Sunday, 22 April 2018

5 Things to Note - Frasers Logistic and Industrial Trust Expansion into Europe

Frasers Logistics & Industrial Trust (FLT) announced that it would be expanding to Europe via acquisition of a Special Purpose Vehicle that holds interest in 21 industrial properties located in Germany and the Netherlands.

FLT is a Reit that holds 61 industrial and logistic properties in Australia worth about A$1.93 billion, concentrated in major cities of Sydney, Melbourne and Brisbane.

It is part of the Frasers Property Group that also owns other Reits in retail, office and hospitality sector such as Frasers Centrepoint Trust and Frasers Commercial Trust and Frasers Hospitality Trust.

Predominantly Freehold Prime Properties

93% of the twenty one properties to be acquired are freehold. This means that investors need not worry about land use rights and properties value decay towards the end of the land lease.

The new properties are also of significant size compared to existing properties in terms of Gross Lettable Area (GLA) and value.

The Weighted Average Lease Expiry (WALE) is also comfortably long - longer than existing portfolio's WALE, at 8 years.

All properties are located in major logistic clusters of Germany and Netherlands. According to the acquisition presentation slides, Germany and Netherlands were ranked #1 and #4 logistics hub globally by World Bank 2016 LPI Global Ranking.

Diversification of Portfolio 

Post acquisition, the Europe properties will represent a significant portion of the overall portfolio value - 33%, reducing Australia's portion to 67%.

Proportion of freehold assets will also increase to 71% of total portfolio.

Top ten tenants would not take up 35.2% of total Gross Rental Income (GRI), reducing concentration risk. Worth noting that the top tenants in Europe assets are big enough to be among the top ten tenants overall - further illustrating that this is a big acquisition.

I did a quick cursory search on the top tenants:

  • Mainfreight is a major supply chain logistic player listed on the New Zealand stock exchange with revenue of NZ$ 2.3b in 2017
  • Bakker Logistics is a Dutch company specialised in transportation and warehousing services of food products across Europe
  • DSV Solution is a Danish transport and logistic company with offices in 80 countries and 45,000 employees. 
  • Costellium is a producer of high value-add aluminium products for aerospace, automotive and packaging markets, with 24 manufacturing sites in America, Europe and China

Total cost of Acquisition

For such a sizeable acquisition, the total cost wont come cheap. It is estimated that the total transaction will cost $529 million.

Method of Funding
Management will fund the acquisition via one/or more of the 3 sources:

  • private placement to institutional and other investors
  • non-renounceable preferential offering to existing unitholders
  • debt

It Is Distribution Per Unit (DPU) Accretive

The large portfolio value and transaction cost not withstanding, Management guided that the deal is DPU accretive, a good deal for existing unitholders. The 1Q 2018 Pro Forma distribution would have been 1.83 cts, a 1.7% increase if the acquisition with similar financing were done earlier.

However, do note that gearing would increase considerably as well to 36.8%.

Clearly, FLT is expanding into Europe market with a bang, via acquisition of 21 properties worth more than half of their existing portfolio value in one fell swoop. The management must be very confident in the fundamentals of Europe's logistic and industrial sector.

While I am positive on the good quality freehold assets with long WALE, strong tenants and high occupancy rate, I am negative on possibly large debt that FLT will take on. And the seemingly small percentage increase in DPU post acquisition.

The circular should provide greater details on the acquisition, particularly the debts and equity fund raising which I will be looking out for.

Shareholders can expect deal to be completed by June after EGM.

*All diagrams are taken from FLT's Acquisition Presentation dated 20 Apr 2018.
*This is not a recommendation to buy or sell. 

Tuesday, 17 April 2018

Buy Low Sell High Can or Not?

The notion of 'Buy low sell high' is usually the desired way to earn in investing.

So imagine you have done your homework analysing a strong company with great potential. And your valuation tells you that it is now at a cheap price.

You went ahead to buy the share. But to your horror, the share price seems to drop immediately right after you bought it. And it continue to slide further for an extended period right after.

This is a familiar scene. It happens often, even to me, and it is indeed puzzling.

Buy low sell high is inherently difficult. How low is low? How high is high? Will today's low become tomorrow's high or vice versa?

Everyone tries to buy low sell high. But when a trade goes through, there is always two side of the coin - buyer and seller. Surely the seller think its high and the buyer thinks its low. So is it low or high? It is very subjective.

What I observe is everyone, to be precise about it, hopes the price is low at the exact moment they are buying it, and wishes for the price to shoot up right after. Seems like investors hope the market to really nice to grant us our wish by lowering the price at that brief moment, just for us to board this 'rocket', and blast off into the sky right after. In short, they want to buy lowest!

Its incredulous. But this is very common investor mindset.

So can we really buy low sell high? Is there any way to do it? There is no easy answer to this question. But we can approach this notion bearing in mind two important points.

Relative low, not absolute lowest
Most investors are obsessed about buying at the exact lowest point and selling at the highest.

But can we change our psychology, to buy low, over a period of time instead?

