First Purchase of the Year

Today STI closed 1.8% down. Barely catastrophic if you ask me. However the mini bloodbath presented some opportunities for entry. 

While share price of some counters in my watchlist remained quite resilient, some dropped and started to recover during mid day like the banks. For some, the price dropped and hovered at that level and that gave me some food for thought. 

Made my first purchase of the year today when the opportunity arose. CapitaLand Retail China Trust (CRCT) was trading at $1.54 / $1.55. I queued at $1.53 and managed to get it in the last hour. It might not be the bottom price but it is comfortable enough for me. Slightly below NAV with >7% forward yield. 

Just not my style to go all in in one go. Prefering to enter batch by batch. Hence the same for this counter. 

I don't know whether this is the start of a black swan or just a temporary response to the  Wuhan coronavirus outbreak. My feel is leaning towards the latter. 

If the price drops further I might buy in again. 

Time in the market is better for me than timing the market simply because I'm real bad at the latter.

Crisis = Opportunities

Recent Transactions & Dividends Update

Dividends Update

Dividends received to date: $5,602.80

Coming dividends: $466.28

From: MNACT, Suntec REIT and Netlink Trust

Total for the year: $6,069.08.

Target hit.

Recent Transactions

Purchased my maiden lots of Mapletree NAC Trust @ $1.11 during the recent bearish trends in the market.

Ever since they made the foray into Japan, I began to take a deeper look into MNACT because I like the geographical diversification taken by the management.

Have been monitoring MNACT for awhile since and when it hit my TP I pressed the trigger.

This is my second purchase of the Mapletree family. The first being Mapletree Logistics Trust.

Why MNACT?

Financials:

Gross revenue, NPI, distributable income and DPU all increased for the first half of this FY.

Gearing is a tad too high for my liking at 39% though it's still below the 45% regulatory limit.

Other Metrics:

Like the fact that 78% of the debt is tied to fixed interest cost. Assuring in the rising interest rates environment.

Also like the reduced forex risk with 80% of FY18/19 distributable income hedged into SGD. Prudent management.

Valuation:

My purchased price is well below the NAV of $1.325.

One of MNACT directors recently bought 200,000 of its shares at $1.12. Since I'm buying at a cheaper price I would like to think this is a price with enough safety margin.

Outlook:

With the exception of Gateway Plaza (98.7%), all other properties in the portfolio enjoy 100% occupancy. Average portfolio WALE of 3 years ensures continuity for the near future.

And with Festival Walk, Gateway Plaza and Sandhill Plaza all contributed higher average rental rates for the first half of the year, it seems that there is no lack of suitors for MNACT's mix of retail and office spaces.

I especially like the fact that GP and SP are located in the tier 1 cities of Beijing and Shanghai.

Finally, contribution from the newly acquired Japanese properties should provide the impetus for the trend of increasing incomes and DPU to continue.

A well-managed REIT with prudent management and >6% yield. Great.

Added Netlink Trust @ $0.77 to my existing IPO holdings. Waited for its XD before buying as I reckoned it should fall further below NAV levels.

My holding price averaged to $0.79 with this tranche. Close to its NAV of $0.792 as of 30 Sept 2018.

Reasons for buying Netlink Trust have been covered in previous post and those reasons have not changed.

I like this counter for its stable and recurring income.

Financials:

Revenue, EBITDA and profit after tax are higher than projection for H1 FY19.

Can't find the gearing in the financial statements so I did a quick calculation using their loans and net assets. The gearing stands at 20.5%.

Annualised DPU of $0.0488 is higher than the $0.0464 projection and yields 6.18% against my cost.

Valuation:

Purchased price is a slight discount to book.

Outlook:

Netlink Trust maintains a strong economic moat as the dominant player in the field of fibre cable laying and associated installation.

In the short to mid term, Starhub's cessation of its cable network and transition of its broadband customers to fibre network by July 2019 provides likely upside.

In the mid to long term, the increasing residential units will continue to spearhead Netlink Trust as the residential connection segment contributes ~60% of its topline.

The low gearing puts the company in good stead if they wish to expand their business beyond the core offerings, though that will require shareholders approval.

If there is one worry it will be a reduction in the regulated returns during the next review period after Dec 2022.

Lower installation revenues highlighted in the financial report ought to be noted for next half (2H FY19) monitoring as well.

Meanwhile let's collect the >6% yield per annum first.

Takeaways from Suntec REIT AGM 2018

Suntec REIT AGM 2018

Date: 16/04/2018

Duration: 2.05 - 3.10 pm

Turnout: About 90% (At least half are whom I can call aunties and uncles despite me being an uncle myself. This is a testament to Suntec's popularity as a stable REIT among this group of investors.)

AGM started with a 20 min presentation of the REIT's results in 2017 and recent progress by Mr Chan Kong Leong, CEO and Executive Director.

Questions from the floor

Q: Regarding its overseas expansion, have Suntec consider the tax implications involved such as capital gain tax and withholding tax?

A: Suntec receive advice from experts and structure their business for the most tax efficiency. However certain taxes due to regulations, are unavoidable.

