Den of The Lion Investor

The latest announcement to come out from Allco REIT is that they have received in-principle approval for the extension of the maturity date for their $550 million loan. It was originally due on 31st July 2008; now the new date is set for 31st December 2009.

There is another $70 million dollar debt which is due on 22nd November 2008. This will be paid from the divestment of Allco Wholesale Property Fund (AWPF). AWPF will be liquidated with the net proceeds returned to unitholders in the 3rd quarter of 2008.

And with that, the short term financing problems of Allco Commercial REIT has been resolved. This is a good thing since it does remove one obstacle for any potential buyer.

I don’t expect any acquisitions for Allco REIT in the near future as funding it will be a problem. At the current share price, issuing equity is also out of the question.

The troubles for their parent company, Allco Finance, still continues though. It remains to be seen how much value they can extract from their holdings in Allco REIT if they decide to divest it. When a company is in trouble, you can always count on predators to be around for any firesale.

This morning, Allco Commercial REIT requested for a trading halt. This comes in the light of recent developments in the listed entity.

• 19th March 2008 - Resignation of 3 non-executive directors linked to the parent company, Allco Finance Group, and appointment of 1 new executive director. The reason provided by the company is that the board of directors have decided to have a majority of independent directors “in the interest of good corporate governance”.
• 18th March 2008 - Downgrade of Allco REIT’s corporate family credit rating by Moody from Ba1 to Ba2. This followed a previous downgrade on 31st Jan 2008.
• An attempt made last week by Allco to prevent or delay the Moody downgrade via a court injunction. A downgrade could hurt a $620 million financing deal sought by the company which is needed to repay some short term debts.
• 9th March 2008 - Announcement of strategic portfolio focus. According to the manager, Allco REIT is trading at a sustantial discount to its net asset value and the manager is evaluating ways to close this gap. This includes the possibility of divesting their Australian assets.

The trading of the shares is currently suspended pending a further announcement from Allco.

The timing of the resignation of the executive directors could mean that there will be sort of restructuring happening.

The parent company of Allco REIT, Allco Finance Group is not in very good financial shape. Since this news one month ago, their share price has dropped further by 90%. Allco Finance owns Rubicon Holdings, the manager of Rubicon Japan Trust. The trust said on Tuesday it would not be able to meet an expected A$30 million ($28 million) margin call due on Wednesday.

Allco Finance had also announced in late February that it will be disposing of non-core assets to raise funds. A divestment of Allco REIT might be one of those.

I kind of liked Stuart McPhee’s first day lecture on money management, so I decided to fork out some money to attend his second lecture titled “Developing a Trader’s Mindset”.

Just to recap, Staurt attributes 60% of a successful trader to his psychology, 30% to his money management and 10% to his system. Thus, this entire one and a half hours is solely dedicated to the mindset.

The core foundations to trading success lies in having:

• The correct altitude
  • Confidence
  • Patience
  • Persistence and Perseverance
• Having goals. As a new trader, set yourself a goal of being in the black after your first year in trading.
• Discipline
  • Control of emotions
• Taking action
• Reduce distractions from TV and internet
• Continual education through books

I became a winning trader when I was able to say, “To hell with my ego, making money is more important.” - Marty Schwartz

The reality is that most traders fail. Everyone experiences the same emotions. To succeed in trading, we need to think and act differently.

Stuart has the following advice for new traders:

• Be humble
• Be committed
• Educate yourself
• Be patient
• Keep it simple and realistic
• Focus on the right things
• Protect your capital

Here’s a personal insight I want to share with you. If you think about it, most traders focus on making money (and not losing money). That is where the mistake comes in.

If you consider any professional sportsman, he always focus on his game when he is playing. If he plays well, money comes naturally as part of his reward. If he starts thinking about the prize money when he is playing, very often he will play badly and ends up with less money.

It’s the same with trading. To be a successful trader, the focus has to be on the trading. Making the correct trades. To do what your trade plan tells you to do even though that trade might lose you money. If you can do that, making money in the long run will come naturally.

I mentioned in my previous post on Jardin Smith International Singapore that I will be elaborating more on UK land banking (or strategic land investment). Other than Jardin Smith, there are a few other companies offering this product in Singapore, two of which are Uk Land International and Profitable Plots.

If you have found my blog because you were doing further research on this topic, good for you. In any investment (especially non-regulated ones), it pays to do your due diligence before you commit any sum of money.

