Wednesday, February 27, 2019

Dividend Income Updates - Q1 FY19

With all the earnings announcement done and dusted for the companies I’m vested in, it’s that time of the quarter where I’m ready to tally the amount of dividends that I will be receiving this quarter.

For readers who are new to this blog, this is a sequence of exercise that I've been doing for the past few years usually after the earnings season ended. 

This tracking not only allows me to keep abreast of any development in the payout dates and the quantum amount but also more importantly reminds me of how far I’ve come since I embarked on this journey of dividend investing which is coming to almost a decade now. 

Since we are a household of 4, the incoming dividend also comes much handy when dealing with our increased household day to day spending.

My Dividend Tree :)


For those who are new to dividend investing, this is a good strategy to adopt because it provides a slow mental therapy to your brain to keep you thinking about the long term objective you wanted to achieve and keeps you on the ground when there are big volatility in the market.

Having said that, many think dividend investing is easy work because all you have to do is sit on it.

The reality is that it is a result of the hard work you've built over the years and it compounds to give you higher each year.

Dividend investing is also not as passive as many people think it is because it still requires a good amount of effort to pick the right companies but they are definitely more passive than our full time job as it doesn’t require us to be physically on the site to clock time in time out.

And that’s the part I like most about dividend investing.

It allows me to be flexible on my schedule and possess an autonomy that most full-time job can’t, well.... hopefully.... one day.

It rewards you for years for as long as the company is solvent and it maintains a decent profit to pay out to shareholders.

As shareholders of the company, you are also technically the owner of the company and has the right to vote for or against any resolutions.

Having said that, you should not be blinded by companies which pays high dividend yield as they might be unsustainable and may cut their dividends payout should the business faces a downturn.

Without further ado, the dividend income which I will be receiving this quarter in Q1 FY19 is $9,884.

CountersAmount (S$)Ex-DatePayable Date
Starhill Reit4,260.00 7-Feb28-Feb
Far East Hospitality Trust2,300.00 20-Feb28-Mar
Manulife Reit3,324.00 18-Feb29-Mar
Total 9,884.00

That is almost rewarding myself with another month of extra bonus.

Or I can see it as covering for my 2 months of expenses.

Q1 is usually my weakest quarter as most companies have only finished reporting their full year results this quarter and will need a resolution to approve the final dividends in the agm so I am expecting the next 3 quarters dividends to trend up quite significantly.


I am excited as we head down to another new month soon which gives us ample opportunity to tap in.

Do you like being paid for life? Let me know in the comments below.

Thanks for reading.

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Thursday, February 21, 2019

Is Tenant Concentration A Risk To Your Reits Portfolio?

Following my last article which I wrote on Ireit Global, there’s been a good amount of discussion from readers regarding the concern on tenant concentration that surrounds Ireit’s leasing activity over the past couple of years. 

I am here to provide my own thoughts based on my working knowledge and a good balance discussion of both the advantages and disadvantages which I see and will use several case studies on it.

The tenant concentration concern has been brought up several times during the AGM and the management has also taken steps to abate the concern when they bought the Berlin property in order to “diversify” their tenets of tenants spread across their 5 portfolios. 

But there's more to that reason alone.

Here are my further thoughts:

1.) David vs Goliath 

Ireit Global is a relatively “small” Reit which has a market cap of less than $1b. 

In fact, as of 31 Dec 2018, their 5 portfolios combined has a market appraised valuation of around € 500m, which translates to about S$770m. 

These buildings combined, adds up to less than 1 OUE Downtown which OUE Commercial Reit recently bought for S$908m, which works out to be at $1,713 psf and has a remaining land tenure of 48 years. 

If we compare the size of Ireit against the bigger leader of commercial Reit, e.g Capitaland Commercial Reit (CCT) or OUE Commercial Reit (OUECT), they are similar to the analogy of David vs Goliath.

CCT and OUECT size of assets are at least 4-5x bigger and this lead them to have a capacity to “diverse” their tenants selection at a much larger spread amongst their many buildings.



Another way to look at this is vis the net lettable area.

Ireit’s overall asset portfolio has a net lettable area of 200,609 square meter, which translates to about 2,159,337 square feet. 

