Sabana Reit - An opportunity to unlock value

On 25 January, Sabana released their latest results presentation. I had a very troublesome time trying to calculate their price-to-book value post-rights.  The adjusted NAV per unit shown refers to pre-rights but naturally, everyone would be interested in knowing the post-rights one as the rights shares has already been issued.

I can't find any information on the new right units in their latest presentation. I had to dig up previous documents in order to find out the number of new rights units... so troublesome.

New rights units = 310,712,244
Units in issue as at 31 Dec 2016 = 742,371,286
Total units in issue = 1,053,083,530
New proceeds = $80,000,000
NAV as at 31 Dec 2016 = $556,795,000 
Total NAV post rights = $556,795,000 + $80,000,000
Nav per unit =  $0.605
Price to book = 0.60

25 January Results Presentation

Lately, there has been this group of investors who are trying to remove the Sabana manager OR to dissolve the trust and sell the assets. It seems to be going well. Therefore, i bought a little bit of Sabana to participate in it. 

The worst case that can happen is that these group of investors fail and i just get an about 7-9% dividend yield . I would much prefer them to dissolve the trust and sell the reit and i get 30-40% return ( assuming it can sell near it's NAV value and after factoring cost of selling). 

Even without these considerations, i think it would be good for me to support the rise in minority shareholder activism as this would sent a message to other companies that they need to buck up and not take us for granted.

REMOVAL OF THE MANAGER OF SABANA REIT

http://sabanareit.blogspot.sg/

Singpost - Don't count on it for dividends

Singpost is not longer the high dividend paying stock it used to be with the change in dividend policy. With the increased shares due to placement, their latest half year earnings per share is illustrated to be 2.63 cents.

 Extrapolating this to a full year earnings per share = 5.26 cents.

With a 60% payout ratio = 3.156 cents
Dividend yield (last done price $1.495) = 2.11%
With a 80% payout ratio ( last done price $1.495) = 4.208 cents
Dividend yield = 2.81%

The range of 3.156 - 4.208 cents is a fall from the usual and consistent 6.25 cents.

To be fair to Singpost, the earnings per share does not take into account the following:
1) peak shopping season in the second half of the year
2) cost savings due to their Regional eCommerce Logistic Hub which opened only in Nov 2016.
3) Reopening of SPC retail mall in mid 2017
4) Completion of synergies between their acquisitions such as Jagged Peak and Trade Global

4th November 2016 Presentation

5th January 2017 Presentation

Interest rate sensitivity of Sabana

Like a moth to a flame 

Burned by the fire 

My love is blind 

Can't you see my desire?

 - Janet Jackson

So if you have read my previous post about this particular "Hot sweet young thing " friend who recommended me to buy Sabana, she is back to recommend me! After Sabana's price having dropped further to $0.38 from the price of $0.51 when she recommended me. (Due to rights).

Hot Sweet Young Thing ( onwards called HSYT) said:" COme oN, a lousy business is a good investment at the right price. Can you calculate how Sabana will be affected by the rise in interest rate instead of just amplifying what is thrown around about a rise in interest rate and REITS are going to die...PleAse!"

Being a HSYT does have her privileges....so....

To calculate the debt of Sabana post rights

Using the above to calculate Debt

To calculate the distribution of Sabana post rights

With the 3 new purchases, the increment in distribution is assumed to be $6.15 million per year. This figure is attained from investmentmoats.  I agree with his way of calculating this figure. I emailed Sabana investor relations for a post -rights forecasted distribution but they replied that they were unable to provide and told me to wait for the Offer Information Statement ( together with the application forms) which will include more information.

Pre-rights latest distribution annualised based on the table below = 4.77cents per unit.
Pre-rights total number of shares  = 778 million.
Pre -rights total distribution annualised per year = $37.1 million ( $0.0477 times 778 million shares)

Lastest distribution pre-rights for annualised DPU

Interest rate sensitivity of Sabana post rights

Interest rate sensitivity

By the way, it is quite irritating that Sabana isn't able to give a forecasted DPU while other Reits do give. This makes it troublesome to do the above. Arrgh the privileges of a HSYT....

Interest rate rise and interest coverage

Since Sabana Reit has already fallen so hard, why not buy it as there should be enough of a margin of safety ( P/B 0.66) and all bad news have already been priced in. Yeah why not, good idea!

Except that the Federal Reserve has indicated a few rate rises next year and here is the picture.

By compiling the interest coverage ratios of the REITs, it can be seen that Sabana Reit has the lowest interest coverage ratio of 2.63 and any increase in finance cost would hit it hardest.

Anyway,  I do think that concerns about gearing is over-rated  as looking at Ireit, it has a whopping high gearing of 42.5%, one of the highest among the REITs, and yet its interest coverage is also one of its highest and its dividend yield too. Besides, some REITs engage in issuing perpertual bonds which are not reflected in their debt.

Nothing interesting to buy so far!

Should i buy Sabana Reit at a Price to Book of 0.66 and dividend yield of about 10%?

My friend recommended me Sabana Reit as it was trading at a dividend yield of about 10% and  at a P/B of 0.66. Sounds good right!

I made a 'big picture' comparison with its peers and it loses in many metrics. I think i will give it a miss.

What will i be doing since the STI has surged

As of writing, the STI has hit a high of 2960.67. Don't know whether to be happy or sad. I'm happy because my concentration of purchases in banks since September 2015 and throughout 2016 paid off. I am quite happy because my Super Group shares are very highly likely to be privatized. I made a loss as i went in at the wrong entry price and its a lesson RE-learnt to not fall in love with a stock. I'm happy because ARA which i acquired this year got privatized and this is a gain in profits. I am sad as with this surge in the market, i haven't the opportunity anymore to increase my income from buying high dividend paying cheap stocks. There were considerations on whether i should take some profits on my banks since the RSI ( relative strength index) has hit a very extreme overbought level but i think i won't as i do not know where to put the cash and i am not a trader by nature ( i realised again!).

