at a premium of 1.

If share price of REIT is 8, the REIT is trading at a discount of 2.

Theoretically, a REIT trading at a premium is considered overvalued as you are paying 1 dollar extra for a NAV of 10 where a REIT trading at a discount is considered undervalued as you are paying 2 dollar less for a NAV of 10.

Dividend Yield

Dividend Yield = Project Annual Payout/Price of REIT

As the REIT is mandated to pay out at least 90% of the cash, it is seem as a form of stable dividend play. 

Type of REIT

REITS are usually classified into the various form:

Retail - Shopping mall 

Industrial - Warehouse, logistics and industrial parks

Office - Offices building

Residential - Residential housing

Hospitality - Hotels or hospital 

Company Coverage - K Green Trust (KGT)

Overview

K Green Trust (KGT) is a business trust with an investment focus on green infrastructure in Singapore, as well as Asia, Europe and the Middle East. It is a spun off from Keppel Corp, which continues to manage the trust and holds a 49.2% stake.

Key Assets

KGT currently own 3 assets:

From Company's Prospectus

1) Senoko Waste to Energy Plant, concession ends in 2024

It is the third waste incineration plant built in Singapore and is one of the four waste incineration plants operating in Singapore as the Last Practicable Date. Senoko is equipped with six incinerator-boiler units and 2 condensing turbine-generators with a power generation capacity of 2 X 28 MW.

From Company's Prospectus

2) Keppel Seghers Tuas Waste to Energy Plant, concession ends in, concessions ends in 2034

It is the 5th waste incineration plant built in Singapore. The Tuas plant is equipped with 2 incinerator-boiler units with one condensing turbine-generator offering a power generation capacity of 22 MW.

From Company's Prospectus

3) Keppel Seghers Ulu Pandan NEWater Plant, concession ends in 2027

 Ulu Pandan Plant is the 4th NEWater plant in Singapore and has been operational since 2007.

Key Investment Highlights

1) Stable Distribution

Like any business trust, KGT pays out 90% of its cash flow. In addition, KGT's cash flow is underpinned by its stable contract with 2 government agencies - National Environment Agency and PUB. Thus with contract coming from this 2 government agencies, I think the risk is pretty minimum here. In addition, KGT has exhibited a stable distribution since it listing and I don't see why the number will decrease given that they are on government contracts.

From Company's Presentation

2) Keppel Corp is a strong sponsor

Being a blue chip counter, Keppel Corp is effectively a very strong sponsor for KGT. In addition, as shown by the diagram below, KGT will benefit from future injection of assets or referral opportunities from Keppel Corp. This will only allow the company to grow. Equity investor will love growth and this provide a form of capital appreciation potential.

From Company's Prospectus

Below set out a list of asset in which KGT has the first right of refusal:

From Company's Prospectus

3) Potential to leverage up its balance sheet for expansion

As of 1Q13, KGT continues to be debt free. This ensures that the company has the potential to expand via leveraging up its balance sheet by doing yield accretive debt-financed acquisition, providing a potential upside to the stock.

Key Risk

1) Trading at a premium.

As of yesterday closing price of S$1.0395, you are paying a premium of 2.5cents against its 1Q13 NAV(net asset value) is at S$1.01. However I'm not very concern by it given how most of the REIT is trading at a premium to its NAV. In addition, given its last annual DPU of 7.82 cents, it is providing a historical dividend yield of approximately 7.52%(0.0782/1.0395), significantly higher than a lot of the existing REITs. And with the yield hungry environment of today (thanks to the ZIRP of the central banks), I think 7.52% is very decent. 

2) Asset will be transferred once the concession expire.

One of the biggest risk for investing in KGT Once the concession for the assets are up, KGT will transfer back to the government agencies for effectively nothing!! 

This issue was apparently highlighted by one of the security analysts on 16 Apr 2013 and I personally suspect the big drop we witnessed is due to that particular report.

From Yahoo Finance

Well, all I can say is a BIG thank you to that analyst, as with the big drop, the market has already priced in this risk!!! 

So I don't think this risk is a concern going forward, as like I mentioned, the market has already priced this in.

Conclusion

I think the risk to this investment is MID.

I think KGT is interesting as it 1) give me a decent dividend yield (approx 7%) 2) backed by a strong sponsor (ensure that I can sleep well at night) and 3) the biggest risk (concession expiry) is already priced in.

Market Daily - 10 May 2013

TGIF~

Last trading session of the week.

Big news overnight obviously is USDJPY breaching the 100 level, with this Nikkei once again establish a new high.

