@ Pumping777, Rought cut.
I stumbled on this article about the Skye Reit, was it a bad move or what??


Everyone who has a brain who is involved in real estate as been thinking about REITs in the last couple of years, however only one firm has decided to actually start one. The firm is Skye Bank and the REIT is called the Shelter Fund. The total fund size is N5 billion but it is in two tranches (parts) and the first part (the part it is raising now) is N2 billion. While such initiative should be applauded, the way they are going about it leaves a lot to be desired.

REITs are supposed to exist as a pass through vehicle (there is no tax paid on the REIT income), which means that in most countries with REITs, at least 90% of the income is passed onto the shareholders in form of dividends. For reasons best known to them, Skye has decided that 80% is appropriate. Now you would think that the remaining 20% will be used for operating expenses of the company. Apparently the fund managers still think a management fee of 1.5% is sufficient (now I am not against the management fee in principle, but I think that the magnitude is a bit high).

However the part of the compensation structure that I take the most issue with is this : "In addition to the annual management fee mentioned in sub-clause (i) above the Fund Manager shall also be entitled to receieve an incentive fee of 30% of total returns in excess of 10% of the funds Net Asset Value per annum." As performance fees go, it's very high even for proven fund managers. For a start up fund, I am yet to see the justification for it. Oh and as an aside, in general only private equity and hedge funds charge fees of close to that size, not REITs.

Still more worrying is the treatment of this fee in the prospectus. For example in the first year of operation, the prospectus reports this figure as N7.65 million. This does not seem bad, until you do calculations based on the figures in the prospectus which show that the figure should be N76.5 million. Excess returns over 10% of NAV are N255 million, 30% of that is N76.5 million. There are two possible explanations: honest mistake or intent to deceive.

Now let's move onto the actual business of the REIT. The REIT plans to play in the upper and middle ends of both residential and commercial property. Which is a pretty sensible investment strategy. However the first tranche is N2 billion naira which is $15.7 million. They are also saying that there will be no borrowing, which means that this is all the money they have to play with. Bottom line, the amount they are playing with is too small. The cost of one office building worth putting in V/I minus land costs will take out all that money. For the type of margins that they are talking about, you will have to do build and sell if you are talking residential. However that would mean that they have to develop, which means that it will be about 2 years before you start seeing any money. Now I thought about them buying an existing commercial property, but in Nigeria people pay rents (at least)two years in advance and so, they will have to find properties that have their rent due. There are only two things I can think of. 1) they are going to buy a government property and flip like, like UACN did with 1004. 2)There are one or two soon to be completed real estate developments that they are trying to get in on. Either one could allow them to provide the returns that they are promising.

In conclusion, I do not see any advantage to investing in the Skye Bank REIT as it is currently structured. I do not think the fund is large enough to capitalize on the truly lucrative opportunities in the real estate sector. I also think that the fee structure is particularly onerous. This was a valiant first attempt, but I think we'll have to wait a little longer for REITs.

http://naijanaz..com/2007_08_01_archive.html

hispy99:

This is the info I have on BAGCO

Issued and fully paid: 4.35 billion shares
Offer for Subscription: 1.865 billion shares additional shares

Flour Mills will still own about 70% of the firm after the IPO. Also 50% of the 1.865 billion will be preferentially alloted to identified investors.

Price is N3.90.
The info above may change, but it should not devaite from these numbers dramatically

You be better insider. Thanks.

It makes even more sense to maintain majority interest. For those thinking of dumping Flour Mills because of this, it is time to re-think.

@pangolo  I never analyzed Skye REIT fund in the past so I don't know if the numbers being crunched are correct.

If it is true that the investment manager will get 30% of anything made above 10% of net on top of the Management expenses, I will be raising both eyebrows. It means that if the fund does 100%, apart from the Management Expenses, the Managers recieve an incentive of another 27%. It is up to you if you are happy to pay such premium.

Regarding the business plan I have to clue. I don't believe it can be as gloomy as this writer suggests though. 2 billiion total for property investments and they will not borrow? Not even mortgage? It will be tight.

If you've already put your money into it, take your mind off it and move on to something else.

Saw dangote floor on nigeriansecurities at 8.6,is it rael or fake?

easimoni:

5-7 is my optimum as well. I've seen portfolios with 20+ stocks and I never understood why.

