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La Quinta Properties Inc. (LQI) Message Board

  • rwitt785 rwitt785 Feb 27, 1999 9:33 AM Flag

    Bought FAX over MT in an IRA

    I have an IRA which was 2/3rds in FAX (First
    Australia Prime) and 1/3rd in cash. For the 1/3rd in cash,
    I was looking for something with a yield of over 8%
    and a potential price growth of 12 to 15 % per year.
    I was looking at a 3 year time horizon.

    With
    REITs in a bear market, which might end this year, I
    searched this market for reasonably assured opportunities.
    I went through Value Line, Morningstar, searched
    the internet for business articles on the REIT
    market, used Hoover, Zacks and Yahoo for searches and
    lastly went to the Yahoo message boards!

    What
    was my conclusion from this exercise? It was that FAX
    had a more assured, less risky future than the REITs
    including MT! Yesterday, 2/26, I invested the last 1/3rd of
    this IRA in FAX @ 5 7/8 with a yield of ($.72/$5
    7/8)x100 = 12.255% My arithmetic for FAX based on Value
    Line and other sources for the next 3 years is as
    follows:

    The next 12 months: To 3/2000
    Yield = .72 for year
    = 12.255%; target price of stock = 1.12 X 5.875 =
    $6.58; Total Return = 24.25%

    Year end 2: To
    3/2001
    Yield = 1.125 x .72 = .81/yr = 12.25%; target price of
    stock = 1.12 X 6.58 = $7.3646; Total return =
    24.25%

    Year end #3: To 3/2002
    Yield = 1.125 x .81 =
    .91/yr; target price of stock = 1.12 X 7.364 = $8.248;
    Total return = 24.25%

    The further out the
    forecast, the higher the risk of error. For year end #3: 3
    /2002 a yield of $.91/yr/shr may be high, the stock
    price of $8 1/4 looks reasonable. Should they have a
    dilutive rights offering as this past fall, then all bets
    are off, and I would sell all or most at the first
    hint of such an event! This projection is near
    consistent with value line projections. Anyway this
    projection seems more assured then those I could make for
    the REITs I looked at including HME!

    I am 76
    years of age and with mandatory withdrawals from my
    IRA, the above forecasts do not include any
    reinvestment of dividends. Since this is an IRA, the foreign
    tax of .004/shr/mo is not deductable for income tax
    purposes. .004 X 1000 x 12 = $48/1000 shrs. or for 10,000
    shares = .004 x 10000 x 12 = $480 per year.

    Whats
    your opinion? Did I make the right choice? This basic
    message has been posted on Yahoo! under "FAX, MAA & MT"
    plus the icefi BB.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Exposure? FAX is probably an ADR, but nevertheless exposed to currency fluctuations. The AD can be notoriously fickle when you count on it most. Good luck.

    • Probably not smart to put it all in FAX -- but
      depends on the extent of other sources of
      income.

      FAX pluses:

      Apparent good performance of
      Aussie economy (low inflation, prospects for
      growth).
      Sells at a discount to NAV.
      Probably some good
      opportunites in Asian bonds.
      -----

      FAX
      minuses:

      Fixed income investments -- you need further interest
      rate declines and/or currency appreciation to get
      growth in NAV.
      Declines in NAV in the past 2 years as
      dividends exceeded earnings (minus portfolio
      losses).
      Leveraged by Preferred Stock (makes for more
      volatility).
      -----

      Debatable item (and biggest risk factor):

      Currency
      value. (I have seen the commodity argument go awry
      before.) On the other hand, I believe that increasing US
      trade deficits and net debtor status of US make the US$
      increasingly vulnerable.
      -----

      Comments re Value
      Line:

      Their coverage of REIT's is very limited -- only 15 or
      so of the largest REIT's vs over 250 REIT's out
      there.
      I have seen many of their 3-5 year projections go
      awry -- they don't have the best analysts on the
      Street.
      -----

      Conclusion:

      You should probably put some funds into 3 or 4 of the
      following REIT's: MT, SKT, TRI, CEI, TCT, JDN. All have
      yields of 10% or more and some prospects for growth
      (except JDN, which has a 7% yield and better internal
      growth prospects), but do carry some business risk --
      that's why I would spread it out -- the REIT's are in
      different sectors.