If we take bigger MNCs tenant who employs tens of thousands of employees into their premises, such as the likes of Singtel or DBS in our local blue chip analogy, the total lease out area would require almost at around 1.2m square feet, which took up 50% of the overall Ireit’s net lettable area.

This is what happens with the case on Deutsche Telekom and Deutsche Bund, which took up 51.9% and 34% of the overall concentration mix on Ireit’s portfolio, which brings about the concern to investors.

The percentage looks big because the overall net lettable area of Ireit is small. 

When they eventually expands the size of their AUM, the concentration mix of tenants will get lower.

This is natural.

If we think about it, it'll be weird on the other hand if say a big company like Deutsche Telekom comes to you wanting more space for their businesses but the Reits manager declined simply because they want to diversify their tenant mix.

Unlike retail which has reasons to diversify the tenant mix (i.e you cannot possibly have all full F&B concentrated for instance), leasing activity in commercial requires much lesser specifics on tenant requirements.

2.) Quality vs Quantity 

That brings us to the next question and that is quality over quantity.

The quality of the tenants you get would make a big underlying difference to what you are going to get in terms of the risk. 

The idea is to get high quality tenants and diversify as much as possible but if that is not possible, then the next priority would be to quantify quality over quantity.

The biggest underlying risk to a landlord apart from making sure the occupancy level is filled up would be a default on non-payment. 

If the tenant concentration is a small SME that might go bust anytime, then as landlord you might need to even think twice about renting it to them. 

You might have remembered a case back in 2016 and 2017 where NK Ingredients Pte Ltd defaulted on their payment to Soilbuild Business Space Reit. 

NK Ingredients Pte Ltd was the sole tenant for 2 Pioneer Sector building and one of the top tenants (5.8%) for Soilbuild back then. 

In the case of Ireit, while there are still likelihood that Deutsche Bund or Deustche Telekom might default on their payment, the probability is much lower. 

In this regard, the quality of the tenant concentration mix prevails as a solid quality blue chip tenant in Germany.

If they default, chances are we will see much more default occurrence by the smaller companies.

The problem as in the case of Ireit, is when your big tenant wants to reduce their space because of their business needs, for e.g to downsize or streamline certain operations.

The Munster campus is one good example, where they vacated one floor and the occupancy drops to 93%.


The challenge for them now would be to find a tenant who is willing to occupy only one space floor.

This is likely to be smaller tenants with possibly higher risk.

3.) Negotiation during renewal phase

The biggest challenge (and also reward) when you have such a big concentration of tenant is how you negotiate during the renewal phase and I think this is something I have learned quite a bit in my working knowledge handling such cases in the recent months. 

The catch with the Europe and London standard leasing practice is that the lease tends to be signed over a long number of years, usually minimally between 7 to 10 years. 

So once the contract is signed by both parties, the next few years are going to be a breeze in terms of your WALE and occupancy. 

The downside of having such a long lease however is you might miss out on the rental reversion when the rental market picks up, assuming there are no variable rental escalation. 

But this is looking both ways, so you might end up in favorable or unfavorable position.

Typically, during the negotiation process, the landlord would also try to maintain the notional occupancy rates (which includes rent, services and facility management) similar to what the general market offers. 

The negotiation comes in the rent-free period. 

Typically, the standard rent-free period in Singapore is 1 month free for a 1 year long lease. 

I think this is what happens in the HK market as well.

In Europe, the standard rent-free period usually stretches to 24 months free for a 10 years lease. 

In UK, because of Brexit and there's plenty of uncertainties right now, you might even get an option clause to break.

The variable portion in the rent-free period used to be the key driver for landlords to make the negotiation because it is used to be kept secret and confidential but since the introduction of IFRS16, companies are required to account for these off-balance sheet items and report this cashflow difference in their book. 

Take Sabana Reit for instance, in their most recent quarterly results, the management managed to renew their leases with some of the tenants by providing a higher rent-free period. This resulted in a higher occupancy and longer WALE but lower comparable net property income year on year.

At the end of the day, it's a variable that the property manager has to decide.

You either get occupancy or you get your high rental yield but usually it's unlikely to be both, unless you are at the peak of your super cycle.

Final Thoughts

I hope the above gives sufficient perspectives on how to look at tenant mix concentration and the process thought when landlords comes into negotiating their lease renewal with their tenants. 