Lengthen your horizon, expand your holding period. Buy around the region highlighted. They are all at a relative low, not absolute lowest. But still relatively good price isn't it? Perhaps, space out your purchase over a 2-mth period for example. Now then its not impossible to buy at a low.

Even if you buy at a low, your position would still be in the red often
This is even an more important point in my opinion. Acknowledge that even if you buy at a low, very often your stock position will still be in the red.

This is a fact of stock investing. In the short term, we cant control how a stock price moves, which nobody has any control over.

This is even more likely for an investor who likes to buy cheap after a sharp rise in a stock's share price because he is not good at bottom fishing and the strong downward momentum will carry the stock price further lower.

But what we can control is our psychology and how we view these paper loss. Try to come fully to terms the above point, accept it, then the red numbers in our portfolio wont be so hard to swallow.

Using an analogy, no one will curse and swear at Spore weather if it rains in the afternoon after a bright windy morning right? We all accept the unpredictability of spore weather, come to terms with it, and plan our days around it.

Likewise, accept such a characteristic of Mr Market, and fine tune our investment mindset accordingly.

Buy at relative low, over a period of time. Accept temporary paper loss. What investors should aim for is the likely possibility of significant profit after a few years. Don't fret over the daily fluctuations in between if your company shows good results and strong fundamentals.

Sunday, 8 April 2018

Time to Have Some FAANGs?

The FAANGs - Facebook, Amazon, Apple, Netflix, Google (standing in for parent company Alphabet), are arguably the world's most popular tech stocks today. The FAANG stocks have surged more than 40% collectively in 2017, outperforming the Dow Jones Index and S&P 500.

However the FAANGs out-performance came to an abrupt halt in early March. It has since registered significant fall from the peak right up till the most recent market trading date. Let us look at the FANG+ Index listed on the New York Stock Exchange for a sensing on the drop magnitude.

FANG+ Index, according to its factsheet, is

'an equal-dollar weighted index designed to represent a segment of the technology and consumer discretionary sectors consisting of highly-traded growth stocks of technology or tech-enabled companies such as Facebook, Amazon, Apple, Netflix and Alphabet's Google'. 

It currently holds 10 stocks. Others being Alibaba, Baidu, Nvidia, Tesla and Twitter. 

The Index fell from $2,770 on 12 Mar, to around $2,400 on Friday. This is a 14% drop. 

FANG+ Index one year price chart. Source:

Facebook has been hit particularly hard due to the ongoing Cambridge Analytica scandal and users' data privacy issue. It witnessed a roughly 19% drop from $193 to $157.20. 

Facebook one year price chart. Source:

Facebook is accused of improperly sharing personal data of up to 87 million users with Cambridge Analytica, which then used these data to deliver targeted news and messages aimed at influencing voters' decision on US presidential election. This is a serious breach of users trust concerned about their personal data privacy. 

Will the scandal drag on and further affect investors' sentiment on Facebook share? Or will it extend beyond sentiment-driven impact on share price, affecting number of daily users and in turn reducing advertising revenue, thus impairing Facebook's fundamentals? I think it is anybody's guess at this moment. 

Make no mistake about it. Based on Facebook's Q4 2017 results, it is still fundamentally strong. Key numbers such as advertising revenue, Monthly Average User, Operating Income are all showing healthy growth.

But I would prefer to take a cautious stance on this issue. Consider that user data is arguably Facebook's most strategic asset, such illegal use of personal data could prompt further regulations by government, limiting the way Facebook can monetise its users data to attract advertising revenue. It may take some time for this episode to boil over, and if any new laws being implemented, a longer period for Facebook to adapt to a new operating environment. 

But I am quite sure we can expect more price volatility going forward. 

However, if an investor is worried about the individual FAANG stock's price fluctuation, are there any options for him to be part of the long term tech and social network growth story?

Well one can consider tech sector Exchange Traded Fund (ETF), especially those with exposure to FAANGs stocks taking up considerable weightage. ETF is also a safer choice as it offers diversification without outsize concentration in any particular stock.

DBS Research recently produce a report citing several FAANG ETFs traded in US worth considering. Some examples include:

  • Technology Select Sector SPDR Fund (Ticker symbol XLK). This ETF tracks the Technology Select Sector Index, and holds mainly large and mid-cap technology stocks. Its top three holdings are Apple, Microsoft and Facebook.
  • Vanguard Information Technology ETF. It tracks the MSCI US Investable Market Information Technology Index holding tech stocks of all size. Top three holdings are same as above.
However, do note that some of these ETFs are Specified Investment Product (SIP) and require investors to pass Customer Account Review before transacting. Do also note if these ETFs use a full or synthetic replication (more risks), or employ any derivatives to track the index performance (more risks too).

Disclaimer: All stocks mentioned in this article are for illustration and education purpose, and do not constitute a buy or sell call. 
The author is not vested in these stocks. 

5 Things to Note - Frasers Logistic and Industrial Trust Expansion into Europe

Frasers Logistics & Industrial Trust (FLT) announced that it would be expanding to Europe via acquisition of a Special Purpose Vehicle t...