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 CapitaLand AGM 2018

CapitaLand AGM 2018

Date: 30/04/2018

Duration: 10.00 am - 12.20 pm

Turnout: ~40%

Even before the AGM starts, while people are still strolling in to get seated, the screen is already playing a video presentation with catchy music on CapitaLand's (CPL) developments.

And it's my first time seeing two rows of company representatives on stage for an AGM.

First row comprises of the board members while the second row comprises of CEOs of the various CPL business units.

 No wonder they chose Stars Theatre as the venue.

Great.

You know the AGM is a serious business when it starts with a briefing on the emergency evacuation route (I thought I am back to my army days).

That is followed by a presentation on the group's overview, business updates and what's looking ahead for them.

After that comes the usual Q&A. I took the questions and replies until my pen ink ran out.

Questions from the floor

Q: Is the group going global apart from the areas they are in now?

A: Yes. Ascott is now in Europe, USA, Australia, Ghana, etc.

For the retail unit, CPL is looking at managing beyond CPL's own portfolio. In other words they are expanding to manage other companies' malls too.

Q: Is CPL's operating platform not going for acquisition?

A: The operating platform will stay asset-light. Instead they will leverage on technology to deliver what the retailers and customers want.

But for the investment platform, yes they are looking out for suitable asset classes.

Q: How did CPL achieved the 50% gross profit (G.P.) and is that sustainable?

A: Consolidation of the trusts.

At the G.P. level there are many contributions from the associates and subsidiaries.

Q: CPL is currently undervalued and its share price seems to be under performing compared to City Developments's. What is the board's take on that?

A: CPL do share buyback to enhance share holders' value.

CPL cannot be compared to City Developments as the business profile is different.

Q: Can the dividend payout ratio increase from the current 33%?

A: CPL will give dividend on a sustainable basis.

Q: How does CPL defend itself against Wechat and Alibaba in China on the online space?

A: CPL wants to stay in both online and offline spaces. Currently they have 5.8 M users on the Capita Stars platform.

CPL works with Wechat and Alibaba as well to leverage on their payment system and to provide a seamless experience.

Q: Township development by CPL.

A: CPL has been doing that in China. Other than that CPL is also into master planning.

They will continue to do that and that is one way they acquire land bank in China.

And importantly this is a way they build up reputation and network with the who's who in China.

Q: What is the impairment on page 77 of the annual report?

A: This is actually a write back related to 2 projects with previous impairments but which are not used eventually.

Q: What is the chairman's feel about Singapore's property market?

A (by the CEO): The property market is a proxy to the economy.

Basing on the Q1 preliminary data, the market looks good. And going forward the next 3, 4 quarters are optimistic too.

Comment from one of the share holders: CPL is quite well covered in many areas and in recurring income streams. Hope the board can consider a more generous dividend payout than 33%. That will give confidence to the share price too.

Another share holder concurred and commented the board should give share holders the money and they do the share buyback themselves.

A: The board will take that into consideration.

Resolutions: All passed.

Observations

CapitaLand's AGM is one of the AGMs that I was looking forward to attend this year. And it didn't disappoints ~ in another way.

Drama unfolded early into the Q&A. Better than the Taiwanese soap operas on TV. Stars Theatre indeed.

Two shouting uncles wasted time by talking about irrelevant things and asking irrelevant questions so much so that they were booed by others from the floor with shouts of "Don't waste time" and "Get out" heard from several quarters.

One of them the legendary Mr Sunny, even turned aggressive this time when the security officers came up to him. I've seen him shouting at several AGMs before but this is the first time I have seen him on the verge of turning violent.

To be fair to him, he did gave a good suggestion which is for the board to implement a 'floating system' for directors' fees. In bad times board takes a lower fee or in the form of shares and vice versa for good times.

I find that worth consideration.

Summary and my thoughts

2017 is a record year for CapitaLand in several aspects.