As much as possible, commercial tenants tend to be sticky for as long as the notional occupancy rates offered are competitive against the market as it will cost companies a huge sum of money for reinstatement and relocation, not to mention relocating all their data centers with them, assuming that is held in the same building. 

Concentrations can bring about as much risk/reward as diversification and it is usually not that straightforward.

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Wednesday, February 20, 2019

IReit Global - NAV Up By 11.6% For FY18

This is a Reit I used to own in the past because of its strong profile then divested them due to the change in the manager and the possibility of an equity call because of its high gearing.

Since then, they have done extremely well to mitigate by lowering their payout from 100% to 90% and use the excess to reduce their gearing over time.



Ireit Global announced their Q4 and FY18 results this evening which I thought continued to impress throughout both financially and operationally.

While they've taken steps to improve their aspects of the portfolio, which clearly shows from the falling revenue, NPI and increased operating expenses, they've managed to improve their distributional income due to the currency swap they've undertaken which swings in their favor.

At 5.8 cents distribution (based on 90% payout), this represents a dividend yield of about 7.5%.

The German market shows their strong resilience which resulted in NAV going up by double digit 11.6% year on year to €0.48.



This has a positive impact too on their gearing as their valuation of the properties has gone up, which resulted in a lower debt to assets ratio. 

Their gearing stands at 36.6% as at year end and has reduced a lot since I've divested them a couple of years ago when their gearing was at 40+%.

The other thing which is probably straight in their favor is the fact that their main borrowings will be due in the next 1 year, so they have started refinancing at a 1.7% (such a low interest rate still in Europe!).

If we compare this across the other Reits in today's circumstances, this probably has one of the lowest effective interest rates and will continue to be for the next few years until Europe starts to recover.

Majority of the leases will also be due for renewal only after 2022 so there's a lot of room to maneuver in respect of that.

For investors, this means there's no major overhang as both debts and lease renewal will not be an issue until a few years later from now.

My head is telling me this is a much better investment than some of the overseas Reits we have today out in the market whose valuation has gone up a lot in recent days/weeks.

I'm just slightly surprised there isn't as much news going on with the sponsor after inheriting them a few years back.

Thanks for reading.

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Tuesday, February 19, 2019

5 Tax Concession Changes To Take Note For The Singapore Budget 2019

The much anticipated Singapore Budget of 2019 was conducted yesterday by our Singapore Finance Minister Heng Swee Keat, which was widely followed amongst Singaporeans and Resident Individuals. 

I noted some of the changes related to some of the tax concessions which I am interested in:




1.) Personal Income Tax Rebate For YA 2019 

As part of the Bicentennial Bonus, the government has given a personal income tax rebate of 50% (capped at $200) for all tax resident individuals for the Year of Assessment (YA) 2019 (income year 2018). 

This means that if you have a tax payable of $300, then you will be entitled for a 50% x $300 = $150 rebate. Thus, your net tax payable will be $300 - $150 = $150. 

However, if you have a tax payable of $1,000, then your entitlement for the rebate will be capped at $200. Thus, your net tax payable will be $1,000 - $200 = $800. 

2.) Greater Flexibility On Grandparent Caregiver Relief Claim From YA 2020 Onwards 

To provide greater support and recognition to working mothers with handicapped and unmarried dependent children, the government has allowed greater flexibility on the Grandparent Caregiver Relief in respect of a handicapped and unmarried dependent child, regardless of the child’s age

This is effective YA 2020 onwards. 

Before that, the previous condition was to have the children age to be capped at 12 years and below.

3) NOR Scheme Lapsed From YA 2020 Onwards 

The NOR Scheme was previously introduced in the year 2002 with the objective of attracting expats talent to relocate into Singapore. 

Under the existing scheme, an individual taxpayer that qualified for the NOR scheme will be able to obtain tax concession in respective of his time apportionment outside of Singapore and will not be subject to tax on this portion. 

Under the new rules, the NOR scheme will lapse after YA 2020 onwards, which means the last NOR status granted to an individual will be for YA 2020, which will expire in 5 years time in YA 2024. 

4.) Income Tax Concession For S-Reits Extended Until 2025 

Under the current regime, S-Reits are granted tax transparency if their trustees distribute at least 90% of their taxable income to unitholders in the same year the income is derived. 

