Sunday 17 May 2020

Summarised Review of My Portfolio Holdings

Since it's the reporting season recently, I found couple of hours to do a low level review of the result highlights of the various companies in my portfolio while baby daughter is asleep.

Decided to pen down my thoughts as a record for reference and for sharing purpose.

Not doing any side by side comparisons with past results as these can be easily found in the highlights presentations and financial statements.

While I can write a full post for each of the counters in my portfolio, that is not the objective here.

This is after all just a summary of my reviews and thoughts, in particular the areas of concern to look out for.

It is also not fair to the readers if I simply do some tables and extend the writing to make it a full post without doing a high level review of the figures.

Most of the content written below are garnered from the reports. Some are from my memories and some are my personal opinions.

Ascendas Reit

Good set of results in my opinion.

Healthy portfolio occupancy at 91.7%, low gearing at 36.2% and best of all, an 8% positive rental reversion.

The relatively low gearing means that Ascendas still has about $3.8 b for further growth before they hit the new 50% regulatory limit. Pretty huge head room I would say.

Really nothing major to complain about except to look out for the coming quarters on the macro environment where Singapore is expected to enter into recession.

Might add more at $2.60.

CapitaLand Commercial Trust

CCT is one counter that I have held for many years now. I liked it for the quality of its assets and I still do.

The latest set of results is a mixed bag.

While gross revenue and NPI increased slightly, distributable income and DPU fell by 23% and 25% respectively. This is due to the retention of part of the income for prudent sake during this Covid-19 period, similar to most Reits.

If I annualise this reduced DPU, yield against my cost and current share price is 4.8% and 4.4%.

However I'm not worried about this lower yield as I don't think the cut in DPU will be more than two times. And the retained income would most likely be distributed back to unitholders in time to come.

Latest portfolio occupancy stands at a good 95.2%.

Gearing stands at 35.5%. Still comfortable.

Debt maturity at 3.5 years. Average.

Cost of debt at 2.3%, interest coverage at 5.7 times and WALE by NLA at 5.8 years. Nice.

While it's nice to see the contributions starting to come in from the new acquisitions, I noticed Six Battery Road has quite a drop in revenue and NPI.

This is due to the expiry of Standard Chartered's lease in January 2020 and the start of AEI which is expected to complete in 3Q 2021.

That, together with CapitaSpring which is expected to be completed next year and which has only secured committed occupancy of around 35%, is a bit of a concern to me.

I suspect it would be challenging to secure tenants during this period due to the current situation. I hope I am wrong though but this is a point I have to take note of.

CapitaSpring will be a drag to the overall financials if not improved by next year.

Another point to take note is that 21 Collyer Quay will be closed for two quarters starting from 2Q 2020 for upgrading works. Half a year of income there.

Top 10 tenants are contributing 37% of monthly GRI. I would prefer if it is around 25% or less.

Probably will add another 6,000 shares to bring up holdings to 10,000 to avoid odd lots for CICT.

CapitaLand

Good but nothing to be excited about. Unlike previous few times where I remember I was 'Wowed' by what I saw.

Average debt maturity of 3.4 years, 7 times interest coverage.

Gearing stands at 0.64 times. Slight increase compared to last FY but still pretty low as compared to its peers like Frasers Property.

My concern here is its new developments.

CapitaSpring which is expected to be completed next year, has secured committed occupancy of around 35%.

(CapitaLand has 45% interest and CapitaLand Commercial Trust has another 45%)

This is quite worrying as moving forward the economy is expected to worsen. It would probably be more challenging to secure tenants.

Same for 79 Robinson Road which obtained its TOP last month. This development fared better with around 70% committed occupancy but it's still far from ideal.

Hopefully the management can give further update to the above occupancy rates in the near future.

Hold on to current holdings. Will add more only if I have surplus funds.

CapitaLand Retail China Trust

All malls have reopened since 2nd April 2020 which is a good sign.

Gearing and cost of debt are low.

I also like the management's proactive approach of early refinancing of the term loan due this year. This brings the debt maturity to 3.16 years.

Average occupancy rate is high at 95.4% but is dragged down by CapitaMall Minzhongleyuan (Mzly).

In fact Mzly's occupancy rate has a steady decline QoQ from 62.7% in Mar 2019 to 52.8% in Mar 2020.

Another area of concern is that around 50% of the lease by total gross rental income is due to expire within these two years.

For the above 2 points, I have written to their IR in-charge and have gotten the following replies in blue (My email was replied within half an hour after it was sent around midnight. Kudos to them).


This counter is one of the 3 that I have identified to load on during this bear period with two batches added so far.

To follow plan and continue adding in batches.

DBS

A good set of results in my opinion.

Same as my thoughts for OCBC below. Important to look out for 2Q onwards as that's where the full effect of interest rate cut comes in which will likely depress the NIM.