Its total PATMI achieved $1.55 B. The highest since 2008. It's also a record year for them in Vietnam which is a very fast growing market. Malls in China achieved 8.6% NPI growth.

I am personally very looking forward to the opening of Raffles City Chong Qing in the near future.

Ascott is also on track to achieve 80,000 serviced residence units by this year. On this front they have also made their first foray into Africa, Ghana.

CPL is gunning for $100 B AUM by 2020. This is another mile stone worth looking forward too.

Previously I have also written about CPL's online mall on Lazada and their venture into e-payment which is their StarPay platform.

On the social responsibility front, CPL donates up to 0.5% of their net profit yearly to Capital Hope Foundation to help under privileged children.

You might recall I have mentioned in other posts that one of the aspects I look out for in a company is the quality of its management.

I have always been a fan of Mr Lim Ming Yan, Group CEO and President of CapitaLand.

In CPL's board of directors, quality is in abundance as well.

Chairman Mr Ng Kee Choe is the former vice chair of DBS. Few of the other directors are chairman-calibre in their own right such as Ms Goh Swee Chen (Chairman of Shell Singapore) and Mr Stephen Lee (Chairman of SIA Engineering).

It would be too long winded to write about the other board members but you can flip the annual report or go into CPL's website to read through their extensive experience.

With $6.1 B cash, CPL has sufficient head room to grow and to grow big. This will serve them (and the share holders) well in the years to come.

Despite all the good points stated above, there are aspects that I have reservations about CPL too.

It seems like the management is very cautious about acquisitions and expansion. So much so that it seems to be the limiting factor in their growth story. I have said many times that something seems to be stopping CPL from realising its full potential. Perhaps this is the reason.

However I'm not complaining since it appeared to serve them well so far.

Another aspect is the dividend payout which definitely has room to grow. However the payout amount has been growing for the past 5 years so kudos to them too.

If you aren't a share holder of CapitaLand yet, perhaps it's time to seriously think about it now considering it is still trading below its net tangible asset value of $4.20.

In fact half way through the Q&A I was already calculating my average price if I were to add more now at a particular price and the impact to my dividend yield against cost.

Good luck and cheers always!

How Do I See the Possible Merger of ESR-Reit and Viva Industrial Trust

Although the combined entity will be the 4th largest industrial REIT by asset value and 5th largest by market cap in Singapore, I hope the deal doesn't materialise.

The figures above sure look impressive.

However in my opinion the future outlook, portfolio quality and the performance of the REIT management are equally, if not more important.

Take a look at the following table.

 

Gross revenue, NPI and DPU have been decreasing Y-o-Y for ESR whereas that of Viva Industrial Trust (VIT) have grown Y-o-Y. This is a testament of the REIT's manager strength.

Apart from the WALE and occupancy rate which are higher, ESR is going to be a drag on VIT.

Numbers don't lie. Though in some cases they do tell a different story. For example, the REIT's rental reversion depends on what type of leases they take into account. But this is topic for another day.

Since we are at rental reversion, let's look at the negative rental reversion of ESR and think about how this will impact the REIT price performance and dividend payout.

In the most direct manner, the DPU will be negatively affected going forward. The overall value of the REIT portfolio will also be negatively impacted since the collective value of the assets will go down.

Comparing to ESR, I would say VIT performed much more admirably. Whether it's the distribution yield, revenue, NPI or rental reversion.

I also prefer the portfolio of VIT more than that of ESR. Except for 7000 AMK, the rest of the latter's portfolio doesn't conjure any excitement in me when I glanced through.

On the contrary I prefer the outlook for the two crown jewels of VIT: Viva Business Park and UE BizHub East.

Having said that, I do see something interesting for ESR with the Tuas mega port coming up in 2040.

ESR has a number of properties in Tuas among which one of them was acquired last year with 36 years remaining land lease.

If they can position themselves to make use of the mega port development, it should change the dynamics for them.

In summary unless there's something very positive that I missed out in ESR, I hope the deal doesn't goes through.

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.