The current concession are scheduled to lapse in March 2020 and for income investors like myself, we are glad to hear that this concession will be extended for a further 5 years until Dec 2025 after yesterday’s budget. 

5.) GST To Be Raised To 9% From 2021 Onwards 

Singapore Finance Minister Heng Swee Keat confirmed in the budget yesterday that the government will be raising the Goods and Services Tax (GST) by two percentage points from the current 7% to 9% from the year 2021 onwards. 

In order to mitigate the increase, the lower income households that qualify will be given vouchers based on the income household they are earning. 

The scheme will be progressive in nature.

Thanks for reading.

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Monday, February 18, 2019

Sasseur Reit - DPU For FY18 Exceeds IPO Forecast By 12.6%

Sasseur Reit reports their Q4 and FY18 results this evening which impresses.


To recap, Sasseur is using a concessionary business model where retailers pay a fixed sum or percentage of revenue to the operator and it outsources the running of the retail malls operations such as the merchandising, cashiering, store management back to all the operator.

What this means is in a retraction period where sales are low, they will then pay a lower overhead cost subsequently to the operator and when sales turnover are good, as we have seen in their Q4 results, they will pay a higher cost.

This is what explains when they talk about including and excluding the straight line effect in their results.

Operationally, both excluding and including straight line effect, they have performed better than the IPO expected forecast.

This is due to stronger turnout of customers which lead to higher sales turnover which leads to a higher variable income.

DPU for the full year stands at 5.128 cents, which translates to about 9.4% yield at the current price of today.

If you manage to catch them a few weeks ago at their lows of 64 cents, that represents a yield of over 12%.

If you are holding this from the IPO days of 80 cents, you're still underwater at the moment.

The management gave some outlook updates on the supply of new competition for their various outlets.

Approximately 2.2m of retail space will be coming in from this year to 2021, which will add to the existing 5.7m of retail market in Chongqing. Most of them will be located outside the business district.

There are two new malls that have opened in Kunming - Dayue and Wuyue plaza, which brands traditional retails. Management remains upbeat about the prospect consumer spending growth in Kunming.

Do note Sasseur is under the minimum rent model for FY18 and FY19 but of which does not apply to FY18 as it has seen stronger growth so another "solid" year in FY19 would have seen this model being removed after the end of FY19.

After that, it is implied that the outlets are operationally stable and they will be left to perform up on their "own". 

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Friday, February 15, 2019

Manulife Reit - Blogger's Meet & Greet Session

Following the announcement of their full year results earlier this week, which I blogged over here, the management invited a few of us down for a meet & greet session over a informal setting working lunch.

I like that they are conducting frequent Q&A session with the analysts and also engaging the minority shareholders to address some of the queries. It shows genuine interests in protecting our rights as minority shareholders and they are serious about addressing investor's concerns. The management team is also open to taking feedbacks regarding what can be improved (e.g some of the slides in the presentation on what can or cannot be disclosed).

In the roundtable there's the management team representatives, which includes Jill Smith (CEO), Jag Obhan (CFO), Jennifer Schillaci (CIO), Caroline Fong (Head of IR), and Brenda Ng (Assistant Head of IR).

And then on the opposite table there's us, which includes Kyith (Investment Moat), Sim Tian Eng (STE's Investing Journey), Risk n Returns, Tam Gien Wen (Pro Butterfly), Kenny Loh (Marubozu), Chris (Growing Tree of Prosperity), David Kuo (Motley Fool), Vincent Chen and his son (I think they are family funds of Chapman Holding).

Very Nice Limited Edition Angbao from Manulife Reit, with dividends coming up in March!
I managed to take down some notes so let's see what I have here.

Jill (CEO) kicked off by going through some full year performance numbers before she would open the doors for Q&A session.

She also updated that they usually do half-yearly valuation on their properties, which seem reasonable in case they needed to revalue or impair their properties during half yearly and full year results. For most other reits, the typical is minimally yearly valuation as it can be quite costly to request from an independent valuers. They would then adjust the fair valuation of the properties during the full year results.

Tax Ruling

There were not much tax discussion in the roundtable which I believe have been discussed extensively in the past.

For the sake of those who are not aware of this situation in the past few months, there were an initial scare with the debate on the definition of what qualifies as a hybrid entity under 267 of the Tax Section Act and whether that would qualify their special purpose vehicle who loans it to their US parent entity an exemption of the withholding tax under the rules act.