In FX market, BoE kept its rate and APS size as expected, but it turns out, I actually miss the elephant in the room!!! And it comes in the form of AUD. It sold off overnight but slowly coming back in Asia timing as of the writing of this article. Theoretically I think it should, given that its RSI are into the 20s level (on AUDSGD) clearly it is an oversold level. I'm doing the CARRY trade baby~

From Bloomberg Terminal Screenshot

                                                                

Today in SGX, we have the new Croseus Retail Trust listing. It was priced at $0.93 with a DPU yield of approx 8%. I think in a yield hungry environment this issue should do well given that it is like 21.4X oversubscribed??

Interesting Read

Is Abe-nomics a game changer? According to it Dan Loeb it should -http://www.cnbc.com/id/100725870

Market Daily - 9 May 2013

Asian Markets open higher today as S&P and Dow hit fresh high overnight.

NZD and AUD traded higher on the back of better employment data from both countries

Bank of Korea slashed its rates this morning by 25bps to 2.5%. 

Looking ahead, we will have BoE meeting today. This will be the last meeting for Meryvn King before Mark Carney take over as the Governor of BoE next month. The big question today is whether BoE will increase the size of its Asset Purchase Scheme (APS). Well, central banks around the world seems to be cutting rate for fun and why shouldn't BoE join in. Although I don't expect a rate cut, I suspect a dovish statement coming out of the meeting and I think GBP might weaken from current level.

Well the bull continues to take charge on market and did someone say "sell in May" obviously no one is looking at the calendar.

Interesting Read of the Day: 

- Paulson Bid to Resurrect Reputation Hurt by Gold Gone Bad. It talks about how a Mr Paulson got too confident in himself and how he seeks to resurrect his reputation: http://www.bloomberg.com/news/2013-05-08/paulson-bid-to-resurrect-reputation-hurt-by-gold-gone-bad.html

- An interesting research from the guys of NY Feb on their stand if stock is cheap. Apparently they think that we will continue to enjoy high excess return on S&P for the next 5 years. A story for the bull: http://libertystreeteconomics.newyorkfed.org/2013/05/are-stocks-cheap-a-review-of-the-evidence.html

- Finally, a story for the bear, 12 indicators that our US economy might be heading for a recession despite the equity rally. Take COVER~  http://www.zerohedge.com/news/2013-05-08/price-copper-and-11-other-recession-indicators-are-flashing-red

The Beginning

In the investing business, risk is guaranteed, return is not. 

~Bill Gross, PIMCO founder & Co-CIO 

The love & fallacy of money & investment

Well, the quote above by Bill Gross says it all. 

Everyone love money, and everyone love to make money. And if the advice from all the great business texts and the smartest investors are to be believed, investing your money is the best way to do it.

From the concept of compounding interest to the great advice from Warren Buffet of investing for the long term, it creates a fallacy that investment is all about return, return and return!

Well, pause for a while, and reflect on the above statement again.

Then think about the various speculations throughout the history of mankind that end up in tears fro the investors. From the tulip mania in the 1637 (http://en.wikipedia.org/wiki/Tulip_mania) to the dot-com bubbles in the 2000 (http://en.wikipedia.org/wiki/Dot-com_bubble), they were all the most “in fashion” thing to invest in back then.

Even in modern day history and closer to home (in Singapore where I struggled to purchase a house due to the crazy property boom), we have witness the same kind of scam, like the gold guarantee investment scheme. (http://www.straitstimes.com/breaking-news/singapore/story/ex-investors-gold-guarantee-gather-hong-lim-park-petition-quicker-acti)

Thus, if one thing is guaranteed in investing, it is definitely not return. But RISK!!!

The Purpose

The purpose of this blog is to highlight the risk of investing.

I try my best to deliberate and evaluate different trade ideas that I think is interesting.

I will also highlight the risk profile of each trade into: LOW/MID/HIGH, so as to tailor it into different risk profile.

In addition, I will regularly post interesting articles & links I come across which is useful to grow my investment knowledge.

Disclaimer

I wish to highlight that:

1)    The views and trade ideas I have expressed here are for my personal views and consumption. This is done so that I can refer back to what was on my mind when I wrote the article. It is not an inducement for anyone to invest or trade. The sole purpose is for me to keep an online record.

2)    Any fair value or ratings indicated in this blog are meant for sharing, educational and indicative purposes. It

3)    Due to the volatile nature of the market, I might and reserves the right to buy, sell, long, short any stocks or financial products without posting anything on the blog. This includes any trade ideas mentioned in this blog.

4)    I shall not liable and responsible for any actions of the readers.