China CPI low, PPI negative; China confidence rising; Hong Kong housing at new record; South African bank bust

Source: http://www.interest.co.nz/news/71385/china-cpi-low-ppi-negative-china-confidence-rising-hong-kong-housing-new-record-south-afr

China CPI low, PPI negative; China confidence rising; Hong Kong housing at new record; South African bank bust; UST 10yrs 2.42%; NZ$1 = US$0.846, TWI = 79.3

Here's my summary of the key news the weekend in 90 seconds at 9 am, including news of a bank failure in South Africa.

But first, on Saturday, China’s July consumer price inflation came in at +2.3% and well remained below their government’s +3% goal, and factory-gate deflation extended its declining run to 29 consecutive months, coming in at -0.9%, suggesting policy makers still have room for monetary easing amid a lack of pressure on prices. Chinese consumers are not yet driving their economy.

Having said that, the latest consumer confidence survey in China does indicate a growing positive moodin the country.

And in neighbouring Hong Kong, home prices hit a new all-time record as volumes in their housing markets returned.

In banking news, a specialist South African bank is in strife and is now under the protection of the South African central bank. It needs to raise significant capital and other local banks have agreed to underwrite the capital raising. The bank’s troubles stem from its SAR 9 billion (NZ$1 bln) acquisition of a furniture retailer in 2008, which has prompted losses and write downs after sales dropped. The bank doesn’t take deposits and makes small loans not backed by assets to low-income earners. Many of its customers are struggling to keep up with repayments amid rising unemployment and inflation.

Equity markets rose in final trading in New York on Saturday; but UST 10yr yields fell back again and ended the week at 2.42%. The US oil price is under US$98/barrel, Brent is under US$105/barrel. Gold is down slightly also and is now at US$1,311/oz.

We start the week with the NZ dollar basically unchanged. We are now at just over 84.6 USc, just under 91.3 AUc. The TWI is at 79.3. 

Rosesyrup Research

A comprehensive assessment of IREIT Global

Call: Buy / subscribe

Target Price  = $1.093

Upside: 24.2%

Major Selling points

Most points listed here are already highlighted in the prospectus, I only try to summaries it for the benefit of those who don't read the prospectus.

1. The one and only REIT in Singapore that provide investors with exposure in Germany office rental market.
2. Germany office market and economy show strong recovery in the previous quarter and is likely to continue, though at a more modest rate.
3. Contract tenure with lessee guaranteed for next 7 years.
4. Huge subscribe (60%) by China Tycoon who would greatly reduce the free float. Low supply = high price.
5. Inflation adjusted yield=> A protection which wasn't provided by most REITs listed on SGX.

Foreseeable Key disadvantages and risks

1.    No growth story: With debt standing at 33% there is little opportunity for expansion without liquidation of existing shareholders' stake. Leasing contract also sealed for the next 7years making it  hard, if not impossible, to increase rent to market rate.

2.    Very undiversified: All properties located in Germany and revenue source come mainly from Deutsche Telekom only.

3.    EURO Zone Debt crisis: The 2010 crisis was subdued not solved, which requires extensive restructuring of the economies and is not likely to happen. Thus it is a matter of time the crisis resurface again. And if that happens, developed nations in Euro zone stand to lose most.

I did a quick scan over other blogs and read their opinions on IREIT. Some of their valid concern includes:

1. Forex risk: Revenue of IREIT is in EUR while it's distribution is in SGD, thus risk of EUR depreciating and lowering the promised yield of IREIT. 
• My Opinion: SGD, which has risen significantly in the past few, is more likely to depreciate than EUR in the near future. (MAS will choose to let SGD depreciate rather than hiking interest rate for the fear of bursting the housing bubble)
2. Issuance price is 1.13X of NAV: In short, these bloggers think that investors would not want to pay a 13% premium over the asset value as they could avoid the premium by directly buying an office in Germany! (A very problematic assumption)
• My Opinion: Out of the 13% premium, 9% already goes to pay for the underwriting fee which is a must for all publicly listed asset. Thus investors in fact only pay 4% premium which I think is worth it because:
• Affordability: Surely Investors with 10k cannot afford to buy an office space in Germany but now they can buy 11 lots in IRET.
• Liquidity: If a direct owner of office building wants to dispose of his asset, he needs to pay an agent fee and waits for some period of time before finding an interested buyer. With IREIT, Reit holders simply buy and sell on SGX with minimum brokerage fee.
• Goodwill: The properties come with a 7 years (average tenure, not overall) commitment from lessee, thus REIT holders need not worry about finding lessee for the next 7 years.
• No choice: This is the only REIT in Singapore which provide investors with exposure to Germany's office market. Unless investors willing to trade on other stock exchanges around the world, they got little option on SGX.
3. Interest rate hike: It is fear that EU's current near zero interest rate policy won't hold forever and the resulting hike would decrease the yield from IREIT, which is 33% funded with debt.
• My opinion: The loan has a fixed interest rate for the next 5 years
• Average tenure of contract is 7years, after which IREIT can mark its rental to market rate.
• Hence only 2 years worth of yield is likely to be affected.