Sometime in late November, the Barbados Government has announced that they will converge their local and international tax rates, which means the local companies will now pay the same rates as the international companies. With this new proposed Barbados tax converge, Manulife is expected to incur an additional tax expense which will be immaterial to their bottomline.

The regulations under the Section 267A while still in proposed form, Jill (CEO) is confident it will not bring about material changes to the proposed current structure.

Leases

There were a couple of discussion surrounding the leases on the various properties.

Most of the US leases are typically long term, so a lot of those leases which are not yet due for renewal are typically under-rented by about 5-10% compared to the market. This aligns with what they put out in the slides which indicates there will be some organic growth when these renewals are due.

The exception is Michelson property, which the property is rather new (in my notes it says 9 years) and hence their leases are typically in line or slightly above the market rent.

The Hyundai renewal they put out in the slides is one of them, which they managed to renew it for a further 11 years. The rental revision on this one should be stagnant at best from what was implied.

Most of the leases expiry in the next 1 to 2 years will be coming from Michelson from what I gather during the discussion, so we can expect rental reversion % growth to go down year on year.

They also mentioned that how leases work over there may not necessarily linked to CPI like we did over here, so a lot has to depend on the scale of economies and how they are able to attract bigger MNCs tenant. For SME, the leases tend to be shorter and the risk of uncollectibles tend to be higher in nature.

The one good thing is occupancy leases over there tend to have no leases break in between. So if a tenant has signed for 10 years, then they would have to abide to the 10 years unless both parties agreed to surrender in value. This is rather similar to what happen in cases in HK.

For other countries like UK, perhaps due to nature of Brexit today, most of the commercial leases have built in option rights to terminate halfway through the lease.

Growth

There's a strong sense smell of growth when we talked to the management.

I went in with a concern that usually for companies that tend to have X target AUM by Y date, they tend to be rather ruthless in expanding, some times at the expense of the unitholders.

My experience with Ascott Reit in the past tell me so (if you like to read you can refer to the old link here).

The management seems to give the impression that they will prioritize DPU accretive acquisitions whenever they have to do one, and in the US with a large scale of properties in various cities, it is not difficult to get an NPI yield or cap rates that are higher than what they have today in the portfolio.

If you see their current portfolio cap rates, apart from The Plaza which they bought in Jun 2018 and has an implied cap rates of 6.8%, the rest were all rather low.

The weighted average cap rates is somewhere around 5.1%.


This means there's an abundance of potential properties that they can acquire if the goal is simply to be yield accretive.

I asked if the likes of Dallas, Houston and Pittsburgh could be an easy target for them since their cap rates are the highest among the other states and they acknowledged that they are indeed a potential target.

The couple of States they say they are not looking is New York and LA because it is a lot more expensive and there's no value to buy into the properties that is trading at such a high valuation.


Jill and Jennifer also added that they look into the overall holistic nature of the property, which includes property occupancy, tenant profiles, location and most importantly has an attribute of "Live, Work and Play" environment.

This helps to ensure that they are not buying for the sake of just buying and I think most long term shareholders will be pleased to hear that.

Still, I remain my stance that the real judge will come when the environment is getting tougher and there are not much properties in the pipeline that they can acquire during the recession phase.

That will be a true testament to how strong the management really are and how they can differentiate themselves with the other overseas Reits listed here.

Funding Options

Jag (CFO) was there to explain some of the funding options available to them.

Given Manulife Reit has always paid out 100% of their distributional income since they IPO in 2016, any acquisitions will likely be funded via a private placement.

Their top 20% shareholders, which includes the likes of Eastspring and Thai Fund House (made up 6%), made up a total of 44%.

They explained this makes them easier to get funding through these institutional investors and are also faster to deal with than going through the rights issue option which is a lot slower and more expensive to process.

From what I implied, I think they are trying to avoid rights issue as much as they can and any acquisition will go through the private placement route, like what they did with their acquisitions of The Plaza for $115m, The Exchange for $315m and Penn & Phipps for $387m.

The quantum amount relative to their market cap is not too big, so I think if they are buying 1 or 2 properties they could fund it via a private placement method.

The private placement method is also good because it doesn't has to always ask investors for more money in exchange for issuance of shares, as other Reits who have done so repeatedly here has a bad reputation with investors.