There has been many wrong forecast in the media about where the market will go, like people thought the Brexit or Trump event will cause some upheaval in the market but look at where we are now. I have re-learnt that there is no point in forecasting, just look at the current situation and see whats best( with some gunpowder of course).So, as i really don't know what to do, i have finally surrendered to investing in the NIKKO STI ETF. This is because other than the benefits of diversification to reduce risk( yawnzz) i get 2% commission to purchase the ETF. Yes, i get 2% commission not pay 2% commission which means i make an immediate guaranteed 2% gain everytime i buy. Without being paid 2% commission, i would not be buying an ETF as it's only giving me between 2-3% yield pa which doesn't fit into my style of investing. Furthermore, I do not think the STI is in overvalued territory ( or bargain price) and so will just continue with this until it hits 3100 then i will stop.

Been reading a book by Bobby Jeyaratnam and reading up on the financial presentations by the different REITS in Singapore and I am beginning to change my opinion on them after many years of observing and reflecting. I will be looking into finding any good opportunities to load them.

Renew COE for 10 years versus 5 years versus brand new similar car

As i like to quantify things, i just needed to do up the following table to see how much savings i make if i were to renew my COE car. Note that the depreciation which i calculate is much more stringent than the depreciation that is thrown around frequently in forums or sgcarmart and the likes because i also took into account the increase in annual road tax, the increase in the mandatory vehicle inspections and the overhaul i did for my old ride.

Just to say:

Annual road tax increases by 10% every year till the 5th year. 5th year onwards, it will remain at 1.5 times times the original road tax.

Mandatory vehicle inspections is required yearly for old cars while brand new cars only need to do inspections on the 3rd,5th,7th and 9th year.

As i am able to use full cash for all three options, interest payments on car loans will not be included. Insurance will also not be included. In my opinion, old cars only need third party insurance as if one encounters a major accident, just scrap the car and get back the prorated COE. If interest payments and insurance is included in the calculation, buying a brand new car will be much more expensive as comprehensive insurance and loans are normally required for brand new.

Renew 10 year VS Brand new car , i save $2270 per year.

New 10 year VS renew 5 year, i save $586 per year.

Some may say that the higher upfront cost ( $26,670) i fork out for renewing for 10 year vs renewing for 5 years would have lost me interest if i were to put in fixed deposit for 5 years or the likes of a risk-free investment and negate the $586 in yearly savings. But i see the option to renew anytime for 5 more years as valuable since COE can swing from $1000 to $90,000 and 5 years from now has a very high probability of a much much higher COE, looking at the COE cycle.

Just writing to straighten out my thoughts.

Tips for renewing car

Alas, my trusty Japanese car is turning 10 years old and i have decided to renew its COE as it still runs smoothly and a check with my trusted mechanic says that it is in perfect condition for 10 extra years. Base on the COE chart below, i was hoping that the cost of COE would go down since 2006 had the highest COE quota given out and that more people would deregister in 2016. It didn't go down much to my utter dismay.

Who would have thought that Grab and Uber would buy so many cars in such a lackluster economic climate!

Anyway, from what i gathered, here are some findings i would like to share. In sharing, i hope to receive constructive feedback in case my thinking is not optimal or plain wrong.

1) The best times to renew COE

The best time to renew is after the third wednesday of the prior month to your deregistration date, depending on the 2 scenarios below.

Take for example my scenario.

My car is to be deregistered on 5 October 2016. The September PQP is $53339.

If i see that the COE bidding for the 1st and 3rd wednesday of September is lower than $53339, i can be absolutely certain that the October PQP will be lower than $53339. I will then renew my car in October before 5 October.

If i see that the COE bidding for the 1st and 3rd wednesday of September is higher than $53339, i will renew it  before 1 October.

In considering the above, take note that if you renew your COE on the deregistration month, your new COE starts the day after your deregistration date. If you renew your COE anytime before your deregistration month, your new COE starts from the 1st of the next month. 

2) Renewing in CASH ( No loan) for a 10 year period is generally better than a 5 year period at this point in time

The disadvantage of renewing for a 10 year period is the high upfront cash you have to fork out. It gets stuck with the government until you choose to deregister your car and get back the prorated unused portion of the COE. 

However, renewing for a 10 year period gives you an option to deregister your car anytime while awaiting for the COE to drop drastically. You can renew for another 10 years, in blocks of 10, indefinitely. If you renew only for 5 years, you can still deregister anytime, BUT you are compelled to deregister on the 5th year and can no longer renew .What if the COE within the 5 years is still super high?

Furthermore, looking at the COE quota cycle currently, by renewing COE for 5 years now, one is caught at the wrong part of the COE quota cycle as 2011 had very few COE quotas.

Other advantages include amortising your foregone PARF over a period of 10 years instead of 5 years. Take note that when renewing COE, road tax increases 10% every year till the 5th year before remaining at 150% of the road tax for the remaining years.

3) Japanese cars is generally more worth it to renew than Continental car, unless you are driving a classic continental car which appreciates in value

Japanese cars generally have lower PARF forgone. Also, Japanese cars generally have chock full of available parts, not to mention being more reliable. 

For my case, my car depreciation per year if i were to renew for 10 years is about $6000 per year, compared with the minimum depreciation of $9000 per year if i were to buy a brand new car.

Sorry.I can't help it. There is a saying that the more we mention about something, it comes true. I'm hoping for the stock market to fall.

The car i cant' afford nor want nor desire