Valuation method 1

Model: DDM

g: 1.75%

r: 8.35%

CF1: $0.0704

Target Price: $1.067           

Upside: 21.2%

Valuation method 2

Model: DDM (Phase 1) + NAV (Phase 2)

Phase 1: 7 years with the same assumption made as in method one above.

·         PV=  $0.3797

Phase 2: 7 years and thereafter

·         Property price: $478.30M

·         Appreciate: 1.33%

·         Discount: 8.35%

·         Number of shares: 419.4M

·         PV per shares = $0.7136

Target Price  = $1.093

Upside: 24.2%

Conclusion

Given that IREIT contract with its main customer only last for 7 years and IREIT is free to adjust its rental rate thereafter, I would say that method 2 is more realistic than method 1.

Property developer Ying Li to explore new frontiers

Source: http://www.stproperty.sg/articles-property/foreign-property-news/property-developer-ying-li-to-explore-new-frontiers/a/129046

CHINESE property developer Ying Li International Real Estate has kept a low profile since its listing on the mainboard in 2008 but the firm now wants investors to know that it has aggressive expansion plans.

Ying Li's transformation will involve raising capital, entering new markets, developing more ambitious real estate projects and spinning off a real estate investment trust (Reit).

The success of this wide-ranging strategy falls on the shoulders of Mr Ko Kheng Hwa, 58, who came on board as Ying Li's chief executive and executive director in March.

He was formerly the CEO of Singbridge International Singapore, a wholly owned unit of Temasek Holdings, which primarily develops and invests in large-scale integrated townships in China.

"We will expand our core business in Chongqing while entering new markets and investing in new real estate products," Mr Ko said in an interview with The Straits Times.

He has had 34 years of experience in the government service and government-linked companies, holding top positions at Keppel Corp, the Economic Development Board and JTC Corp.

Earlier this month, Ying Li also roped in Mr Tan Kiang Hwee, 50, the former chief executive of Temasek-owned urban planner Surbana, as its chief operating officer.

Since it started in 1993, Ying Li has focused on developing mixed-use commercial and office buildings in Chongqing's core central business district and selling them off, a business that has helped it to amass a market capitalisation of about $965 million.

But Ying Li has now set itself new targets. Its next phase of growth aims to go beyond developing mixed-use property and into "thematic" real estate.

Its buildings will house companies in the same industry class together for that additional competitive edge, akin to a media, health-care or education hub.

Mr Ko said Ying Li will also look at building residential townships which will offer social and commercial amenities.

Moreover, Ying Li will widen its focus beyond Chongqing's business district and suss out opportunities in the suburbs, and even possibly to other second- and third-tier cities in China.

"We want to build critical mass, presence and grow our reputation in these selected cities," said Mr Ko.

He noted that Chongqing has been selected by the Chinese government as one of the non-coastal regions to be developed under the "Go West" policy. Businesses there can therefore expect better incentives, infrastructure and policy implementation to drive economic growth, he said.

To fund these expansion plans, Ying Li will be placing out new shares to targeted investors who can contribute capital as well as add value to the business through their networks.

It will also issue bonds and consider entering joint ventures for certain developments. Finding a partner will allow Ying Li to be involved in more projects than when it was self-financing all its developments.

In the medium term, Ying Li is looking to list a real estate investment trust for its malls. Ying Li already owns and runs two retail malls and a third one, the size of VivoCity, is slated to open by the end of the year. Its malls, land banks and some office units which it retains are valued at about seven billion yuan (S$1.4 billion).

Plans are also in motion to make operations at Ying Li and its projects more eco-friendly and green by Chinese and international standards.

