TECFAST – An Almost Guaranteed 80% Upside?(Guestpost)

June 4, 2021 admin

TECFAST (0084) : An Almost Guaranteed 80% Upside?

This post was originally posted here. The writer, Teoh Tian Heng is a veteran community member and blogger on InvestingNote, with a username known as @thteoh58.

Dear investors, if you are reading the article, that means that you surely are not settling with a mere 10% to 15% rate of return per annum for your investments. I mean, who does?

Anyway, the article today will show you a qualitative and quantitative study on the business of TECFAST as well as the finances, as to how this company could be almost guaranteed to deliver a MINIMAL of 60% upside.

Qualitative Studies

TECFAST (or the “Company”) had an elaborate plan as to what, and when to venture into the oil and gas business. Dated 6th November 2020, we noticed that there is an LOI between Fast Energy Sdn Bhd (“FESB”), a wholly owned subsidiary of TECFAST and Zillion Oil Timor LDA. This marks the very beginning of journey for TECFAST to enjoy the recovery of busy offshore activities as well as the recovering oil price.

However, the LOI does not show any materialized information. It was until 15th March 2021 that the Company starts to deliver on what they promised.

Dated 15th March 2021, the Company had entered into a supply agreement between FESB and Wise Marine Pte Ltd (“Wise Marine”) – one of the largest ship management services players in Singapore, with a total contract value of RM2,222,856,000.00. With this size of a contract, it is normal for investor to treat it as some “not realistic”. Hence, the reflect in share price upon the announcement.

A deeper study into a contract would note that FESB would supply up to 30,000 metric tonnes of low sulphur fuel oil, low sulphur marine gasoil and high sulphur fuel oil per month to Wise Marine. The marine gasoil or fuel oil are collectively known as Marine Gas Oil (“MGO”). MGO are mainly used to power offshore transportation vehicles, such as oil tank, vessels, bunker ship and so forth. It is also interesting to point out that whatever FESB was selling to Wise Marine are based on a certain premium on top of the costs, are more commonly known as the “Cost-Plus” basis. This does not mean that FESB will never suffer losses, but as long as MGO prices are stable or on an uptrend, TECFAST as the holding company, would be the beneficiary of it.

A reference on Singapore Mogas 95 Unleaded Futures could see that since July 2020, the prices of MGOs are increasing on a steadfast trend.

…

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Koda – Clear surge in furnishing spending trend(guestpost)

June 2, 2021 admin

Koda – Clear beneficiary of the surge in home furnishing spending trend (1 Jun 21)

This post was originally posted here. The writer, Ernest Lim is a veteran community member and blogger on InvestingNote, with a username known as @el15 and has 500+ followers.

Since 20 Aug 2020, Avarga has more than doubled from $0.146 to close $0.305 on 1 Jun 2021. Avarga’s strength is likely attributed to its 69.7% stake in Taiga (Taiga is Canada’s largest wholesale distributor of building materials, such as lumber, panels, doors, engineered wood, roofing and others). Taiga’s business has been flourishing due to the strength in home furnishings and the housing market in Canada and US.

By extension, Koda may be another proxy to benefit from the surge in home furnishing spending trend. It is noteworthy that Koda is an Original Design Manufacturer / Original Equipment Manufacturer to its customers in North America. In fact, customers in the North America region constitute approximately 55% of its FY20 revenue. Its forte is in home furniture, and it is possibly the largest dining room furniture exporter in Southeast Asia. Home furnishing seems to be in demand as consumers stay at home and have more disposable income to spend (rather than travel) to improve their homes.

In fact, Koda’s 1HFY21 revenue and net profit jump 16% to US$39.6m and US$4.8m respectively on good demand for furniture.

Given this promising backdrop, it may be timely to take a closer look into Koda. I have the privilege of meeting Mr Joshua Koh, CEO of Commune Lifestyle Pte Ltd and Mr Kenny Zhang, CFO of Koda (“Management”) for a 1-1 discussion over Koda / Commune’s operations and prospects via Zoom. The below is my personal interpretation of my discussion with Koda’s management and my own inferences from Koda’s announcements on SGX.

Koda’s & Commune’s background

Koda was established in 1972 by Mr Koh Teng Kwee. It started by producing wooden TV and speaker cabinets. Since its inception, Koda has progressed from being an Original Equipment Manufacturer (OEM) to an Original Design Manufacturer (ODM). Its forte is in home furniture, and it is possibly the largest dining room furniture exporter in Southeast Asia.