Successful investing is all about managing your risks and if you do not know what your risks are, you stand a higher chance of losing your hard-earned money.

One approach I take when doing any research on a new unregulated investment product is to search google for that topic with the word “scam” added behind. While there are both truths and lies sprouting on the internet and you would be wise to take things you find with a pinch of salt, the internet is still a good starting point for any research.

If you search “Uk land investment scam” in google, you are likely to find a couple of sites discussing about UK land investments. There is one site which stands out: Property Scam, which is dedicated to discussing everything about UK land investments.

From that site, I found out a few things:

• Besides Jardin Smith International, Profitable Plots and UK Land International, there are dozens of land investment companies around the world dealing in UK land investment. The list includes:
  • Hambrook & Greenstock
  • Property Spy
  • Land Investment Association
  • Townfield Land Investments Limited
  • English Land Partnership (ELP)
  • European Land Sales Partnership
    • Exposed by BBC “Inside Out”
  • UK Land Investments Group (UKLI)
    • One of their past auditors, Moore Stephens, discharged themselves
    • UKLI respond to Moore Stephens’ resignation
    • Posted misleading claims on their website about their partners
• A few of them have ceased operations and their investors are left holding the land they bought from them.
• So far, there has not been any documented success of planning permission being obtained by these companies.
• The plot you buy has a huge mark-up of 10-100 times. Read this article for examples. That is how most of the companies has been able to expand so rapidly even though they do not have any success stories yet.

While I cannot ascertain that everything written at Property Scam is true, investing in UK land through a land banking company can be a highly risky affair. However, the returns are very high if planning permission can be obtained.

If you are considering investing, please do your due diligence on the company you are investing with, and only invest with a company you can trust (and with money you can spare). Good luck.

Last Saturday, I was invited to a exhibition held by Jardin Smith International, a local company that sells UK land to investors in Singapore and other countries. Jardin Smith International holds these kinds of events quite frequently, each time at a different venue. In my case, it was held at Ritz Carlton Hotel. I have not been to Ritz before, so it took me a while to find the place.

Upon arrival, I was greeted by a client relationship manager (or salesperson), whose job was to make me feel comfortable and explain to me the concept of how it all works. So I was treated to some free food and there was the usual idle talk before we got down into business.

Having already been to a presentation by another company that sells UK land, Profitable Plots, I was familiar with the concept. Here’s how it works:

1. The company purchases a plot of greenbelt land. This is land that cannot be developed unless it is rezoned (a process known as getting planning permission) by the government.
2. The land is sub-divided into many smaller plots and sold to investors.
3. The company retains 25% of the land so that it is also “vested” along with the investors.
4. The company goes out to apply for planning permission. This process will take many years. As such, this is more of a long term investment. We are told this would take five to ten years at the minimum.
5. Once planning permission is obtained, the value of the land will rise 5-10 times (from your purchase price) and you can realise your gains when the entire site is sold. In Jardin Smith International’s case, 60% of the owners will have to agree before it can be sold.

The reasons why we should investing in UK land (as told by the company) are as follows:

• UK has a housing problem and land will only become lesser and lesser.
• The price of land has been increasing steadily (About 20-fold in the last 15 years).
• 2012 Summer Olympics will be held in London and this will have positive effect on the property market.

The plot on offer by Jardin was being sold for a cool $30,000. An initial deposit of 10% was required and could be paid by credit card. The balance could be paid by credit card and UOB cardholders could even pay by interest-free 12 months installment plans.

I politely told the client relationship manager that I didn’t have the money at the moment and wasn’t interested. She was quite persistent and even suggested I just pay the deposit first. I wasn’t going to do that since I won’t be able to finance the remaining 90%. She was pretty disappointed and made a last ditch effort to ask me for referrals. Of course I would not refer any of my friends to a company that I had not fully researched on.

Tomorrow, I will write about some of the things you need to be aware of if you are investing in UK land.

Besides the land investment, there was also a side booth promoting a property City House, Croydon in London. According to the person I spoke to, he was helping some investment fund sell off their units.

1-bedroom units were available for about 215,000 GBP and 2-bedroom units for 250,000 GBP. 12% of the amount would be payable within 28 days, another 13% due at completion (end 2009) and the remaining 75% can be bank financed by Lloyds.

The rental yields are estimated at 5% and if the units are rental out, it would be able to cover the interest payments. It looked interesting to me but being not very inexperienced in this area (other than the fact that I can’t really afford it now), I decided to give it a miss.