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Will Blackstone Succeed in de-listing Croesus Retail Trust?

I recently sold all my units in Croesus Retail Trust in Sep after holding this for 2.5 years... and including the dividends to be received on 28 Sep 2017, the total returns has been around 67%. This counter has exceeded all my return expectations as i have invested in it purely for dividends.

In an earlier survey, 53% of readers say that it is too attractive to give up the yield without a fight! πŸ€• and there is a chance that they may be right. As such, even though Blackstone offered to buy over my shares at $1.17, I divested them in the market at $1.155 cents. I am fine with giving up 1.5 cents per share for the binary outcome whereby if the scheme of arrangement fails to go through, the stock is going to tumble down. 

Scheme of Arrangement

Blackstone initiated a scheme of arrangement rather than a usual takeover bid is because they want to take Croesus Retail Trust private. This is a "all or nothing" transaction for Blackstone. Let's analyse what the "key ingredient" of success is for a scheme of arrangement by looking at two recent examples.

Temasek owned about 54% of the Company and through a scheme of arrangement, it took SMRT private by acquiring 75% of the shares it doesn't own. SMRT was operating in a challenging environment and the scheme represents a chance for minority shareholders to exit at a higher price.

Mr Sabnani also noted that SMRT is being taken private based on the Scheme of Arrangement where Temasek will need acquire 75 per cent of the shares. "In the case of General Offer, you need to secure 90 per cent of the remaining shares. So in SMRT's context, Temasek has to secure 90 per cent of the outstanding minority shareholders' votes (which is the 46 per cent it does not own). That's a high number, higher than (that of) a Scheme of Arrangement. And if they don't get that threshold, they will need to raise the offer price," he explained.

Northstar also tried to privatise Innovalues through a scheme of arrangement. In this case, the major shareholders who owned close to 39% of the company has agreed to vote in favor of the scheme.

Four major shareholders - including the CEO Goh Leng Tse, directors Pung Tong Seng and Ong Tiak Beng and substantial shareholder Koh Boon Hwee - collectively own 38.73 per cent stake in Innovalues and have undertaken to vote in favour of the scheme. The scheme will require the court's sanction and approval by Innovalues shareholders representing not less than 75 per cent in value of the shares held by those voting at the scheme meeting.

In both instances, the majority shareholder is either the acquirer or has agreed to be acquired by voting for the scheme. This seemed to be somewhat lacking in the case of Croesus Retail Trust?

Shareholders of Croesus Retail Trust

Looking at the list of shareholders of CRT, the shareholders are widely dispersed and the largest single shareholder is linked to Goh Yew Lin (GK Goh family). See report here.

Will Mr. Goh vote for or against the scheme? 

Mr Goh Yew Lin, managing director of GK Goh Holdings, which controls GKGI, told The Straits Times: "We haven't decided whether to accept. We invested in Croesus because it has an excellent portfolio of assets in Japan, and the trust was for a long time trading at an exceptionally attractive yield. Although Blackstone's bid is at a premium to the undisturbed price, they're very smart investors who clearly expect further upside by buying at these levels. We'll wait to see what the independent advisers recommend before making a final decision.

It's hard to imagine why Mr. Goh would vote for the scheme if he is still buying close to the takeover price but he is definitely one voter who can de-rail the privatisation scheme if he votes against it.

How to get the scheme approved?

My earlier post indicated that you need at least 75% of the unit holders in value present to vote for the scheme.

What happens if the scheme fails?

Looking at the share price chart, if the scheme fails, it will likely fall towards $1.00-1.10 range as the company has incurred expenses in organising this scheme of arrangement. 

Now that i have fully divested my shares, i will watch from the sidelines. 

The exciting show will be take place on 13 Sep 2017 at 10am and investors will know whether they are croesuing, chorusing or cursing....😎

Do you believe in Insurance?

I never really believe in Insurance (or perhaps was brought up by my mum not to believe in them). My mum always said "δΏι™©ιƒ½ζ˜―ιͺ—δΊΊηš„" since i was young and those views was ingrained even though her views was a tad too extreme. Probably she was "bugged" by over-zealous insurance agents trying to sell her useless policies but maybe she was right.... because instead of buying policies, you should be buying the insurance company. 😁 That was how Warren Buffet became extremely rich by using "free money" from insurance premiums to invest.

