Fortune REIT - Another Temasek Holdings Investment

Fortune REIT is an interesting stock. In the realm of REITS listed in Singapore, it is one of the few ( maybe its the only one, we are not sure as we did not check every single REIT) which has current assets approximately equals to its current liabilities. If you have read our previous articles on REITS and about Fortune REIT, most of the REITS in Singapore have current assets very very very substantially lower than their current liabilities, which actually is quite normal given the well known fact that these entities borrow heavily to finance their operations. So let us relook at Fortune REIT , given that they just released their financial statements. Lets use some primary school maths on percentages, shall we?

TAKEN FROM THEIR SLIDES RELEASED ON NOV 08 ( ABOVE)

Firstly, at first glance, it looks impressive, doesn't it?Solid Operations, No Refinancing Needs, blah, blah,blah..all the marketing talk which actually makes us more determined to research the company actually. Circled in RED, it states that currently their portfolio of property has an occupancy of 94.4%, but let's look at their porfolio expiry profile below.

TAKEN FROM THEIR SLIDES RELEASED ON NOV 08(ABOVE)

It states that in the fourth quarter of 2008, 7.7 % of their occupied space is expiring. Let us assume that the 7.7% do not renew. That will leave us with (100%-7.7%) times stated current occupancy level of 94.4%, which gives us an occupancy level of 87.1% at end of this year. Let's look at 2009. As stated above, 33.4% of their occupied space is expiring in 2009. Assuming that the 33.4% do not renew, this will give us an occupancy level of (100%-33.4%) times 87.1%, which turns out to be 58%! Imagine going to a shopping centre, say Suntec City where around 4-5 shops out of 10 shops are closed!

This is the worst case scenario of course. There might be new tenants coming in to take up the slack, some or even all of the tenants might actually renew, and we might even be wrong in our interpretation of "% of occupied space expiring" in their slides. But well, no definition from Fortune breeds speculation.....(Just added: We are not experts in shopping malls leasing, maybe its the industry practice, not perculiar to Fortune. But from a layman's perspective, given these times, its some food for thought!)

Anyway, we are pretty disappointed with the investor relations department of this company as they did not reply on our query on how they are going to mitigate this risky outflow of tenants. Why the following sentence if you are not going to reply ?

"For general enquiries, please email us at enquiries@fortunereit.com and we will respond promptly."

Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

Benjamin Graham - I spanked Warren Buffet!

We found this article from briefing.com which wrote about one of Benjamin Graham's investment criteria and we thought it was a great idea to incorporate it into our investment strategy. This is a bloody stringent criteria to follow that would dramatically reduce the list of stocks we are looking at at the moment, but hey, if not now..then never, right?

Quote:One of Graham's investment fund strategies, as explained in his best-selling book The Intelligent Investor, was to buy stocks that are valued at a discount to their net current asset value. Graham called such stocks "bargain issues." In other words, Graham would look for stocks whose current assets less total liabilities was worth more than what the stock was trading at. This meant that any plant, property and equipment, goodwill and long-term investments were free.
Graham believed this approach lowers risk because if a company defaults, shareholders still stand to recoup their losses and possibly profit as the company is liquidated.
Since many companies that trade below their net current asset value have weak prospects, Graham would often have a portfolio of 100 such stocks to limit the impact of one company defaulting. Graham said that 90% of the bargain issues returned a satisfactory profit over 35 years.
Graham's investment fund, Graham-Newman Corp., returned 14.7% annually from 1936 to his retirement in 1956, versus the 12.2% return of the stock market, according to The Intelligent Investor (revised 2003 version). After 20 years, a $100 initial investment would have been worth $1,533.35 in Graham's fund, compared to $999.67 in the overall stock market.Unquote

SGDividends will now start combing the sphere of SGX shares to see whether there are any such stocks available trading below their net current assets per share. Stay tuned.