I'm still working on my patience to become a long-termer. Thing is I see too many opportunities and tend to dump my 9-12 months stocks to HIT that opportunity. Paid off this year with Wema (was 80% of my 'folio) but with my BP trending up , I no go try am again o!

This remains one of my very bad habits. Having a large portfolio that requires too much effort to manage but I am improving rapidly. I have 2 distinct portfolios. Long term and Short term. For long term I typically have between 8-10 stocks and really these stocks are locked. I really don't have any problem with this.

The Short term portfolio is the real problem. I never seem to be able to get it under 10 and the problem is over speculation and analyzing too many stocks. My long term target is to stick to a max of 6-8 stocks at any one time and only go for the kills!

easimoni:

Thanks for the IBTC attachment. They have Wema's fair value at N18, but once it crosses N13, I'm going to start selling.

Really, ? 13 Naira? You will sell Wema?  Well, at 80% of your portfolio the risk is high. I've never been brave enough to have any one stock make up more than 20% of my portfolio. Well, you were very calm earlier this week for someone with so much exposure. You try.

I will not consider selling until I hear Wema has approached SEC. Wema is only 10% of my portfolio so I'm ready to face the music (and dance if necessary).

I may have to eat my words soons.
Grapevine has it that our offer may be out in two weeks.
Guys get your wallet ready

@ frankiriri

Zenith?

pumping777:

Well, you were very calm earlier this week for someone with so much exposure. You try.

You didn't read the part about my BP going up?  

@ pumping,
Yes Zenith, Frank works there.

husu:

Saw dangote floor on nigeriansecurities at 8.6,is it rael or fake?

Where did you see this on the site? I go like apply for them to sell to me at the price o.

husu:

Saw dangote floor on nigeriansecurities at 8.6,is it rael or fake?

I have their valuation page open in another window as we speak. NO mention of Dangote flour. Where on the site do you see it?

Gurus,
How do you guys raise funds for all these offers in the market?? I have learnt by being on this thread that there are "POCKETS" and there are _pockets.(, such as mine ). Any help on how to raise funds? Is it wise to borrow to invest? If the money works for me and makes money is that a dangerous idea?
On the issue of having no more than 5-7 Stocks, just look at the market now and see what we are dealing with. Zenith, Bank PHB, FCMB, Fidelity, Bagco in the air, WEMA, COstain etc, which one person go ignore??

One place I've now seen Dangote Flour on the site is under the analysis section. It is one of the stocks you can choose for analysis but no data was populated when I generated the graph.

Rob-roy:

Gurus,
How do you guys raise funds for all these offers in the market?? I have learnt by being on this thread that there are "POCKETS" and there are _pockets.(, such as mine ). Any help on how to raise funds? Is it wise to borrow to invest? If the money works for me and makes money is that a dangerous idea?
On the issue of having no more than 5-7 Stocks, just look at the market now and see what we are dealing with. Zenith, Bank PHB, FCMB, Fidelity, Bagco in the air, WEMA, COstain etc, which one person go ignore??

- As per raising funds my recommendation will usually will be to have a set figure you will invest in the market. When necessary sell some to buy some. Borrowing is a tight option. Do it only if you have other means of paying back rather than waiting on the performance of the stock.

-  As per portfolio size, rate all the offers and discard those at the bottom (if only I will listen to myself  ). Of the list you have above there, discipline yourself to go for only one or two for instance. Don't try to participate in all  the offers since some are better than others. However, I understand that because of oversubscription it can be advisable to participate in multiple pos so you don't have too much returned funds. However this is not a problem for someone with a _pocket

@ pumping,
I see it but as you say, no data.

@ Rob_roy, you need to take a deep breath, do the math and bet on one or 2 horses and not all of them. Don't look back in regret at what could have been after you make your choice. Costain and Wema seem to have the most potential on your list but we have yet to see the prospectus on either (Wema will come out in weeks not months).

Per raising money to buy shares, I reinvest all the money I make. I started small and worked my 'folio slowly and dilligently. I don't borrow money ever. I've thought about it but could never pull the trigger. Maybe people who've done it successfully can chime in. _{I'm still contemplating it.}

too risky to borrow unless if you can predict the market,or like pumping777 said (if u have other options of paying back).
otherwise you will come crying to nairaland.

for the offers at hand, my money goes to bank phb and fcmb just to increase my stake in them.
any remaining garrah will go to costain,the discount is too much to ignore.

