What to do for ESR Reit - Viva Ind Trust Merger?

Exciting news from ESR and VIT! Merger! (BT 19-05-2018)

Are you clear of what to do next? Are there any arbitrage opportunities? I shall bring you through the process of evaluation of the scheme to find out what's best for you. The evaluation is simple yet taunting to investors, especially if you have no time to think through it.

Details of the scheme here:
PDF: VIT SLIDES
PDF: JOINT SCHEME ANNOUNCEMENT

Summary of scheme

• Offer of $0.960 per VIT unit (10% in cash, 90% in new ESR units)
• Ask price of $0.540 per unit in merged entity

Indicative timeline

Assumptions

• Current price of ESR is $0.510 (Last price on market at time of writing)
• Current price of VIT is $0.890 (Last price on market at time of writing)
• Ignore dividends

Evaluation

I am interested to invest in the merged trust but should I buy ESR or VIT now? Let's assume I bought 1000 units of VIT at $0.890 = $890.

With the offer of $0.960 per unit,

Gain as of now = 0.960*1000 - 890 = $70 → G

Cash returned = 10% of $960 = $96

Cash for "buying" new ESR units = 90% of $960 = $864

Number of new ESR units bought at $0.540 = 864 / 0.54 = 1600 units

However, as current market price of ESR ($0.510) is lower than $0.540, I will be recording a loss in this transaction.

Loss from this conversion = [0.540 - 0.510] * 1600 = $48 → L

Overall gain = G - L = 70 - 48 = $22

ROI% based on $890 = 22/890*100% = 2.47%

If factor in max trading comms (typically 0.12% to 0.25%),

ROI% = 2.47% - 0.25% = 2.22%

Sensitivity Analysis of ESR Current Price

At what price of ESR now will make buying VIT units now a bad deal?

Recall L from the evaluation. If L is greater than G = $70, it is a bad deal.

Solve ... 

[0.540 - ESR_Price_now ] *1600 = 70,

ESR_Price_now = $0.49625

This means that if market price of ESR now fell below $0.500, it is a better deal to buy ESR from he market than VIT. This is assuming price of VIT stays 0.890 and above.

Conclusion

If (you are optimistic on the future business of the merged entity)

  If {

      ESR market price is > 0.495
      VIT market price is < 0.895

      }

    Buy VIT

  Else

    Buy ESR.

Else

  Do nothing.

GLP - What can you do after 14 July 2017?

Snapshot of closing price of GLP on 14 July 2017 after announcement of takeover by Chinese consortium.

Read the News Report by Reuters if you still don't know what happened on Friday.

FAQs

1. Is the deal 100% confirmed?

Yes and no. No 3rd party can approach GLP for another takeover deal now. The deal will be subjected to approval at Court of Singapore and vote of majority at a scheme meeting to be called later (TBA - not so soon). As a layman investor, I would believe that the deal will go through with high probability. There are no info/data available to me that suggest otherwise. The only risks i can think of would be government interventions, for whatever weird reasons, or a dirty deal by the buyers, i.e. last minute cancel deal for all kinds of reasons. However, that is highly speculative if I was to take those risks too seriously. In addition, GIC (major shareholder of GLP with over 30% control) has an irrevocable undertaking to vote in favour of the scheme of arrangements.

2. When will privatisation offer be completed?

April 2018, which is 9 months from now. It is possible to occur earlier, I hear people speculating 4 to 5 months. Shareholders will receive payment of S$3.38/share within 7 days from completion of transaction.

3. Why is the stock trading below the offer price of $3.380?

Time value of money, not hard to figure that out from here. The risk of a failed privatisation arrangement, for whatever reasons, will price in a discount too.

What can we do now?

If shareholder before 14 Jul,

if wanna forgo $0.14/share, →because u earned enough $$

  sell.

 else hold.

else, 

if wanna earn 4.2% ROI over max period of 9 months,

  buy at 3.300. 

How was the $0.14/share and 4.2% derived in the decision making algorithm above?

Assume a live market trading price of 3.300, do your own sensitivity analysis if you need. I did a rough one, the 4.2% yield did not waver much when the market price swung around 3.300.

$3.38 + $0.06 - $3.30 = $0.14

(OfferPrice + Dividends - LivePrice) = Premium of investment / arbitrage.

Note that the $0.06/share dividends will go Ex-Div on 3 August 2017.