    • Given your age of 76 and the average life
      expectancy of males being 76. Are you sure you want to buy
      green banannas? You make no mention of your other
      investments or whether your financial situation is of the
      nature that you need money at a later date or if you
      want to pass your estate along to heirs or a
      charity.
      A balanced approach is always a good approach and
      your entire financial condition should be taken into
      consideration before you can get rational answers to your
      financial equation.
      Very Truly frichard

    • Aren't you concerned that the net asset value of
      FAX appears to be shrinking with each passing month?
      It appears to me that they are selling off assets to
      pay out dividends. Right now you get a higher yield
      with a chance at share price appreciation with a REIT
      such as MT. FAX is also investing in "junk bonds"
      outside of the Australian economy, in order to keep the
      yield or maybe boost it. This gives them a direction
      into the "emerging Asian markets" realm like PREMX or
      FNMIX. Risky.

      • 1 Reply to Jimminator
      • First Australia Prime - Income (FAX:NYSE)
        fund?
        Goldman Sachs is forecasting a 20% rise in the Australian
        dollar. If that happens, I believe FAX, which is mostly
        invested in Australian government bonds, will do quiet
        well. It has a 20% discount to NAV and yields
        12.3%.
        -- Robert Kalb
        : Robert, You are certainly not
        alone in your belief that First Australia Prime Income
        is a very attractive investment -- for a somewhat
        aggressive investor. Before I explain why, let me update
        your numbers. Goldman is forecasting a 16% rise in the
        value of the Australian dollar this year, to 72 cents
        from 62 cents at the beginning of the year. Buying
        Australian dollars was No. 5 on Goldman's foreign exchange
        department's "Top 10 Trades for 1999" list published Dec.
        17.
        As for FAX's discount, it's currently about13.6%,
        and the yield is 11%.
        In fact, the fate of the
        Australian dollar will probably be the single largest
        determinant of how First Australia performs. The fact that
        its Australian dollar-denominated assets are
        government bonds means Australian interest rates also play a
        big role. But not as big as they used to. When the
        fund was launched in 1986, the yield on the benchmark
        10-year Australian government bond was above 12%. Now
        it's around 5.30%.
        James Blair, head of fixed
        income at Equitilink, estimates that two-thirds of the
        fund's return on its Australian dollar assets are now
        currency-related, up from roughly half during the first 10 years of
        the fund's life.

        So, why bet on a rise in the
        Australian dollar? "The Australian dollar has a very high
        correlation with commodity prices," says Mariana Bush,
        closed-end fund analyst at Evere Securities. In one of the
        clearest consequences of the Asian financial crisis,
        commodity prices are in the tank. Their leading index, the
        Commodity Research Bureau index, made a fresh low
        yesterday.
        The Australian dollar, currently worth about 64
        cents, is pretty well beaten down, too, although it
        diverged from the CRB back in September and started
        improving. Still, it's now at levels last seen back in
        April. And before the Asian financial crisis started in
        July 1997, it fluctuated around 75
        cents.
        Australian Dollar's Strong Points
        The Australian dollar
        is benefiting or is expected to benefit from four
        things.
        First is the belief that the worst is over in Asia, and
        as a result, commodity prices soon will start to
        recover. Calling the Australian dollar "the cheapest
        currency in the world" according to Goldman's models, Jim
        O'Neill, the firm's chief currency analyst, says that
        "with non-Japan Asian growth starting to stabilize,
        demand for Australian commodities out of places like
        Korea is likely to improve sharply." Goldman figures
        the Australian dollar is worth at least 76
        cents.
        The second basis for a bullish forecast on the
        Australian dollar is confidence in the Australian economy.
        O'Neill thinks that after the U.S., it's the strongest
        economy in the 29-nation Organization for Economic
        Cooperation and Development. He's forecasting growth in the
        3.5% to 4% range for the next two years. (Inflation
        remains as low as in the U.S., though, up 1.6% year on
        year, supporting the value of Australian
        bonds.)
        Third, Blair says the Australian dollar has been
        benefiting from the fact that Australia's key short-term
        interest rate is now even with the U.S. fed funds rate at
        4.75%. Before the Fed's three rate cuts last fall, the
        Australian cash rate was lower than the fed funds rate at
        5%, which put pressure on the Australian
        dollar.
        Finally, the Australian currency has benefited from the
        rise in the region's most important currency, the
        Japanese yen, since the summer, even though the Japanese
        economy continues to languish, Blair says.
        Leading
        Analysts Like FAX
        But the potential for a rise in the
        value of the Australian dollar is only part of the
        reason why two leading closed-end fund analysts like
        FAX.