Global Investments

[propertyinvestor]

WOOTS! Allotted Excess rights 50lots!

[Boon]

Hi Nick,

The exercise below shows that CEI less OP less tax is pretty close to FCF

FY 2010

CEI = $12.391 mil or S$0.031 per share (estimated from AR 2010 and CurrentAssetReview 2010 which are consistent with each other. However, this is inconsistent to the S$8.65 mil or CEI of S$0.022 per share presented in the AGM presentation which I believe is wrong. Could you believe it? )
OP=Operating Expenses: S$6.277 (from cash flow statement of AR 2010)
Tax = S$1.054 (from cash flow statement of AR 2010)
OPT = OP + Tax = S$7.331 mil
CEI – OPT = S$ 5.060 which is slightly higher but closer to the FCF of S$4.78 mil
FCF = S$ 4.78 mil (S$0.012 per share)
Dividend payout =S$3.93 mil (S$0.010 per share)
OPT/CEI=7.311/12.391=0.59

FY 2011

CEI = S$12.7 mil or S$ 0.023 per share (estimated from AR2011)
OPT = S$3.841 = S$3.151 mil + S$ 0.690 mil (from cash flow statement of AR 2011)
CEI – OPT = S$8.859 mil which is slightly lower to the FCF of S$ 9.43 mil
FCF = S$9.43 mil (S$0.017 per share)
Dividend payout = $8.25 mil (S$0.015 per share)
OPT/CEI=3.814/12.7=0.30

From 2010 to 2011

CEI in absolute term remain almost FLAT (from 12.3 mil to 12.7mil)
CEI/per share has gone DOWN from $$0.031 to S$0.023 (which is BAD), due mainly to the dilution effect of the right issue.
OPT/per share has gone DOWN from S$0.018 to S$0.006 (which is GOOD)
FCF/per share has gone UP from S$0.012 to S$0.017 (This is EXCELLENT)

2010 Projection

With the redemption of Pepper 6 and deterioration of return from Avoca VI and VII, though offsetting by new contribution from CLO/CLN and future investments, it is unlikely that the CEI in absolute term would be surpassed. And, there is a limit as to how much further OPT could go down. With the enlarge number of shares due to the right issues, FCF per share would go DOWN, unless STAM could pull up a miracle.

(Vested)

---

Sorry, 2010 Projection in my previous post should be 2012 projection

[propertyinvestor]

actually what happened to Boon Swan Foo now? no more running companies? :O

Now he is with Perennial China Retail Trust!

[Nick]

Hi Boon,

Thanks for clearing this up. I guess it is safe to use FCF for determining the dividend but CEI is useful to see how the individual asset is performing. Most of the OPT are fixed cost and as GIL grows, the proportion of fixed cost to the revenue will decline. The main variable cost is Management fees which is a function of the market capitalization.

For FY 2012, I expect the absolute FCF from the current investments to be slightly lower than the previous year. However, with over $75 million worth of cash in the bank - the ability to grow the FCF should not be under-estimated. Assuming, the $60 million out of the $75 million was invested in assets yielding 8% (like the previous rights issue), the FCF generated will $4.8 million or 0.58 cent per share. In 2013, the sale of the aircraft will further reduce the FCF by approx $1.5 mil yet the cash inflow of approx $30 mil should be re-invested to increase the FCF. Essentially, it boil down to what STAM buys - with the new mandate, they can do anything basically. They could gear up by 50%, sell some liquid assets and transform themselves to a rail/aircraft leasing coy or they go for highly liquid assets or a mixture like the status quo etc. The Management seems bullish about the rail industry in europe so perhaps future investments will be in that.

Personally, the share price is a function of the stability and sustainability of the dividend. I would prefer GIL to invest in operating lease assets while having the flexibility of under-taking opportunistic investments in liquid assets (or even CDOs) and keeping a sustainable capital structure of repaying debt / replenishing assets. No point speculating now - just wait and see how they utilize the rights proceeds.

Any views on the preferences shares resolutions in the AGM ?

[Boon]

Fly Leasing has declared dividend of US$0.20 per share for the first quarter 2012

http://www.flyleasing.com/contentDetail.asp?id=9173

[Boon]

Interesting development, after the recent Rights Issue plus additional application for rights, a new Substantial Shareholder emerged.


http://info.sgx.com/webcorannc.nsf/Annou...endocument

[Nick]

Interesting development, after the recent Rights Issue plus additional application for rights, a new Substantial Shareholder emerged.


http://info.sgx.com/webcorannc.nsf/Annou...endocument

Looking at the Top 20 Shareholders in the Annual Report, I noticed he has raised his stake annually since March 2009.

[Boon]

Hi Boon,

Thanks for clearing this up. I guess it is safe to use FCF for determining the dividend but CEI is useful to see how the individual asset is performing. Most of the OPT are fixed cost and as GIL grows, the proportion of fixed cost to the revenue will decline. The main variable cost is Management fees which is a function of the market capitalization.

