Cut loss on United Food and Ocean Sky, invested into Suntec REIT on 28 Oct 2009

United Food Holdings

Mistakes are mistakes, no matter how they are packaged. United Food Holdings is one of the most spectacular value destructing business on my portfolio. Starting with a huge cash horde which translates into a large cash per share, it can easily qualify as one of my best cigar butt. But as time go on, the management demostrated outstanding capability to drain it with seemingly failed but huge investments (land, soya beans).

Ocean Sky International

Unlike United Food Holdings, I did not classify Ocean Sky as a cigar butt in the beginning. However, just like any typical manufacturers hit hard by the falling orders due to the ongoing economic recession, they are driven into quarterly losses.

Suntec REIT

Looking at the falling office rents, sliding occupancy rates, Suntec REIT might not seem to be a good investment option. However, even at current dismal rents and occupancy, Suntec REIT already offer nearly 10% yield based 3Q DPU and the price I bought.

Going forward, I have reasons to be optimistic about rising rents, occupancy rates and hence DPU. Looking at the Prime Grade A Office Rental Trend posted in the 3Q presentation slides, rising and falling rents just mirror cycling economic trends. As such, once the economy regains firmer footing, the demand for office space and retail space will resume, and especially after the completion of Marina Bay financial centre and Sands IR that further bring more vibrancy into the area. But in the short term, rents and hence DPU for Suntec REIT could worsen before it get better.

Action

I can choose to sit on United Food and Ocean Sky, especially the latter, and wait for them to recover with the broader economic situation. But going through my options, I see more potential in Suntec REIT than Ocean Sky, in terms of recovery.