Rob-roy:

Gurus,
How do you guys raise funds for all these offers in the market?? I have learnt by being on this thread that there are "POCKETS" and there are _pockets.(, such as mine ). Any help on how to raise funds? Is it wise to borrow to invest? If the money works for me and makes money is that a dangerous idea?
On the issue of having no more than 5-7 Stocks, just look at the market now and see what we are dealing with. Zenith, Bank PHB, FCMB, Fidelity, Bagco in the air, WEMA, COstain etc, which one person go ignore??

as u have been advised, you need to rank d offers and make up ur mind which ones to go for based on the resources available to you.

i will only differ on the issue of borrowing money to invest. some investments are almost like a once in a lifetime opportunity e.g. NAHCO PO at 3 naira or thereabout back in 2005, anybody who borrowed money to buy back then should have gone on a vac to the maldives by now. my point is, dont borrow money to gamble (trying to prey on market euphoria), do ur analysis if you're given to analysing and make sure u are convinced the stock is part of ur plan, then if you must borrow to get a leg in, do it.

dont forget that there are good debt and bad debt!!! question to ask is, which one are u getting into

@ Pumping and easimoni
thanks for your responses, I will work on building my _pocket
Until then I have more questions,
Is it better to buy a parent company like flour mills or the more profitable, better priced subsidiary ( Bagco @ 3.95), I have been mulling over this in my cerebrum and I know that the other interesting thing about Flour Mills is their Flour and Cement. Now for Cement I would like to go for Wapco directly or Ashaka, and I bought some of the recently concluded Dangote Flour as an experiment in whether market sentiment overshadows fundamentals, time will tell.
So Bagco for sure

The real problem lies in deciding between Costain's PO at N13 or Bank PHB IPO at N 17.
I like both but I wonder which would give me more appreciation within my target time frame of 2009. Any one willing to conjecture?
The fact that PHB is an IPO, plus its track record of aggressive growth, aggressive marketing of products etc, and the market sector it is in ( financial) seems to give it an edge over Costain which is JUST beginning to show profitability (because Shoreline bought into it) after years of losses . I know the building sector is very unpredictable but they both look good, THE PRESSURE, THE PRESSURE,

@all,
Thanks for your input, I hope I come out smiling. I dont mind taking crazy risks cos I want to learn by being burned, or gain a lot by being intrepid. If I have money when Wema speculation was on I would have jumped right in, I have a bundle sitting in Transcorp now that I bought at 3.89 (and I am buying more). Cadbury was purchased at 30.00 and a bunch of insurance in my sights now,

@ Rob_roy,
re: Costain vs. Bank PHB.

There is no bigger money maker in the NSE than buying a company just returning to profitability. E.g. I Bought WAPCO at 18 last year, Wema at 4.30 this year. Costain looks like the next WAPCO and Transcorp could be the one after that. Costain for 08, Transcorp (& dunlop) for 2009.

pangolo:

@ Pumping777, Rought cut.
I stumbled on this article about the Skye Reit, was it a bad move or what??


Everyone who has a brain who is involved in real estate as been thinking about REITs in the last couple of years, however only one firm has decided to actually start one. The firm is Skye Bank and the REIT is called the Shelter Fund. The total fund size is N5 billion but it is in two tranches (parts) and the first part (the part it is raising now) is N2 billion. While such initiative should be applauded, the way they are going about it leaves a lot to be desired.

REITs are supposed to exist as a pass through vehicle (there is no tax paid on the REIT income), which means that in most countries with REITs, at least 90% of the income is passed onto the shareholders in form of dividends. For reasons best known to them, Skye has decided that 80% is appropriate. Now you would think that the remaining 20% will be used for operating expenses of the company. Apparently the fund managers still think a management fee of 1.5% is sufficient (now I am not against the management fee in principle, but I think that the magnitude is a bit high).

However the part of the compensation structure that I take the most issue with is this : "In addition to the annual management fee mentioned in sub-clause (i) above the Fund Manager shall also be entitled to receieve an incentive fee of 30% of total returns in excess of 10% of the funds Net Asset Value per annum." As performance fees go, it's very high even for proven fund managers. For a start up fund, I am yet to see the justification for it. Oh and as an aside, in general only private equity and hedge funds charge fees of close to that size, not REITs.