For FY 2012, I expect the absolute FCF from the current investments to be slightly lower than the previous year. However, with over $75 million worth of cash in the bank - the ability to grow the FCF should not be under-estimated. Assuming, the $60 million out of the $75 million was invested in assets yielding 8% (like the previous rights issue), the FCF generated will $4.8 million or 0.58 cent per share. In 2013, the sale of the aircraft will further reduce the FCF by approx $1.5 mil yet the cash inflow of approx $30 mil should be re-invested to increase the FCF. Essentially, it boil down to what STAM buys - with the new mandate, they can do anything basically. They could gear up by 50%, sell some liquid assets and transform themselves to a rail/aircraft leasing coy or they go for highly liquid assets or a mixture like the status quo etc. The Management seems bullish about the rail industry in europe so perhaps future investments will be in that.

Personally, the share price is a function of the stability and sustainability of the dividend. I would prefer GIL to invest in operating lease assets while having the flexibility of under-taking opportunistic investments in liquid assets (or even CDOs) and keeping a sustainable capital structure of repaying debt / replenishing assets. No point speculating now - just wait and see how they utilize the rights proceeds.

Any views on the preferences shares resolutions in the AGM ?

A preference share (PS) is like a halfway house between an ordinary share and a corporate bond. It is generally considered as hybrids of debt and equity. Though, the proceeds from the issuance of preference share are considered equity, the economic effect of preference share to the issuer is more like a bond. Therefore, a preference share is more like a “loan” to the company - this is how I tend to look at it.

It is commonly argued that the issuance of PS doesn’t dilute the ownership interest of the current ordinary share holders. However, with the addition of PS to the capital structure of a company, the burden of individual risks facing the company is shifted between different investor classes.

It seems that STAM has the ambition in growing GIL, and after two rounds of right issues, the issuance of PS and/or the assumption of debt, in my opinion, is the way forward in raising more capital to fund future investments.

If the company could fund the PS at say 5.5 % per annum and make an investment return of 12% with the proceed, the excess return of 6.5% would belong to the ordinary shareholders. If the investment return is only 7.5%, excess return to the ordinary shareholders would only be 2.0%. In the event that the investment return falls short of the expected return of say only 4%, the PS holders would still entitled to be paid at 5.5%, the shortfall of 1.5% would have to be borne by the ordinary shareholders.

Therefore, to ordinary shareholders, the attractiveness of the PS scheme would depend on (a) Cost of funding the PS; (b) Target investment return from proceeds of PS issuance and © Riskiness of target investments.

I am indifference as to what TYPE of new investments would STAM invest in with the cash raised from the right issue or issuance of PS, as long as the expected risk adjusted return on equity to ordinary shareholders is of 10% or more.

Looking through the “legacy assets” inherited by STAM from the previous management, my favorite are Pepper Trust No: 6 (which had been redeemed) and GIL Aircraft Lessor No:2 – both provided stable returns of more than 10%, measuring using CEI.

Pepper Trust No:6 (which had been redeemed)

Invested Amount = AUD 8.1 mil (all equity, no leverage)

CEI = AUD 0.871mil (2009); AUD 0.887 mil (2010); AUD 0.870 mil (2011)

CEI/(Invested Amount) = 10.7% (2009); 10.9% (2010); AUD 10.7% (2011)

GIL Lessor No:2

Invested Amount = USD 10.4 mil

Initial Leverage = USD 20.0 mil (Amortized to USD 13.08 mil as at 31-12-2011)

CEI = USD 1.323 mil per annum since 2008

CEI/(Invested Amount) = 12.7% (Assuming the Invested Amount of USD 10.4 mil would be recouped in April 2013 after paying off debt, anything above is bonus)

Since taking over management of GIL, STAM has only made two pools of investment namely the CLO securities and US RMBS, both could be considered as risky as Pepper Trust No: 6, however I doubt if similar CEI/Invested Amount could be achieved?

With leverage (proceeds from issuance of PS), if STAM could structure and invest in operating lease, be it in rail or air planes with similar returns of GIL Lessor No:2, it would be great!

[D123]

Any views on the preferences shares resolutions in the AGM ?

Basically, I think the preference share mandate is just another tool for management to bump up AUM and hopefully market cap. I say hopefully because the market might give them a bigger discount if they raise the preference shares on unfavourable terms or if proceeds are not readily put to use in good investments at attractive prices.

Most of the fees that STAM earns now is from base and investment and divestment activities. If they have more money to play around with, they can earn more. I'm not 100% sure here, but perhaps there is a limit on how much equity raising they can do in a year. Most companies that I've read about seems to be able to only obtain a share issue mandate that allows them to expand the share base by 50% in any financial year. If they want more, they have to wait till next year and obtain another mandate for a new 50%. So perhaps the preference share issue is just a way to skirt around the limit on fund raising through equity. More experienced forummers please advise if this is correct.

Anyway, the best judge of a fund manager is to see what they do with the money they have raised. So far I think the results of STAM are quite mixed. (+1 for US RMBS, -1 for the latest CLOs)

[Boon]

Good news for GIL as Fly Leasing reported a very strong first quarter 2012 earnings. Second quarter dividend to be increased by 10%:

http://www.flyleasing.com/layouts/54/upl...s/9174.pdf