Besides its ODM business, Koda established Commune Lifestyle Pte Ltd in 2011. This is their in-house brand and managed by the 3rd generation of the founding Koh family. Commune has presence in Singapore, Malaysia, China, Philippines, and Hong Kong. Readers can refer to the respective websites for more information on Koda (click HERE) and Commune (click HERE).

Koda has been listed on SGX since 18 Jan 2002.

What is so interesting about Koda?

Outlook continues to be bright

Based on 1HFY21 results (financial year ends in June), management continues to see encouraging growth in their export orders and they expect the capacity utilisation rates for our key factories to remain consistently optimal. This is attributed to generally higher demand for furniture arising from work-from-home arrangements.

Their recent proposed acquisition of Land Use Right and a factory building in Long An Province, Vietnam (see announcement dated 25 Mar 2021) to expand their production capacity corroborates the positive momentum that they are seeing in their business.

Margins are likely to be steady amid strong demand

Notwithstanding the rise in costs from timber, fabric, metal frame, foam, and shipping etc, Koda believes that they should be able to maintain their current gross profit margins (“GPM”) of around 30 – 32%. This is because firstly it can pass on such costs to the customers amid strong demand. Secondly, their Commune business has GPM of around 50%. As this segment grows and becomes more significant, it may even be able to raise its overall GPM to above 30 – 32%.

…

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Learning to Die with Zero. The Last Check Must Bounce (guestpost)

May 25, 2021 admin

My friend Christopher Ng recommended to his reader to read this book by Bill Perkins called Die with Zero.

I do not know whether it is a good book or not but I think it might be thought provoking enough for me to read it.

Die with Zero sought to answer a core question we all seek:

What’s the best way to allocate our life energy before we die?

This post was originally posted here. The writer, Kyith Ng is a veteran community member and blogger on InvestingNote, with a username known as @kyith and has 1,000+ followers.

When Bill released this book, I also heard many interviews that he did to promote his book. This book… might be the book to help re-calibrate my thinking. After doing so much research on how much a person need to accumulate so that they won’t run out of money in retirement, we need a book to teach us not to spend all our time accumulating.

Is this a good book? Personally, I find it hard to connect with.

In this article, I list out some of the notable takeaways from Bill Perkins.

Consumption Smoothing

The first concept that Bill explained was consumption smoothing. Bill took a page out of a time when he started working not too long ago. Back then, he was very thrifty and extremely proud about it.

However his boss, who is a partner at the company he worked for was astonished he was saving so much.

“Are you a f***ing idiot? To save that money?”

It was a slap across Bill’s face.

In his boss’s mind, Bill would eventually made much more than that.

He could certainly spend today and not save this sum of money.

It was a life-changing moment for Bill as it cracked his head open to new ideas about how to balance his earnings and spending.

If we look at our income chart over the years, it should be upward sloping. Due to our experience over time, we should earn more.

If we know that, we should be able to spend a greater percentage of our income today because eventually, we will make more and our savings rate will go down, but the savings in the future will make up for the higher consumption today.

We will basically transfer money from years of abundance into the leaner years.

What is difficult to connect for a lot of people is how much higher would your salary be in the future?

To use myself as an example, some of my peers are currently director of security while others are still a team lead in a small company.

If we smoothed out our income, the director of security and the team lead would be totally different.

I get the idea but I think whether it is sensible for us to do that or not is subjective.

Investing in Experiences

Patience Is Required For Alibaba And JD.com (guestpost)

May 18, 2021 admin

This post was originally posted here. The writer, Brian Halim is a veteran community member and blogger on InvestingNote, with a username known as @3Fs and has 2,000+ followers.

I thought I’ll pen down my thoughts after receiving a number of emails this week from various sources asking for guidance on two big China cap names – Alibaba and JD.com – both of which have seen shares plummeting each day for the past few consecutive weeks.

Many readers would also know that I own Alibaba shares from my last monthly update and have also recently written a piece on JD analysis so it’s something which I’ll walk the talk.

Alibaba Group Holding Ltd (NYSE: Baba)

alibaba-image-blog

Let’s start with Baba first.

This is probably the most hated large cap company right now in the entire planet.

The entire saga started when the intention to list Ant IPO was shelved and the State Administration for Market Regulators went to investigate the entire company’s holding structure.

Since then, the State of Administration has concluded by fining the company US$2.8billion – which the company chose to take in the Q4 FY2021 report announced last night.