Still more worrying is the treatment of this fee in the prospectus. For example in the first year of operation, the prospectus reports this figure as N7.65 million. This does not seem bad, until you do calculations based on the figures in the prospectus which show that the figure should be N76.5 million. Excess returns over 10% of NAV are N255 million, 30% of that is N76.5 million. There are two possible explanations: honest mistake or intent to deceive.

Now let's move onto the actual business of the REIT. The REIT plans to play in the upper and middle ends of both residential and commercial property. Which is a pretty sensible investment strategy. However the first tranche is N2 billion naira which is $15.7 million. They are also saying that there will be no borrowing, which means that this is all the money they have to play with. Bottom line, the amount they are playing with is too small. The cost of one office building worth putting in V/I minus land costs will take out all that money. For the type of margins that they are talking about, you will have to do build and sell if you are talking residential. However that would mean that they have to develop, which means that it will be about 2 years before you start seeing any money. Now I thought about them buying an existing commercial property, but in Nigeria people pay rents (at least)two years in advance and so, they will have to find properties that have their rent due. There are only two things I can think of. 1) they are going to buy a government property and flip like, like UACN did with 1004. 2)There are one or two soon to be completed real estate developments that they are trying to get in on. Either one could allow them to provide the returns that they are promising.

In conclusion, I do not see any advantage to investing in the Skye Bank REIT as it is currently structured. I do not think the fund is large enough to capitalize on the truly lucrative opportunities in the real estate sector. I also think that the fee structure is particularly onerous. This was a valiant first attempt, but I think we'll have to wait a little longer for REITs.

http://naijanaz..com/2007_08_01_archive.html

Incentive fee of 30% in excess of 10%?  That is ridiculous!

By the way, do they have a high water mark? What happens in this scenario:

Year      NAV
2007    N40mm
2008   N60mm
2009   N40mm
2010  N60 MM

The return in 2010 is 50%, so are they going to chage 30% of (50% -10%)?  If they do, then they are thieves, because all they have done in 2010 is bring NAV back to what it was in 2008. As an investor, you have gained nothing.

pangolo:

@ Pumping777, Rought cut.
I stumbled on this article about the Skye Reit, was it a bad move or what??


Everyone who has a brain who is involved in real estate as been thinking about REITs in the last couple of years, however only one firm has decided to actually start one. The firm is Skye Bank and the REIT is called the Shelter Fund. The total fund size is N5 billion but it is in two tranches (parts) and the first part (the part it is raising now) is N2 billion. While such initiative should be applauded, the way they are going about it leaves a lot to be desired.

REITs are supposed to exist as a pass through vehicle (there is no tax paid on the REIT income), which means that in most countries with REITs, at least 90% of the income is passed onto the shareholders in form of dividends. For reasons best known to them, Skye has decided that 80% is appropriate. Now you would think that the remaining 20% will be used for operating expenses of the company. Apparently the fund managers still think a management fee of 1.5% is sufficient (now I am not against the management fee in principle, but I think that the magnitude is a bit high).

However the part of the compensation structure that I take the most issue with is this : "In addition to the annual management fee mentioned in sub-clause (i) above the Fund Manager shall also be entitled to receieve an incentive fee of 30% of total returns in excess of 10% of the funds Net Asset Value per annum." As performance fees go, it's very high even for proven fund managers. For a start up fund, I am yet to see the justification for it. Oh and as an aside, in general only private equity and hedge funds charge fees of close to that size, not REITs.

Still more worrying is the treatment of this fee in the prospectus. For example in the first year of operation, the prospectus reports this figure as N7.65 million. This does not seem bad, until you do calculations based on the figures in the prospectus which show that the figure should be N76.5 million. Excess returns over 10% of NAV are N255 million, 30% of that is N76.5 million. There are two possible explanations: honest mistake or intent to deceive.

Now let's move onto the actual business of the REIT. The REIT plans to play in the upper and middle ends of both residential and commercial property. Which is a pretty sensible investment strategy. However the first tranche is N2 billion naira which is $15.7 million. They are also saying that there will be no borrowing, which means that this is all the money they have to play with. Bottom line, the amount they are playing with is too small. The cost of one office building worth putting in V/I minus land costs will take out all that money. For the type of margins that they are talking about, you will have to do build and sell if you are talking residential. However that would mean that they have to develop, which means that it will be about 2 years before you start seeing any money. Now I thought about them buying an existing commercial property, but in Nigeria people pay rents (at least)two years in advance and so, they will have to find properties that have their rent due. There are only two things I can think of. 1) they are going to buy a government property and flip like, like UACN did with 1004. 2)There are one or two soon to be completed real estate developments that they are trying to get in on. Either one could allow them to provide the returns that they are promising.