Q: The same unit holder also suggested using big data and artificial intelligence for future property acquisitions to stay ahead of the curve.

A: Suntec is currently using big data for business enhancements but not A.I. at the moment.

Q:What is the board's stance on improving tenant retention ratio to 80 - 90% as compared to the current 64%?

A: Suntec do not want that high of a ratio because they and the shoppers want something new and fresh regularly.

Suntec is guided by what they and the market wants at the end of the day.

Q: How much capital distribution is left and how will future distribution payout be affected once the capital distribution is exhausted?

A: More than $100 M is left for distribution. When this is exhausted, income from the new properties such as 9 Penang Road will comes in.

Q: Suntec's rental or occupancy (I didn't catch this properly. Apologies.) is lower than that of heartland malls. How is Suntec handling that?

A: Suntec is trying to improve the fundamentals. When the fundamentals are improved, rentals will come back. This can already be seen in the latest results.

Q: Why is Suntec not investing in China?

A: Suntec is choosing to invest in Australia because of the political stability, good returns, good quality of properties, etc.

Resolutions: All passed.

Observations

The last question in above Q&A was answered by the Chairwoman, Ms Chew Gek Khim. She only replied with the above one liner and when the questioner probed further, she just said a thank you and wanted to proceed to the next agenda.

I thought that was pretty rude and came across as insincere and impatient.

Sentiments from the floor seem to concur as the resolution to endorse the appointment of Ms Chew Gek Khim (Resolution 3) only garnered 50+% approval. In other words 40 over % voted against her.

This is the lowest I've seen in the AGMs that I've attended.

On the other hand, CEO Mr Chan answered well to the questions from the floor and he came across as being candid. I thought he did quite well.

Summary and my thoughts

In my opinion Suntec REIT remains an attractive REIT trading below its NAV.

Having office, retail and MICE elements in its portfolio, it is a good proxy to these 3 sectors for an investor wanting to invest in all three instead of either one.

Forward distribution yield should remain comfortably above 5%. Although this is not the best among REITs, I like the stability this REIT offers with its high quality assets in the CBD.

Distribution yield against my cost remains above 6%.

Another assuring factor for me is the quality of the REIT manager. I have happy memories with ARA previously when they were still listed.

Among the overseas properties, 177 Pacific Highway has a 100% committed occupancy with no lease expiring until 2023 onwards.

Most importantly there is earnings visibility coming in from the new properties namely 9 Penang Road and Olderfleet. Contributions from these two properties should be meaningful from 2020 onwards.

Viva Industrial Trust - My First Foray Into Industrial REITs

Today (actually it's yesterday since it has passed midnight) marks my first foray into the industrial class of REITs if I don't consider Mapletree Logistics Trust as industrial.

Viva Industrial Trust is not a pure industrial REIT. It has a hotel among its properties.

I have been monitoring Viva Industrial Trust for some time. When the price dropped more than the dividend post-XD today, I decided to take advantage of this and buy into this counter @ $0.955.

Ideally I would like to go in below $0.95 but guess I am not that disciplined.

Results from Viva's latest quarter look promising.

Comparing Y-o-Y and Q-o-Q,

Other results,

Gearing is reasonable at <40%.

WALE is 2.8 years. To be honest I would prefer this to be higher.

And portfolio occupancy is 90.9%.

As a matter of fact, the above figures allude to the good fundamentals and good management of the trust.

Furthermore with the opening of the Downtown line station connecting directly to UE BizHub East, there is a real possibility of upcoming positive rental reversion and increment of the property value.

However the deal clincher for me is the AEI done for their Viva Business Park (VBP) in Chai Chee. I've been to VBP several times in the past for business meetings before they commenced the AEI.

Post-AEI, I've went back several times with my wife and what a world of difference the initiatives made!

The most obvious improvement is the number of retailers and anchor tenants such as Harvey Norman and Decathlon taking up space in the business park.

This is a far cry from the old VBP where majority of the tenants are commercial entities and the only retail shops on the ground floor are cafes and such.

The effort made for the AEI is actually visually-obvious. It changes the whole vibe of the business park. And I have to say I am impressed by what I see.

Paying at $0.955 a piece for Viva means paying a premium to its NAV and this is usually what I don't do.

However I see limited downside and much upside to the price due to the increased buying interest in this REIT, value-realisation of UE BizHub East and potential of increased income from VBP.

The way I see it, Viva will break $1.00 soon.

My plan when I placed the queue order today was this:

a) If the price appreciated within these few days, I might do a short term trade.

b) If the price drops, I will hold as part of my income portfolio. A dividend yield of nearly 8% doesn't hurt.

Cheers.

These 3 Reits Go Ex-Dividend in these 2 Days

Since I am reading the results of and following some counters in my free time, I thought I might as well share some brief albeit important points from these readings, especially for the counters that interest me.

Capitaland Mall Trust (C38U.SI)

CMT probably needs no introduction. It is Singapore's first and largest retail Reit by market capitalisation, S$7.1 billion (as of 20 Sept 2017), and is listed on SGX since July 2002.

