Portfolio restructuring over the last 4 months

Partially divested First Ship Lease Trust(FSLT) into Pacific Shipping Trust(PST) on 29 June 2010

I can count myself 'unlucky' that FSLT had 2 of its ships returned prematurely and took a big hit to its total outstanding contractual revenue and just blame this on the 'business' risk. But looking further into the business to understand that the risk is actually much higher than I thought actually attributes more blame to myself. The high yield comes at a price that I sadly have to pay. Most of the contracts are made when shipping rates are over inflated and ships overvalued. When all things come crashing down, the odds are basically heavily stacked against FSLT. It is already fortunate that only 2 ships are returned. The only good news in this midst of this gloom is that the worse for shipping seems over. Though the global economy is still not on firm footing for full sustained recovery, at least the chance of another big recession is quite slim.

I have a habit of raising funds from one sector and putting them back there. Though this make no investment sense, but nonetheless, its just my preference. I decided to divest part of my FSLT into PST. PST also have simiar structure like FSLT but with a more sustainable distribution payout policy and loan repayment scheme. Its recent distribution accretive acquisition is the main factor that entice me to cross over. Though I'm aware that they do not yet have the funds to acquire them and most probably will require equity raising in late 2010 or early 2011, I believe the yield will still be higher post capital raising.

To put things in perspective. There are two deep cyclical sectors I'm vested, Shipping and Oil & Gas (O&G) Support. Both are still going through pretty bad storms (poor demand and oversupply of vessels) and no one can tell when the storm will blow over. But I'm pretty sure when the sunlight burst through the clouds, the returns will be good. No better time to invest other than bad times.

Partially divested Singapore Airlines(SIA) into Singapore Airport Terminal Services(SATS) on 6 July 2010

If I'm optimistic about the future of SIA (versus the aviation gloom that just ended), I'm even more optimistic of SATS. As more people fly, both companies will benefit. In addition, for SATS, its newly acquired food business (Singapore Food Industries) is fast becoming a fat cash cow. From its annual report, it can be seen that its benefiting from the opening of the two Integrated Resorts. It is also venturing into Pig farming in Jilin province in China. My view is that SATS will become a strong food supplier as it diversify its income stream away from airport support services, an area that will only become more competitive as more players are brought into Changi Airport.

Took more profit from Cambridge Industrial Trust(CIT) into Starhill Global REIT on 29 July 2010

Though CIT was giving a yield of more than 10% versus that of Starhill Globals's 6%, but in terms of discount to net book value, at 50 cts, CIT is trading at 15% discount while at 58 cts, Starhill Global is trading at more than 35%. Looking through the assets of Starhill Global (Ngee Ann City, Wisma Atria, freehold David Jones Building in Perth, Australia, freehold Roppongi Terzo and PRIMO in Tokyo, Japan) I personally think they don't really deserve to trade at such a 'steep' discount when Capitalmall Trust trades above its net book value! Thus for Starhill Global, I'm looking for at potential for capital appreciation rather than cash flow from dividends like CIT.

Conclusion

While the worst of the global recession seems over, the economic recovery does not seems to be on firm footing yet. Some of the stimulus spending initiated by governments across the globe are not terminated yet. In fact, US actually pledges to further increase their stimulus spending. Thus I presume most of the financial performances reported so far do not reflect their true potential when the global economy fully recovers. Hence I see more investment opportunities ahead, as market overreact to negative news that comes out once in a while.