Warren Buffett was able to build his fortune in two primary ways: by owning private companies that generate large amounts of income for him to deploy, and by entering the insurance business to get his hands on cheap investment capital. Warren Buffett abhorred debt; it wasn't his style to borrow money at 5% and try to invest it at 12% (Munger, meanwhile, built his large fortune by taking out margin loans to amplify his high conviction stock picks). Instead, Warren Buffett used the "free money" provided by insurance premiums allowed Buffett to use leverage—by investing the money for a return before he had to pay the money back to those making successful insurance claims, Buffett was able to use this spread to build quick wealth.... source

When did I buy my first insurance policy?

As i mentioned earlier, i was brought up not to believe in insurance. How did i ended up with my first policy then? πŸ€”

I bought my first policy when i was in the army. The agent was from Prudential and he was an ex-army sign-on who became an insurance after he left service. He basically convinced the whole group of us into buying the investment-linked policy ("ILP") which offers direct exposure to the Singapore stock market because history has shown that stock market will outperform the rest. The fund is Prulink Singapore Managed Fund and the fact sheet is here. Actually he was not wrong. My premium would have compounded at around 5.8% annually since inception and the return would have been decent.

For simplicity, assuming i put in $1,200 at the start of every year and it compounds at 5.8%, my premium paid of $28,800 would turn into $59,624 today after 24 years! Unfortunately, my surrender value today is only $30,680 (death benefit is now ~$75,000)... so what exactly went "wrong"?

Reason 1 - My agent asked me to increase my sum assured protection from $5,000 to $45,000 but this protection may not have come at a very high cost vis-a-vis a term insurance 

My agent called me one year into the purchase and said that i should increase the sum assured to $45,000 so that if anything happens to me, my family would receive some payout. Well, he wasn't wrong, except that it was a huge price to pay as the premium eats into the amount set aside for investment returns. Well, you can't have the best of both worlds can you?πŸ€” 

Reason 2 - When i started working, i decided to switch the fund from Singapore Managed Fund to Global Managed Fund and the latter under-performed big time. I think this is one of the biggest mistake i made in the ILP. I should just left the exposure to the Singapore market and my surrender value today would have been much higher. 

The fund size for the Global Managed Fund is small and the returns of 2.4% paled in comparison to the Singapore Managed Fund.

So how did my ILP performed after all these years. Let's take a look.... the premium paid of $28,800 turned into a surrender value $30,680.... Working backwards on the surrender value, it means that my premium was being compounded at 1% annually and that is worse than buying a life policy.

Assuming a life policy protects and compounds at the 10 year government Singapore Savings Bonds of 2.12%, the surrender value should have been at least $37,046... meaning that the ILP returns has severely under-performed due to the two reasons mentioned above. ILP is probably a black hole.... a huge part of the premium goes towards paying for some critical rider every year and only a small balance was used to purchase units in the fund.

When did i buy my second policy?

I bought my second policy from NTUC Income when my first kid was born for the both of us. Let's see how that performed. My sum assured was around $50,000 and the premium paid was $21,473 but the surrender value is $25,272. The NTUC Income Life Policy somewhat has performed slightly more respectably at 1.8% compounded interest than Prudential.

Am i going to get a third policy?

The answer is yes but this time round it is different and I hope i am much wiser now. πŸ˜‚

As my life progressed to 40s, the original policies taken when i am in the early stage of my life are no longer adequate. I have a family to think about and a mortgage to take care of should something happens to me. At the same time, i have been gradually building up my retirement portfolio so as i assess my current situation, what is important is that the family is taken care of should something bad happens to me. Do i intend to get a life policy again for coverage? The answer is no as it is just too expensive a product. My intention is to buy term and invest the rest of the money instead of relying on the insurance company to do that for me.