CMT's portfolio is a diverse list of 16 quality shopping malls with 2,900 local and international leases.

Based on results of 3Q17,

Ex-Date: 26/10/2017
Payment Date: 29/11/2017

Dividend per Unit (DPU): S$0.0278 (2.78 cents)
Annualised DPU: S$0.1103 (11.03 cents)
Based on today's closing price, yield comes up to: 5.43%

Net Property Income (NPI): S$121.4 million (increased of 1.6% yoy)
Distributable Income: S$98.7 million (increased of 0.3% yoy)

Portfolio Occupancy Rate: 99.0%

NAV: S$1.95

First Reit (AW9U.SI)

Listed on November 2006, First Reit is Singapore's first healthcare Reit that aims to invest in real estate and / or real estate-related assets in Asia that are primarily used for healthcare and / or healthcare-related purposes.

First Reit's portfolio valued at S$1.3 billion consists of 19 properties located in Indonesia (15), Singapore (3) and South Korea (1).

Based on results of unaudited 3Q17,

Ex-Date: 27/10/2017
Payment Date: 29/11/2017

Dividend per Unit (DPU): S$0.0214 (2.14 cents)
Annualised DPU: S$0.0858 (8.58 cents)
Based on today's closing price, yield comes up to: 6.1%

Net Property Income (NPI): S$27.47 million (increased of 3.2% yoy)
Distributable Income: S$16.7 million (increased of 2.2% yoy)

NAV: S$1.006

Mapletree Greater China Commercial Trust (RW0U.SI)

Listed on Mar 2013, MGCCT with a market cap of S$3.2 billion, is the first commercial Reit with assets in China and Hong Kong.

MGCCT's portfolio currently consists of 3 properties - Festival Walk (Hong Kong), Gateway Plaza (Beijing) and Sandhill Plaza (Shanghai) which totaled S$6.0 billion in portfolio value.

Based on results of 1H18,

Ex-Date: 26/10/2017
Payment Date: 20/11/2017

Dividend per Unit (DPU): S$0.03714 (3.714 cents)
Annualised DPU: S$0.07428 (7.428 cents)
Based on today's closing price, yield comes up to: 6.06%

Net Property Income (NPI): S$142.9 million (increased of 4.5% yoy)
Distributable Income: S$104.4 million (increased of 4.1% yoy)

Portfolio Occupancy Rate: 98.2%

NAV: S$1.246

Recent Action - Mapletree Logistics Trust

Taking advantage of the dip in price, I purchased 10,000 shares of Mapletree Logistics Trust (MLT) today as my maiden entry to the Mapletree family.

Has been eyeing several of the Mapletree counters in my watch list for some time and ironically my first choice in the Mapletree family is actually another trust : )

Anyway the reasons for purchase are summarised as follows.

The recent news concerning logistics players such as FLT and GLP signal a favourable outlook for this sector as a whole.

With a diversified portfolio in 8 countries, MLT presents a good choice with exposure to growth in the APAC region.

And add a well spread of tenants to the equation. I like the fact that the biggest sector of tenants accounts for just 24% of the revenue contribution. This is from the F&B sector by the way.

Exposure to the troubled oil & gas and marine sectors is also limited as they account for only 5%.

Customers-wise, none account for more than 5% of total gross revenue. I find this a good hedge against any major upheaval in specific industries.

Weighted lease term to expiry (WALE) of over 4 years. Although this is not too long in my opinion, I am not overly concern with this.

After all there is no one anchor tenant account that makes up a substantial portion of the revenue where it can skews the results upwards (or downwards!).

Furthermore a lower WALE might be advantageous to MLT since it has shown positive rental reversions in China, Vietnam, Japan and Hong Kong.

Portfolio occupancy remains high at 95.5% despite a slight decline from previous quarter. This can be be explained by the transitional downtime from a property in South Korea.

Importantly, occupancy rates from other countries actually improved from the last quarter.

93% of leases that expired in 1Q FY17/18 has been renewed or replaced.

Freehold and long leasehold properties. About 30% of MLT's portfolio is freehold and average expiry to their leasehold land is 47 years. Pretty long if you ask me.

Talking about portfolio, I also like the current and future yield-accretive acquisitions and AEIs by MLT.

Even with lower contributions from the South Korean property and absence of contribution from one block of Ouluo Logistics Centre, MLT's gross revenue actually grew by 7% year on year and NPI grew by 7.5%.

Nice!

Of course DPU increased of 2% year on year and 1.5% quarter on quarter doesn't hurt ; )

Risks

Total outstanding debt increased by S$18 million. However approximately 79% of total debt has been hedged into fixed rates.

Continued pressure over the increased in supply of warehouse space locally. However this is mitigated by the renewal and replacement of expiring leases as well as positive rental reversions in other markets.

Lastly, I'm paying a slight premium to the NAV. Not my usual style. But I feel the upsides outweigh this hence this purchase.

Note: Figures obtained from 1Q FY17/18 financial results.