Ongoing Inflation...

BRT Realty Trust

I bought BRT shares at $5.9999 on 19 May 2010 and sold them at $7.0095 on 27 December 2013 (US time). Ignoring the transaction cost, the profit made is approximately 16.8%. If the transaction cost is included, the profit made is approximately 13.3%.

It does not hold quarterly conference call, it seems to be the case, as I cannot find any transcripts of them. That is good habit every C-suite management should have. It is high quality REIT being managed very carefully.

I first know this firm when I was browsing the established Michael F. Price’s portfolio. I compare it with other American REITs and I was amazed that it is really well-run. Because of that, there is not a day where you have sleepless night. It is so comfortable that you can wait until Mr Market recognises its actual value. Unfortunately, I sold it as I am preparing to use sales proceeds to buy US-based insurance firm.

By tax regulation, REIT has to maintain the status of REIT by paying 90% of income to the shareholders in the form of dividend. BRT has not done so since 2010. The Board of Directors confirms that it will not pay dividend in 2014 on 10-K form for the current financial year 2013. It seems that it is calibrating itself with a new project to build Teachers Village site, which is started in 2012. Its financial is tight and BRT is able to generate positive profit because of one-off gain of the sale of particular asset in the last two years. It is the positive consequence of having solid balance sheet position.

There is certainty that the interest rate for the loans in the future will increase to match the interest rate movement which is partially controlled by the Federal Reserve. As a result, there will be tight interest rate spread since it obtains mortgage debt to acquire properties in the view that it can make money. It was disclosed that 75% leverage is used. Thus, Mr Market is likely to see and wait how it survives for the next 2 years with such business model. That is why it is moving sideway for a long time.

Pace PLC

I bought Pace PLC (LSE: PIC) at 175 pence (1.75 pound) on 10 September 2012 and sold at 355 pence (3.55 pound) on 9 January 2014. At the same time, we received three dividends from PIC during the holding period:  GBX1.192, GBX2.092, and GBX0.928 (per share). As a result, I made a profit of 103.1%, net of transaction costs.

Source: it is taken in my room

I first know about Pace PLC when I received the modem from the Singtel contractor to set up fibre broadband connection. Well, I was surprised that Singtel was not using 2wire. A close investigation on Pace reveals that Pace PLC acquired 2wire from consortium consisting of few big giant firms. Anyway, Pace modem-cum-router do not have impressive wireless signal such that you cannot receive it from two rooms away. However, its software setup looks better and informative than that of 2wire.

Spending few days, I learn that it has products for pay-per-view TV. I notice that it has very good business relationships with American customers for pay-per-view TV products. That is unique characteristics given that Pace modem-cum-router don’t click well to many Singnet users.

On the price chart, it has grown from 2007 to middle 2011. It drop dramatically at late 2011 due to Thailand flood. It is because it has facility there to manufacturer the hard disk for its products. However, it responsed quickly by changing the supply chain to ensure that the customers get the products. All is well in 2012.

The upside is driven by ‘twin drivers’. First driver is the recovery stage from hard disk supply. Thailand flood is merely temporary problem that can be easily fixed by anyone. Second driver is the good business relationship between Pace PLC and its Amercian customers. This should create additional sales if the management is competent enough. Both of them did happen anyway. Best of all, poor wireless signal from Pace modem-cum-router didn’t cloud my judgement. All that said can be good reference of Buffett’s quote: “Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results”. The third driver is not within my expectation – PIC acquires a good company for cash consideration. There is empirical study that whoever use cash to acquire company yield good results in stock market performance as if it is signaling that it has a lot of cash to spend. With that acquisition done, PIC is now viewed to be the next giant in the network industry.

Beam Inc

We bought Beam Inc at US$61.10 on 28 February 2013 and sold $83.50 on 13 January 2014. With that, I made a profit of 36.7%, net of transaction cost and withholding tax and including dividends.

In fact, I wanted to hold it for the next 5 years but Suntory Holdings, one of the largest Japanese multinational firms, announces its intention to acquire Beam Inc at $83.50 per share. It is highly probable that Bill Ackman, one of the shareholders, approve the sale of Beam Inc to Suntory Holdings.

I know that a lot of humans love drinking alcohol to relief themselves in any form. With that in mind, I went to look at few firms in the alcohol manufacturing industry. Beam Inc is a perfect candidate whereby it has spin-off unrelated businesses. This was engineered by Bill Ackman. The price is very reasonable and offers significant discount from its going-concern-based book value. Beam Inc has quite number of well-known alcohol brands, especially Jim Beam. The rationale of holding for the next 4 years is to leverage on the brands in order to generate consistent sales growth.

Unfortunately, the plan is cut short by stunning timing from Suntory Holdings to acquire it. Originally, the rumour has it that one of the largest alcohol firms, Diageo plc, is to acquire it. But Diageo PLC rejected the rumour.