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Saturday, 14 August 2010

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.

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7 Comments:

Blogger Musicwhiz said...

Hi Market Uncle,

Interesting to read about your decision to switch partially from SIA to SATS. Wouldn't you say that with the global crisis behind us, air travel will pick up and benefit SIA? Why not just hold on to your stake and ride the upswing in travel demand? Was thinking you could use funds from divesting other companies to funnel into SATS instead.

Just my 2-cents. Thanks!

Musicwhiz

14 August 2010 at 14:15  
Blogger Market Uncle said...

Haven't been monitoring blogs lately and just knew you had also divested away from FSL :)

Anyway, as I weigh my options, I decided to bet heavier on SATS versus SIA because of the weaker global economic recovery in sight. Air travel is very sensitive to the global economy, especially when SIA profit more from the premium class of travellers.

14 August 2010 at 16:27  
Blogger AK71 said...

Hi Market Uncle,

Would you be interested in investing in AIMS AMP Capital Industrial REIT and Saizen REIT, both of which are trading at a huge discount to their NAVs? The former at a 27.5% discount and the latter at a 60% discount (40% discount if warrants exercised). :)

17 August 2010 at 13:30  
Blogger Market Uncle said...

AIMS AMP Capital Industrial REIT is similar to Cambridge, i.e. industrial properties, thus these assets can't compare to quality ones such as Starhill Global and Capitalmall trust. Anyway, the way the management have to take desperate measures to keep the trust alive by putting shareholders through steep DPU diluting solutions is not something I'm comfortable with.

As for Saizen, the fact that the trust have to default on its debt and stop DPU goes to show how badly the REIT is also managed and rated.

Not considerating these, at least not at current valuation.

17 August 2010 at 21:28  
Blogger Wedding Gifts, Favours, Bells... said...

hello....

does the latest 2Q result of starhill global includes the contribution from their newly acquired properties in KL?

22 August 2010 at 14:57  
Blogger Market Uncle said...

Hi,
You can check out their latest 2Q results for info. Its stated that "2Q 2010 Gross Revenue does not include revenue from Starhill Gallery and Lot 10".

23 August 2010 at 16:01  
Blogger Glare said...

Hi Market Uncle,

This is Glare here again.

I vested Raffles Edu. Do you think this stock is worth to invest?

I'm having 20% paper lose now at current price 0.295.

Any sign of recovery in short term say 2-3 months time base on your analysis?

23 August 2010 at 21:09  

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