Consider IREIT

Hi all,

Do take a look and consider subscribing to IREIT. I am currently valuing IREIT and will release my assessment soon.]

Cheers and goodluck.

IREIT Global registers prospectus for IPO on SGX

Source:  http://www.channelnewsasia.com/news/singapore/ireit-global-registers/1296576.html

SINGAPORE: Investors in Singapore WILL soon have access to the European real estate market. IREIT Global has registered its prospectus for an initial public offering (IPO) on the SGX mainboard.

Under the IPO, IREIT Global is offering almost 168 million units at 88 cents each. It will be Singapore's first REIT with a portfolio based in Europe. The IPO will comprise an international placement of about 156 million units to investors outside of the United States, and an offering of 11.36 million units for the PUBLIC in Singapore.

Mr Lim Chap Huat, the owner of Soilbuild Group Holdings, has agreed to subscribe for about 80 million units under the international placement. IREIT has also entered into an AGREEMENT with Wealthy Fountain Holdings and Mr Tong Jinquan, chairman of Shanghai-based Summit Property Development - under which they would subscribe to a combined 251.603 million units.

It hopes to raise a total of about S$369 MILLION in gross proceeds, the bulk of it to help pay for the properties that will be injected into the trust.

IREIT has an initial portfolio of four freehold office properties in Germany valued at approximately S$478 million dollars. The IPO closes on Aug 11 2014, and the TRADING is expected to commence two days after that.

"I believe this is one of the (most) SUCCESSFUL REIT markets in the world. It's one of the largest capital markets in the world today and there are investors who understand this vehicle and are willing to invest. We are aiming to distribute 7.6 per cent for the year 2014 and 8 per cent in 2015 to 2016," said CEO and Founder of IREIT Global, Itzhak Sella. 

- CNA/by

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Why Genting SP should not pin too much hope on Japan?

Why Genting SP should not pin too much hope on Japan?

Background

Japan economy has remained stagnant for 30 years. To revive its economy, there has been a suggestion for the government allow casinos being built in the country for the past 10 years. Despite the tempting and obvious economic benefits from building casinos, Japan parliament was reluctant to accept the industry for the fear of social and cultures problems that come with it. It was clear that Japan is not going to have any gambling dens until PM Abe swore to bring the nation back to its glorious past. Abe presented his vision of having 4 dens in the country and that is when the market starts speculating on potential business opportunity for Genting Singapore.

While there are some analysts like Motely Fools which tells you how competitors from nearby Macau will limit profitability of potential casinos in Japan, this write up of mine tells you why Genting Japan is just another dream of the dreamers.

Reasons:

1. 1.       This Sept is the last chance for Abe to push for legalisation of casino. If it fails, Pro Casinos groups have to wait for next year to bring up the bill again. Given that the parliament has rejected the bill in all previous sessions held this year, it is hard to see why the parliament would change its stance this Sept. Thus at least there is a low chance to see any casino bill being passed in 2014.
2. 2.       Japanese are people with strong cultures and value. Japan once adopted closed door policy to all foreigners until the west threaten to pull down their doors with cannons. Japanese culture of determination (some described it as stubbornness) is still evident when we look at their mind blogging farming industry which produces the similar agriculture products with the world most expensive farmers and lands. Going by the same logic, we can deduce that the Japanese won’t easily succumb to economic pressures.
3. 3.       As mentioned, the topic of casino is reopened for discussion only as a last resort to end Japan’s 30 years of economic woes. However the new economic policy, or what they called Abenomic, is starting to show some result in lifting the economy with a growth of 1.6% last quarter. This would satisfy the opponents that no casino is actually needed to lift the economy.

·         http://www.tradingeconomics.com/japan/gdp-growth

·         http://www.reuters.com/article/2014/08/02/us-brazil-japan-idUSKBN0G200O20140802

1. 4.       Poll shown that PM Abe, the main proponent of Casino bill, is losing his charm.

·         http://www.ecns.cn/voices/2014/07-17/124580.shtml

• 5.       By looking at the chart, we can also see that the market as a whole is of the opinion that casino opportunity in Japan is unlikely to materialize. Discounting away the excitement when the plan was first announced, we see that Genting SP price remained rather stable throughout 2014 and near 2013 price level when Genting had yet to express it’s interest

The above 5 reasons should at least mean casino in Japan is highly unlikely for the next 3-5 years or at least until Japanese politicians are at their wits end again.