The entire saga has shed the company 37% (more than 1/3) of its market cap from the peak – which in my opinion is a bit overdone. The RSI indicator confirmed the same by showing that the counter is currently in oversold territory.

If we look at the results announced yesterday, total revenue for the quarter was RMB 717 billion, an increase of 41% year on year.

The growth was driven by robust revenue growth of the China commerce retail business (Taobao, Tmall) and the continued growth of its cloud computing business.

Total adjusted EBITDA was RMB 170 billion, which is an increase of 24% year on year. There was the one-off adjustment from the anti-monopoly fine which was taken in the quarter, so it pushed the net comprehensive income for the quarter to negative loss territory.

Cash position remains solid at RMB 479 million with free cash flow coming in strongly at 32% to RMB 173 million.

During the conference call held yesterday, management has reiterated its intention to continue investing in R&D and also new seed of businesses such as Taobao Deals (which aims for the lowest of the market segment tiers), Taobao Grocery, Freshippo supermarket (which is the community marketplace business) and new features on the core platform such as Taobao Live and short-form video. The company is also enhancing its logistics arms, CaiNiao to give its competitors such as JD a good run for their money.

…

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EC World REIT’s Q1 FY2021 Results (guestpost)

May 15, 2021 admin

This post was originally posted here. The writer, Lim Jun Yuan is a veteran community member and blogger on InvestingNote, with a username known as @ljunyuan and has close to 2,000 followers.

China-based logistics REIT, EC World REIT (SGX:BWCU) released its financial results for the first quarter of the financial year 2021 ended 31 March 2021 after market hours yesterday (11 May 2021.)

The REIT is one of the few that has continued to report its full financial results, along with payout a distribution to its unitholders on a quarterly basis – both of which are something I appreciate as a unitholder.

In this post, you will find key highlights about the logistics REIT’s latest financial results, debt and portfolio occupancy profile, and distribution payouts, along with my personal thoughts to share.

Let’s begin…

Financial Results (Q1 FY2020 vs. Q1 FY2021)

	Q1 FY2020	Q1 FY2021	% Variance
Gross Revenue (S$’mil)	$23.5m	$30.8m	+30.9%
Property Operating Expenses (S$’mil)	$2.4m	$3.1m	+30.3%
Net Property Income (S$’mil)	$21.1m	$27.7m	+30.9%
Distributable Income to Unitholders (S$’mil)	$9.3m	$12.4m	+32.9%

From the table above, you can tell that the REIT’s latest quarter results was an improved one across the board.

The improvements in its gross revenue and net property income can be attributed to the absence of rental rebates given out to tenants to help them mitigate the negative impacts of the Covid-19 pandemic in the same time period last year, along with the Chinese Renminbi strengthening by 3.5%.

In-line with the improvements in its gross revenue and net property income, the REIT’s distributable income to unitholders also increased by a similar percentage.

Debt Profile (Q4 FY2020 vs. Q1 FY2021)

Next, let us take a look at the REIT’s latest debt profile (recorded for the first quarter of FY2021 ended 31 March 2021), compared against that recorded in the previous quarter three months ago (i.e. Q4 FY2020 ended 31 December 2020) to find out whether it has improved, remained consistent, or deteriorated:

	Q4 FY2020	Q1 FY2021
Aggregate Leverage (%)	38.1%	38.3%
Interest Coverage Ratio (times)	2.62x	2.79x
Average Term to Debt Maturity (years)	1.6 years	1.4 years
Average Cost of Debt (%)	4.2%	4.1%

My Observations: Personally, I felt that the REIT’s debt profile for the current quarter under review, compared to the previous quarter 3 months ago, was a mixed bag – first, the positives (in my opinion): a slight decrease in its average cost of debt, along with its interest coverage increasing slightly; the negatives: its aggregate leverage edging up slightly, along with its average term to debt maturity (which is now at 1.4 years, from 1.6 years in the previous quarter.) …

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Which Singapore-Listed Bank Had the Most Resilient Set of Q1 FY2021 Results? (guest post)

May 10, 2021 admin

Which Singapore-Listed Bank Had the Most Resilient Set of Q1 FY2021 Results?

This post was originally posted here. The writer, Lim Jun Yuan is a veteran community member and blogger on InvestingNote, with a username known as @ljunyuan and has close to 2,000 followers.

All 3 Singapore-listed banks (in DBS, UOB, and OCBC) have reported their business updates for the first quarter of the financial year 2021 ended 31 March 2021.