The third policy that I will be getting will be a term insurance that pays a lump sum of $500,000 for permanent disabilityπŸ€• , 36 critical illness πŸ€’ and death πŸ˜‡ from now till i turn 70.  

It is interesting to note that the premium is still relatively low if you pay till 60 years old and it escalates up exponentially beyond 60 years old. This is all about probability as insurance policies are 'underwritten' by actuary. While the good news is that i can terminate the term policy at any time, the downside is that the premiums has zero "returns" should you live beyond 70 and Singaporeans has one of the longest life expectancy in the world at 82 years old! πŸ˜‚

The reason why i stopped the coverage at 70 is that it gets prohibitively expensive beyond that and i believe i will be happy to "go' once i live past 70 years old and hopefully at that point in life, I will have adequate passive income for life. 

So here is the poll question for today....once i have the 3rd policy in place, i will have adequate coverage. What do you think i should do with my ILP with Prudential? Take the poll here.

 Click to vote

Let me know what you think and i will update you on my next course of action when it has taken place. πŸ˜Ž

Happy Insuring !

SRS activities for July and August 2017

How time flies and today is already 1 September... 

Since my last update for Q2 (April to June), I have done the following in July:
Post the IPO of Netlink NBN Trust, more analysts (especially those who were in the blackout period) starts to release their analysts reports on the Company. You can download the 58 page report by DBS and the 23 page by UOB by clicking on the respective links. Now there are 8 analysts covering Netlink NBN Trust with an average $0.93 target price.

In terms of price movement, it is heartening to see that the price has finally break above the 81.5 cents resistance to close at 82.5 cents yesterday. This is a "giant" so i wouldn't expect it to move fast


In terms of cash flow, I received the following dividends in July and August:
  • $500 from UMS Holdings
  • $355 from Starhill REIT
  • 534 shares of Fraser Commercial Trust (Scrip Dividend)

UMS Holdings

UMS Holdings announced a sterling set of results in August where 1H 2017 net profit already exceeded that of FY2016 and is rewarding shareholders with a 1-for-4 bonus issues. There was also a 1 cent dividend to be paid in 27 Oct 2017. The results announcement is here

Ironically, after the results announcement, both DBS and CIMB downgraded UMS Holdings to hold (whatever hold means πŸ€”)
The share price tumbled thereafter.... and on 29 August morning, Mr. IPO stepped in to support 30,000 shares at a price of 92 cents and see it dropped further to 90 cents at close of the day πŸ˜‚  The rationale for buying is that at 6 cents dividend a year (my projection), the yield is around 6.5%, which i am happy with. If the company maintains its 1 cent dividend based on the enlarged share capital post bonus issuance, lagi better.

Mr. Andy Luong (CEO) and Mr. Stanley Loh (executive director) then followed Mr. IPO and bought 300,000 shares at $0.905 and 50,000 shares at $0.90 respectively on the same day πŸ˜Ž (i am pretty sure i bought before them that day).

Passive Income

Based on the additional 30,000 shares of UMS Holdings and the latest projections, passive income for me and wifey will reach $46,822 (or $3,908) per month. The target for this year is to hit $60,000 per year. Just to be clear, the passive income target stated is for the two of us.

Croesus Retail Trust (non-SRS holdings)

After my previous post on CRT - Time to say Good "Buy", I received another reminder to vote! πŸ˜‚. The poll which i ran also drew 78 responses and the majority (53%) polled said that the yield is too attractive to give up without a fight. You can still vote if you want to here.

One of the strategy which i am contemplating (despite my kacang putih holdings) is to sell the existing shares at current price (say $1.155). If the vote goes through, i "loses" $0.015 cents). If the vote didn't go through, i expect the price to correct downwards to between $1 and $1.10, of which i can then load up more shares. Is there any chance the acquisition price will be further improved by Blackstone, i think the chance is low. So based on probability, it may not be a bad idea. πŸ˜‹

SRS Holdings

Post the recent purchases, my cash level in SRS account has dropped to $21,495. I was contemplating another counter that is yielding 10% per annum but it is rather thinly traded. Let's see how it goes!

Here is the update for now.  Happy SRSing!