Effect of Covid-19 and crude oil prices will also ripple down the next few quarters.

Already, NPL and NPA has increased to 1.6% and 14% respectively in this quarter. The latter has risen sharply, almost 50% from the previous quarter.

Quarterly dividend maintained at 33 cents is confidence-inspiring and management has guided that current earnings generation is expected to be sufficient for maintaining dividend at 33 cents.

Current virus situation presented a good opportunity for me to buy into DBS. Since March 2020 I have bought in twice in small batches.

To follow plan and continue adding in batches.

ESR-Reit

Revenue, NPI and distributable income all dropped YoY in double digits although the DI is due to setting aside potential rental rebates to support tenants.

While the easy way out is to attribute these to the Covid-19 situation, I think it would be prudent to delve deeper into the financials when time permits.

Gearing is pretty high at 41.7%, limiting growth. That being said, MAS has increased the regulatory limit to 50% recently but that gearing is still discomforting.

Cost of debt at 3.81% is also relatively high when compared to the other Reits where the metric hovers around 2+%.

Another downside is the negative rental reversions albeit at -0.1%. That suggests the management might have problem negotiating with tenants.

On the plus side, portfolio occupancy is still doing fine at 90.5% (as compared to Ascendas's 91.7%).

WALE is acceptable at 3.6 years.

I also like their mix of asset class which is quite well spread.

ESR Reit is also one of the highest dividend paying Reits around. Whether that is sustainable or not needs a deeper look into the financials.

Taking the latest 0.5 cents DPU and annualise it against current share price, the yield is still attractive at 5.6%. But if I calculate it against my cost the yield is 3.8% only.

That being said, with the exception of the next quarter I don't think the rest of the quarters will be paying 0.5 cents DPU only as the latest reduced DPU is due to income retained for prudent cash flow management.

With the AEI of UE BizHub expected to complete next year, improved rental reversions and hence income, is possible.

There has been talks about potential M&A with Aims Apac Reit since ESR Reit's sponsor ESR Cayman, has been increasing their stakes in Aims Apac Reit.

I do see pockets of positivities lying ahead of ESR.

Might add more to average down.

Possible turnaround and privatisation play.

ISOTeam

The group has not released its results yet as its year end is in June but it has been giving regular updates about the impact of the Covid-19 situation has on its business.

The latest update was released last Friday.

Unfortunately due to the nature of ISOTeam business, the control measures such as travel restrictions and safe distancing have impacted the business and operations.

Project tenders have slowed down.

Supply chain of raw materials have been disrupted.

Work of sub-contractors and outsourced partners have also been disrupted.

I can reconcile with these as I am facing the same set of issues with my business.

Financial performance of the current FY ending 30 June 2020 is expected to be materially impacted based on unaudited management accounts and estimates.

On the positive side, the impact to the financials is not expected to affect the group's ability to continue as going concern and its ability to fulfil near term obligations.

Order book also remains intact.

It's a pity Covid-19 struck this year. I was looking forward to ISOTeam's results this year due to its record order book and integration of Pure Group into its umbrella with profit guarantee.

Share price has been beaten down by about 50% as compared to the period before Covid-19.

I guess the negativities have been factored in already. ISOTeam has been doing some share buybacks recently too.

With the price being supported at $0.12 and a P/B of 0.6, it is beginning to look ever more attractive.

Only con is that this counter is comparatively illiquid.

Continue to hold and monitor. Might average down at $0.105.

Possible turnaround and privatisation play.

Mapletree Logistics Trust

One of the rare Reits to increase its DPU. What more to say?

Gross revenue, NPI, distributable income and portfolio occupancy all increased. The occupancy rate of 98% is one of the highest if not the highest among local industrial Reits.

Long WALE by NLA at 4.3 years. Positive rental reversion at 2%.

Debt maturity at 4.1 years and gearing at 39.3%.

Pretty nice figures to me.

What I like most is that MLT has been actively looking for yield-accretive assets along the One Belt One Road regions and other developed countries.

This to me, is well played.

If done nicely it would stand to benefit from the growth of both sets of economies.

On the downside, the prolonged Covid-19 situation might eventually affect the income and ultimately the DPU.

If that happens I would keep a keen eye for any drop in share price to scope up more.

Only complaint here is that the previous time MLT offers DRP is also its first and last time. I ended up with odd lots because of that.

Notwithstanding that, MLT is one of the few counters that I would welcome DRP anytime.

To add more if share price hits previous purchased price or below,

Mapletree NAC Trust

As expected results are not pretty mainly due to the double whammy of Hong Kong protests and Covid-19.

It's good that the management has taken steps to reduce the concentration risk of Festival Walk (FW) by buying the Japan properties. However FW still contributes 55% and 54% of gross revenue and NPI respectively.