As a shareholder of all 3 banks, I have reviewed and posted a summary when their results were released. In case you’ve missed out, you can find them below:DBS: https://www.thesingaporeaninvestor.sg/2021/05/04/dbs-group-holdings-q1-fy2021-business-updates-key-highlights-and-my-thoughts/

UOB: https://www.thesingaporeaninvestor.sg/2021/05/06/my-review-of-uobs-latest-q1-fy2021-business-update/

OCBC: https://www.thesingaporeaninvestor.sg/2021/05/07/overseas-chinese-banking-corporations-q1-fy2020-business-update-key-highlights-and-thoughts/

In this post, I’ll be putting the 3 banks’ key financial results, as well as its key financial ratios side-by-side to find out which one had the strongest set of results for the current quarter under review. Also, you’ll learn about which bank is currently the ‘cheapest’ based on its current valuations.

Let’s begin…

Key Financial Results (Q1 FY2020 vs. Q1 FY2021)

In this section, you will find a comparison of the 3 banks’ key financial results for the first quarter of the financial year 2021 ended 31 March 2021, compared against that reported in the same time period last year – i.e. first quarter of the financial year 2020 ended 31 March 2020: …

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Top 5 Stock Picks to Avoid in 2021 for buy and hold Investors (guest post)

January 7, 2021 admin

A Happy New Year to all investors,

Here is my top 5 pick for stocks to AVOID for buy and hold.

Image may contain: sky, text that says 'TOP 5 STOCKS TO AVOID IN 2021 FOR BUY AND HOLD INVESTORS in InvestingNote'

This post was originally posted here by one of our community members.

1)$SIA(C6L.SI)

The aviation industry is going through a hard reset. While vaccines are starting to be available, it will take many many more months (infection number still raising) for all countries to gain herd immunity. A likelihood of SIA doing more rounds of fund raising which will dilute existing shareholders.

2) $First Reit(AW9U.SI)

For REITs that depend on master leases it is vital for investors to check the financial strength of the counter party. If the tenant has weak financials doesn’t matter how the lease is restructured or how much $$ the REIT raise. A responsible REIT manager will know when it is time to liquidate the properties and return $$ to shareholders before more value destruction happens. …

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The Curious Case Of SIA’s Price Action After Ex-Rights (Guest post)

May 8, 2020 admin

I am not sure if there are any fellow investors who find the price action of SIA (Singapore Airlines) pretty weird yesterday, the first day it went ex-rights. The stock actually appreciated more than 20+%!

This post was originally posted here. The writer, Royston Tan is a veteran community member and blogger on InvestingNote, with username known as Royston_Tan.

SIA RIGHTS: THE CURIOUS CASE OF ITS PRICE ACTION

SIA went ex-rights today and there was some pretty weird action in its share price which I can’t seem to understand. I have previously written this article: SIA Rights Issue: Debunking the complication behind the Math. In that article, I tried to “simplify” the seemingly complicated SIA rights issue announcement and more importantly, look to calculate what might the trading price be for the Rights and the MCBs when they start trading on the bourse.

SIA’S VALUE WENT UP BY 26% OVERNIGHT?
SIA’s share price closed at S$5.91 yesterday. This morning, it went ex-rights. First I believe that the “Rights” here includes both the 1) Right Shares as well as 2) the Rights MCBs.

SIA previously calculated that the Theoretical ex-rights Price (TERP) was S$4.40/share based on the last traded price of S$6.50 before the announcement of the intended rights issue was made. This TERP only includes the Rights Share component, based on the issuance of approx 1.78bn shares.

I shown that the calculation of the TERP price was as such:

At S$6.50/share with 1.18bn of outstanding shares, the market cap of SIA is S$7.67bn.

With the issuance of 1.78bn rights shares, the total number of shares will increase to 2.96bn. Total amount of capital raised = 1.78bn * S$3.00 = S$5.34bn.

So post rights issuance market value of SIA = (existing market cap (S$7.67bn) + new cash raised (S$5.34bn)) / total number of new shares (2.96bn) = S$4.40/share.

Based on the last closing price of S$5.91 which indicates a market cap of S$6.97bn, the TERP should be (existing market cap(S$6.97bn) + new cash raised (S$5.34bn))/the total number of new shares (2.96bn) = S$4.16/share.

This morning, SIA’s share price open at S$4.20 which is around the calculated TERP. However, it traded up to as high as S$5.04 and as of this writing, it is at S$4.77.