In conclusion, I do not see any advantage to investing in the Skye Bank REIT as it is currently structured. I do not think the fund is large enough to capitalize on the truly lucrative opportunities in the real estate sector. I also think that the fee structure is particularly onerous. This was a valiant first attempt, but I think we'll have to wait a little longer for REITs.

http://naijanaz..com/2007_08_01_archive.html

Incentive fee of 30% in excess of 10%?  That is ridiculous!

By the way, do they have a high water mark? What happens in this scenario:

Year      NAV
2007    N40mm
2008   N60mm
2009   N40mm
2010  N60 MM

The return in 2010 is 50%, so are they going to chage 30% of (50% -10%)?  If they do, then they are thieves, because all they have done in 2010 is bring NAV back to what it was in 2008. As an investor, you have gained nothing.

boy have i missed this thread. been gone three days and missed five pages.
@ easimoni, on costain vs. bank phb, not too sure about costain been the winer. they might apply for triple the number of shares they have now, construction stocks dont have such a high pe right now. bank PHB is growing at a mad rate and the banking sector is still just scratching the surface. why do u favour costain so much.

@ easimoni ,

i respect your opinion and always willing to read what you have to say. I read on the previous page that your portfolio is 80% Wema . You sure have a lion heart ,but as you said that was a recipe for high blood pressure. Abeg make ur pay and diversify fast , we still need you on nairaland. I didnt enter Wema in May because i had no results to analyze except my broker 's word to buy. Congrats , and like someone said "enjoy the loot " .Goodluck !

@ wanajo, please i have two questions for you;
1) with BAGCO going public ,do you feel there is any point still taking position in flour mills, or should one take position in both
2)i have been thinking about buying a stock with december year end such as, wapco, beta glass or dangote sugar, and then by march i will use the profit from these coys. to take a stake in flour mills. do you think this is a good idea??
and which of these would you recommend;
1.wapco @ 64n
2.beta glass @ 14n
3.dangote sugar @ 35n.
4.longman @ 14n.
and finally, which other good stocks would you recommend for good long term or medium term value.
thank you very much. pls reply

@ Rob-roy

as  per using debt financing to buy stocks , you have to do the maths properly. You have to add acquisition costs to the cost of capital you borrow. When you use debt financing you MUST MAKE MONEY BEYOND YOUR COSTS , otherwise you would have enriched the lender and your broker. For instance , the interest rate in Nigeria is anything between 17-23% , plus the brokers fees.Thats what you have to make to breakeven ,but if you have access to capital abroad you have a better margin of safety. The fed reduced interest rate in the U.S this week , and the Euribor , thats the Euro interest rate on short term debt was also reduced. If you learn the mechanics of debt financing properly and you have your analysis  right, YOU WILL CERTAINLY MAGNIFY YOUR EARNINGS. One advice , make sure it  is a term loan , ie you pay the entire sum at the maturity of the loan.As per the interest payments , do have an alternative cashflow to pay it periodically. Finally , the decision depends largely on your RISK PROFILE as an investor. Good luck .

@ easimoni

though i deduced from your posting that  are more a short-termer , i am surprised you dont use leverage . with your wema position ,i kinda think you can take big risks.Bottomline , if you are making money now , which am sure you are , you are can magnify your earnings. No doubt .

I guess i'll wait for the prospectus for all the offers I have in my gun sights before bringing up the issue of which best two stocks to pick, Thanks again y'all,

Transcorp lost 5% today to close at 3.63 Naira. What is going on? The new certs? Is it heading for 3 Naira as predicted?

@barge,
thank you sir,

@ Pumping 777,

No cause for alarm. Transcorp will surely bounce back. It is just a matter of time.

Peace.

tonyjon:

@ Pumping 777,

No cause for alarm. Transcorp will surely bounce back. It is just a matter of time.

Peace.

Just that I don't have Transcorp or I may just be sweating by now

Anyway, as you talk, let's hope the stock bounces back for the sake of the loyal investors.