0.14 / 3.30 * 100% = 4.2%

(InvestmentPremium / Cost * 100% = ROI%)


Hope this is helpful for people who are new to scheme of arrangement.

Disclosure: The author was not vested in shares of GLP before 14 July 2017.
Important Disclaimer: Personal opinions only, not providing financial advice. Please seek advice from professional stockbroker, bank manager or financial advisor if you need.

The "Gems" of 2016 reviewed in 2017.

In 2016, I shared investment ideas on 3 stocks and we are going to review them today.

#1 Cache Logistic Trust - Mar 16

Then 0.840... Now 0.815.

What has changed?

Cache Logistics Trust dragged into tenant's rental dispute with logistics giant Schenker

Cache Logistics Trust ditches Changi warehouse for $25.5m 

Cache Logistics Trust's Q4 DPU down 10.8% to 1.85 cents

How is it doing in my portfolio?

Fully divested in July 2016 (@0.870) after I was aware of the rental dispute. Not planning to reinvest given current performance of the reit.

#2 ARA Asset Management - Apr 16

Then 1.160... Now 1.720.

What has changed?

BRIEF-ARA Asset Management announces joint proposal to privatise company

How is it doing in my portfolio?

Fully divested in November 2016 (@1.705) & December 2016 (@1.695) after its price shot up from the privatisation offer announcement. The offer is at 1.780 but there is risk that the offer might be rejected by shareholders. 

#3 Frasers Centrepoint Ltd - May 16

Frasers Centrepoint Ltd - Jul 16

Panote, CEO FCL

Charoen, Chairman FCL

Then 1.640 in May & 1.505 in Jul... Now 1.640.

What has changed?

SGX-listed Frasers Centerpoint buys 40% stake in Thai developer TICON for $378m

Frasers Logistics prices Singapore IPO at top end of range, to raise S$903m 

How is it doing in my portfolio?

Never sold any of FCL before, current average price is 1.565. Attended the latest AGM and my confidence in FCL is stronger than ever. The board recommended the same FY dividend again. I believe they are trying to build a stable track record for dividends payout. TICON will be a superb platform to tap on a growing demand for logistical assets in Asia. I wish to hold long term.

Thank you for reading.

Portfolio Reflections (05 Nov 16)

Frasers Cpt
Top position and have no plans to pare down. Would love to add more if price crashes. Though now is cheap imo, it is already about 20% of my portfolio. Hence, only a bigger price discount would justify taking the risk of over-concentration.

M1
Lots of doomsayers in the market. 52w-low now. I expect M1 to yield at least 5% at current price (2.06). Would not divest (or cut loss), the company is a cash generating machine and I do not see a risk of it going insolvent. There is currently no upside catalyst for M1 but downside risk looms. IMDA has postponed the announcement of qualified 4th telco twice (latest on 28 Oct). It could mean anything. There is still a possibility of status quo due to unsatisfactory business proposals by new applicants or lack of funding. That will be a bonus to M1 investors.

ARA Asset Mgt
ARA is interesting at the moment. Trading was halted on Thursday, 3 Nov 16, pending release of announcement. It remains halted at time of writing. The market is expecting a privatisation offer by a consortium led by CEO John Lim, first reported by the Wall Street Journal on Friday afternoon. It would be a good chance to realize profit on the true intrinsic value of ARA. I mean ARA is truly a gem on SGX but SGX investors did not send the price higher. I am estimating an offer of at least 1.70 (including dividends) but hoping John Lim surprizes the faithful investors with a better offer.

OCBC
Boring, just keep it in cold storage and collecting dividends.

ComfortDelgro
Latest addition to portfolio. Decent dividends and higher dividends expected with the bus asset like model; solid track record of creating profit growth, resilient sector. No clear reason for the recent price slide at the moment. It could be suggesting a bad quarter to be reported next Friday.

CRCT
The only reit counter in portfolio. High dividend yield. A proxy to china's growing shopping market. Fed december rate hike looms, will look out for price crashes to add more.

800 Super
Recently added. Low risk investment.

Q&M Dental
Awaiting restructuring and listing of entities in China, expecting fireworks.

CEI
Bought after a price rally. It has since settle at 8% lower than my entry. Expects dividend yield to maintain, supporting the price.

Hock Lian Seng
Low risk net net company with long history and strong portfolio of completed projects. I would love to add more in the event that price crashes for no reason.

Declout
Betting on special dividends.