The current price of S$4.77 is even higher than the TERP price of S$4.40 base on a pre-ex-rights price of S$6.50. The current S$4.77 price would indicate a pre-ex-rights price of S$7.44! WoW. Overnight, SIA’s price/share has increased from S$5.91 to S$7.44 which is an appreciation of 26%! What is going on here?

Seriously, I am not sure what the market is thinking at this moment pertaining to SIA. In the analysis above, I have also excluded the impact of the MCBs which should indicate a much lower TERP of S$4.16/share. Granted that these MCBs are not convertible to shares immediately. I have previously calculated that the ex-right price after all the conversions would have been in the arena of S$3.71/share based on the last closing price of S$5.91.

What is going to happen if the share price of SIA stays at S$4.77 when the rights are converted to shares (on the 8 June)?

Let’s assume that an investor bought 1000 shares of SIA yesterday at S$5.91/share. The total outlay will be S$5,910 (excluding comms etc). For 1000 shares, he will be entitled to 1,500 right shares. He can exercise the rights, paying S$3/rights, and convert them into actual shares.

His total outlay will be S$10,410 (S$5,910 + S$4,500) and he is now the proud owner of 2,500 SIA shares. At S$4.77/share, that will equate to a market value of S$11,925 which is a quick profit of S$1,515. In addition, he will still have 2,950 Rights MCB which should be worth some value when they are tradeable.

I last calculated that value to be approx S$0.37/Rights MCB. 2,950 of them will equate to another S$1,091 in value. Total profit could be a hefty S$2,606 based on an outlay of S$10,410 or a quick turnaround of 25%! Even if I am wrong in the calculation of the Rights MCB value, it cannot be negative.

Hence an investor who bought SIA shares at S$5.91/share before the ex-right date (which is May 6) will be able to pocket at least S$1,515/share if the share price remains at S$4.77/share when his rights are converted to shares. Alternatively, if he is concern that the share price might decline from the current level, he can hedge and lock in the profit by shorting the counter (perhaps through CFDs or borrowed shares) until his rights are converted to actual shares.

if SIA’s share price is lower at that point, his hedges make money. If SIA’s share price is higher at that point, he can offset the losses on his hedges with his actual shares which are now worth more.

There could be other factors in play that might explain the price action of SIA such as potential redemption of short positions driving its share price up or the market all of a sudden became extremely positive over this rights issue. Bloomberg claims it could be due to hopes of easing lockdowns.

Already there are casualties in the market. The daily leverage -5x counter of SIA has been suspended as the underlying price has appreciated more than 20% from their theoretical adjusted price of S$3.71 which means that losses are now in excess 100% for this leverage product.

SIA RIGHTS: KEY TIMELINE

6 May: Ex-rights

13 May to 21 May: Rights and MCBs are being traded on the bourse

28 May: If you still own the Rights or MCBs (as original SIA shareholders who are entitled to it or if you purchase on the open market), this will be the last day for subscription. You can pay for your rights through the ATM if your SIA shares are held under your own CDP or pay it through your custodian broker account.

8 June: Rights share will start trading (if you have subscribe to your rights by paying S$3/rights, you will now have additional SIA shares)

9 June: If you have subscribe to your Rights MCBs at S$1/MCB, your rights will be converted into bonds which are also traded.

CONCLUSION
This has really been an eye opener and frankly a development which i did not expect.

SIA’s market cap has just appreciated by 26% overnight!

For readers who have more insights pertaining to this “unique” situation, do feel free to share your thoughts here.

Once again, this article is a guest post and was originally posted on Royston_Tan‘s profile on InvestingNote.

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Is Time Running Out For Keppel And Sembcorp Marine As Oil Collapses Below Zero? [Guest Post]

April 24, 2020 admin

This week saw an unprecedented drop in oil prices to a negative level, almost -$40/barrel to be exact. Such a phenomenon has not happened in the past and it was largely the result of paper traders and Oil ETFs dumping their expiring May contracts “by all means” as buyers disappear.

This post was originally posted here. The writer, Royston Tan is a veteran community member and blogger on InvestingNote, with username known as Royston_Tan.

Since then, WTI oil prices have recovered to roughly $17/barrel as of this writing, a positive figure but not a “champagne popping” price level.

IS TIME RUNNING OUT FOR KEPPEL CORP AND SEMBCORP MARINE?

Keppel Corp posts 40% drop in 1Q earnings to $203 mil on lower one ...