It would be better if the ratios can be reduced to 25% or lower but I rather they take their time to do due diligence instead of rushing to buy properties for the sake of buying.

Well, at least FW re-opened earlier than envisaged and average rental reversions are both positive for the retail and office segments.

Occupancy also remains high at 99.8%.

Another plus point: When the insurance claims proceeds are received for FW, any amount which may exceed the Distribution Top-Ups will be paid to unitholders.

Excluding the latest FY, the preceding four years actually seen yearly increase in the gross revenue, NPI, distributable income and DPU.

Since this counter is part of my long term portfolio, I am not too concerned about the current headwinds.

Hold and monitor.

Netlink NBN Trust

Good set of results. Top line and bottom line went up albeit by single digits which is only expected due to the nature of business (boring but stable).

Bottom line could have been even more stellar if not for the one-time write off of a project.

Residential connections makes up more than 60% of their revenue. With more housing developments such as BTOs coming up in the foreseeable years ahead, I don't see any major risks for this company.

Short term wise, next couple of quarters might see its numbers being affected due to the Covid-19 measures implemented which should affect their installation of residential connections.

To add more if price hits previous purchased price or below. 

OCBC

When Great Eastern announced the 94% drop in income days before OCBC announced their results, I have been prepared to see the effect on the latter's performance.

That, coupled with provisions in allowances for the non-impaired assets contributed heavily to the latest results where revenue and net profit went down 7% and 43% respectively.

The amount of allowances to me is actually a reflection of how OCBC has been operating for these years - prudent.

Despite the drop in profit, the share price held up quite steadily to my surprise because I was looking at this chance to add more OCBC shares to my long term portfolio.

Moving forward the effect of the rate cuts, Covid-19 situation and crude oil crisis will be more accurately reflected in the NIM and NPL for the next few quarters hence there might be chances to pick up the shares again.

One thing that OCBC is doing to mitigate the low interest rate environment is the shift to longer tenure loans.

No news on the dividend yet but I suspect it won't be cut at least for the coming round.

To follow plan and continue adding in batches.

RHT Health Trust

Results will be released on 30th July 2020.

Based on an earlier announcement, net assets attributable to unitholders currently stands at $16.89 million.

SingTel

Results will be released on 28th May 2020.

Suntec Reit

A below average set of results.

Gross revenue, NPI, income from JV and distributable income all dropped YoY.

Gearing increased to 39.9%. Debt maturity increased to 3.36 years.

Financing cost is acceptable at 2.92% and it would be good if interest coverage can be higher than the 2.7 times currently.

Singapore office WALE at 3.26 years, retail WALE at 2.66 years and Australia assets WALE at 4.9 years.

One plus point is that Suntec City office and mall has achieved 8 and 11 consecutive quarters of positive rental reversions.

For the latest quarter the rent reversion achieved 13.1% and 16.1 % respectively.

Moving forward we might see negative rent reversion for the mall as the retail segment should be badly hit with weaker market demand.

DPU dropped 27.7% YoY to 1.76 cents for this quarter due to lower distributable income from operations, 10% retention of distribution, absence of capital distribution and enlarged unit base.

The first two reasons are related at least partly to the Covid-19 situation so it's understandable.

While I like that Suntec is diversifying from Singapore and is still doing so, it is primarily doing it in the Australian market.

I'm not an expert in the Australian property market but one obvious risk to me is the weakened aussie dollar. With only 20% of the AUD income hedged for 2020, it is not something I like to see.

Hopefully moving forward the income-accretive properties can more than offset this risk.

Suntec has acquired another freehold Grade A office in Sydney last month. The metrics look good on paper: 5.5% initial yield with 3 to 4% annual rent escalation and a long WALE of around 10 years.

While the occupany is 66.5% currently, there is a 3 years rent guarantee on unlet spaces.

The previously announced Olderfleet is also scheduled to be compeleted this year.

93.7% leases has been committed and WALE is long at around 11 years.

Suntec convention is proving to be a drag on the financials as its revenue contribution dropped nearly half compared to the same period last year. It has reported a loss for this quarter.

Number of events postponed and cancelled due to Covid-19 amounted to nearly half of the number in the same quarter last year.

I guess it should be the same case for the rest of the quarters. Again I hope I'm wrong.

To be prudent here, I think it may be realistic to assume the DPU trend for the rest of the quarters will follow the current one.

I do see the upsides (Aussie properties and Suntec office) which are valid for the longer term outweigh or at least will be able to balance out the downside (Suntec convention and mall) which are facing more of a short term head wind.

To hold existing lots and add more at $1.28 subject to fund availability.


P.s. Original intent is to write no more than 2 to 3 paragraphs per counter. Seems like I ended up being more long winded than intended!

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