DBS
Outlook similar to OCBC. Taking small bites using Dollar Cost Averaging strategy.

Katrina
On hindsight, was a bad investment. Will not cut loss, since the group is expected to pay dividends. Just going to cold storage this. However, if price falls below IPO price, will consider averaging down.

Other updates:
Divested Singpost and GLP at profit recently.
Divested CCT at profit in Sep.
Fifo Noble resulted in a loss.

[Breaking!] Hock Lian Seng (J2T) Secures S$1.107 Billion Project From Changi Airport Group, in JV w/ Sembcorp Design and Consruction

Disclosure to SGX on 15 Aug 16, after market hours (PDF)

Google Finance (J2T)


Closed: 0.340

In view of the new 60:40 JV project,  HLS's construction order book will increase to about S$980 million. It is the highest ever since FY2010.

HLS has 60% share of the JV.

Sembcorp Design and Construction ("the JV partner") is wholly owned by blue chip Sembcorp Industries (U96).

I am currently vested in HLS and will seek to increase my stakes following the announcement. Buy first, analyze later.

Investment Ideas (Jul 2016) - FCL Again??

In May, I shared my investment idea to buy Frasers Centrepoint Ltd (TQ5) here. Today, in July, I am reiterating my confidence in this counter.

Source: shoppingmalls.com.sg

In May:

Current price: 1.64
Expected Dividend yield: 5.2%
Trading plan: Buy and hold long term @ 1.63 & below. Dividend play but will sell if price is right.

Now in July:

Current price: 1.505
Expected Dividend yield: 5.7%Trading plan: Continue buying even if it falls below 1.50.


Reasons:

1. Attractive valuations, i.e. huge discount to NAV.
2. Laggard amidst the recent world equities rally. (FYI, S&P500 futures hit new all time record highs with a gap up, such bullishness...
3. High proportion of recurring income, so dividend strength is better.
4. High dividend yield right now. It is comparable to a Reit, which pays at least 90% of its profits as dividends, but at the same time a growth stock.
5. Low interest rates for debts.

Risks:

1. Hastened interest rate hikes.
2. Property market cooling measures in Singapore not lifted for a long time.

Final verdict

Rewards >>> risks. 

I am also willing to hold through the trough if it falls deeper. Confidence in its dividends yield.

Module Review Year Two Sem 2 (AY2015/16)

Module Title		MC
IE2100	Probability Models with Applications	4
IE2130	Quality Engineering I	4
IE2150	Human Factors Engineering	4
no review	GEM/SS/UEM/Breadth	4
no review	GEM/SS/UEM/Breadth	4
TOTAL		20

This sem in short (I'm lazy...): Not bad but a bit of disappointment that my CAP fell again. I should have expected that, since my aim is to attain Bs. You know... how can Bs pull up CAP?

IE2100 Probability Models with Applications
Part one is about Discrete Time Markov Chain (DTMC) taught by Prof. Ng T.H.. Part two is Continuous-Time Markov Chain taught be Prof. W.B. Haskell.

Webcast >> No
Tutorial >> Yes
Graded assignments >> Yes

• Most students score full marks. The questions are taken from the textbook.

Mid-terms >> Yes

• Most students did better than me.

Finals >> Yes

• The practice papers are very useful to test your understanding.

I am not sure how other students find this module. IMOH, it was quite chill given the workload and my low expectation of myself. Ironically, there is also a time I felt lost and almost give up on studying for IE2100. That was when part two commenced and the idea of poisson process is totally new to me. If you find yourself in the same predicament, you may turn to online resources and the textbook for better understanding. Why not clarify with the prof? I already can't understand his lectures, better luck finding other sources for help.

IE2130 Quality Engineering I
Taught by Prof. Ang B.W.

Textbook is very useful. Final exams is very give chance la, mostly MCQs. However, there is no past year paper with the same format to practice. Just read textbook and make sure you can understand the concepts.

What i think i remember:
Statistical process control, control charts, Xbar-R chart, CP, Cpk, Acceptance sampling, Shewhart, gage R&R...


IE2150 Human Factors Engineering
Taught by Prof. Tham M.P. and Dr Soh B.K. (from DSO).

Group project, midterms, finals, checked.

I think this module does not have a fixed structure every year. For mine, the project is to study a self-sourced problem and apply HFE principles to try solve the problem.

The midterms was a disaster. We were told we will be tested by application questions but most questions were not. The questions are mostly looking for textbook answers. Finals was much better.