The significant collapse of oil prices does not bode well for both Keppel and Sembcorp Marine. Yes, they do not derive their revenue directly from the sale of oil but indirectly in the form of newbuild contracts for production/drilling-related assets.

The problem is that with oil prices that low amid an oil glut scenario, no oil company in their right frame of mind will be contracting large newbuild orders from yards in the near term, in my view.

Can the existing backlog of Keppel and Sembcorp Marine support revenue recognition? …

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Why Reits Are Likely To Stay At The Top For Longer Than Most People Would Expect (Guest Post)

January 21, 2020 admin

The real estate industry cycle has been around for many years.

Related image

Traditionally, it has several built-in advantages that make it natural for property owners to receive rental income while awaiting for their property to appreciate in value over time. This is due to the higher affluent population group and the higher GDP for the nation as well as decent inflation rise that will all but contribute to an eventual higher property price.

This post was originally posted here. The writer, Brian Halim is a veteran community member and blogger on InvestingNote, with username known as 3Fs and 1800+ followers.

While traditional real estate usually requires high amount of funds to start with and is out of reach by many retail investors, Reits on the other hand are not. They are investment vehicles that is structured to exhibit the same attributes as traditional real estate but more importantly it allows retail investors like you and me with minimal funds to invest in them.

When investors like us buy Reits, the properties owned are generally incorporating a steady income and cashflow predictability into our income-oriented portfolio. Because of this, most of the returns we are getting should be in the form of the dividends that are being paid out. Capital appreciation is a secondary bonus factor, if any due to the nature that they have to pay out more than 90% of their cashflow income as dividends, leaving only a small amount of retained cashflow for any growth opportunities.

How Managers Are Optimizing Their Cost of Capital

Since a REIT is always raising money to grow, its cost of that capital is one of the most important things to help determine a REIT’s long-term investment potential.

There are three sources of capital: undistributed cash flow, equity, and debt.

The cost of capital is the weighted average of all three sources of capital. Undistributed or retained cash flow is by design (and tax law) the smallest but cheapest (free) source of capital.

The next cheapest is debt,measured by the total interest expense it pays out of the total debt, especially in today’s low interest rate environment.

The most expensive source of capital is equity. This makes sense intuitively because each additional share sold is a future claim on a REIT’s cash flow and increases the dividend cost.

Reits Are No Longer Just An Income Play

Gone are the days that Reits are just an income play.

Kep DC Reit – Effective Debt Structure & Accretive Acquisitions

MLT – Exponential Rise To The Top

Thanks to the sluggish global economy that encourages lower funds rate and cheap borrowings, managers are looking to tap into the credit liquidity to leverage their portfolio in this era of lower borrowings.

They would tap for as much leverage the company could take before considering for more access to funds via the equity route.

That is because the cost of equity is usually more expensive than the cost of debt and it would make more sense for them to consider debt first then equity as their main cost of capital to structure the most effective leverage for growth opportunities.

To the managers, they would look for pipeline opportunities and maintain a cost of capital that is lower than the cash yield on new acquisitions in order for AFFO and dividend to grow sustainably over time.

REIT’s leverage ratio, measured by key metrics Debt/Asset or Debt/EBITDA, is important because this is one of the major factor that credit rating agencies use to determine how risky a REIT’s profile is. A lower credit rating increases a Reit’s cost of debt capital, which could spiral into lower return on investment for any growth opportunities.

So REITS can grow over time and quickly for as long as they find good opportunities aided by cheap cost of borrowings and a rising share price, which compresses the cost of equity lower when they are issuing shares for funding.

Conclusion

Investors are generally afraid that they will be diluted when REITS increase their share counts over time so this leads to active participation from investors who will but contribute to this gracious cycle that will allow more funds for management to grow and seek accretive acquisition that will allow the cash yield from acquisition to be higher than the cost of capital on the equity.

Growing cash flow and a well diversified portfolio would then lead to a rising share price and capital appreciation for the investors.

In fact, the likely they remain at the top, the easier it is for management to look for external opportunities because the growth play is likely to remain a big part for a rising capital opportunities.

The only likely swan that could break this cycle is a liquidity crunch as well as a black swan event which eventually leads to a credit crunch which typically leads to increase in the cost of capital. But by then, REITS are not alone. All of the companies in all sectors around the world are likely to be impacted as well.

Thanks for reading.

Once again, this article is a guest post and was originally posted on Brian‘s profile on InvestingNote.

Also, we recently did an interview with Brian, to understand how he invested and traded during the SG Active Trading Tournament here.

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