They also talked about tinkering with the idea of a Dividend Reinvestment Plan (DRIP) in order to conserve more cash to fund their future acquisition.

The management has also taken their property management fees in units so far so that's another route they have taken to conserve cash.

Closing Thoughts

That's what I have in my notes so far.

The management is very hospitable and they all look sincere to want to make this work by engaging the minority shareholders and taking feedback which I think is a big plus to them.

They say they'll try to make this as frequent as they can and that means maybe half yearly each time which I think is rather fair.

They are also very open to feedback or any clarifications which we have we could directly get it clarified with them.

They have also started a live webcast video which happen at the same time when they released their results which you can find in the below link here.

*Vested with 81,000 shares as of writing.

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Thursday, February 14, 2019

Feb 19 - Portfolio & Networth Update

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
Starhill Reit
377,000
0.68
256,360.00
29.0%
2.
Vicom
  31,300
6.29
196,877.00
22.0%
3.
Frasers Logistic Trust
163,000
1.11
180,930.00
21.0%
4.
Far East Hospitality Trust
230,000
0.64
147,200.00
17.0%
5.
Manulife Reit
  81,000
US$0.865
  94,587.00
11.0%
6.
Warchest
    1,000
    1,000.00
  1.0%
Total



876,954.00
100%

The market has rebounded well in 2019 and almost everyone in the local finance community I know are making a good profits so far in these 2 months.

KPO has done wonderful in his portfolio which you can read here while Miss Niao has already concurred double digit returns this year.

Whilst my portfolio has also benefited from the overall trend of the market, it has not performed as well because the nature of the companies/reits I have in the portfolio are constructed to be more defensive in nature.

Alright, let's get down to business.



First, I added more Starhill Reit and making this my top position in the portfolio which I openly blogged here.

The share price has received some pressure lately after the company went ex-dividend but on the larger scheme of things, I do not think there's anything to press the panic button yet. For as long as there isn't any liquidity crunch, Reits will do just fine over the long run with their gyration of up and down and Starhill has a management that has the experience of undergoing that.

Second, I also added a small tiny bits of Fraser Logistic Trust to make this a whole round number. This is part of the "investing" exercise I did for my children with their Angbao monies. I invested 400 shares of FLT each.

Third, I have also closed my UMS short position which again I have blogged here.

To think what was supposed to be an unhappy incident turn to be a blessing in disguise.

The share price has since broke through the resistance and closed at 69.5 cents today. If I held them until now, I would have received a margin call from the broker.

While I am still baffled as to why the share price kept increasing, I will take this into account as a loss in my coverage. And a good lesson thankfully not as pain as it should.

Having said that, I'm still curious to see what happens when they announced their full year results in a week time.

Networth Update

While my portfolio didn't too well as compared to others in terms of percentage wise, it has gone up from the previous month of $853,984 to $876,954 this month (+2.7% month on month; +38.3% year on year).

This is the 14th consecutive month that the portfolio has broken a new high.

Most of the increase are accounted from Vicom and Manulife, which reported good results.


This month is also a bumper dividend month, so I'll be looking forward to getting the dividends at the later stage of this month.

Meanwhile, do stay vigilant but I just suspect the market might be favorable to investors this year, which means a bad thing for my portfolio which has more of a negative correlation.

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Wednesday, February 13, 2019

Far East Hospitality Trust - Q4 FY18 Operational Performance Improves Again!

Far East Hospitality Trust (FEHT) reported their Q4 FY18 results this morning which shows Gross Revenue coming in 12.4% higher year on year and income for distribution 4.9% higher. 

As a result, DPU for the 4th Quarter was up 3.1% year on year from 0.97 cents to 1 cents

If we annualized the Q4 DPU, we will get 4 cents for the full year, which translates into 6.2% dividend yield.


Operational Performance

I was more interested in their operational performance, which is really key to the underlying distribution growth at the end of the day. 

They have registered strong operational growth, with four consecutive quarters of year on year growth in their Revpar, creeping up from $136 last year to $144 this year. 

Occupancy levels have also increased from 87.5% last year to 89.1% this year. This could be due to the lower supply and higher demand this year contributed by the various event conducted. 

I was also pleasantly surprised to see a growth in their service apartments in both the RevPar and occupancy levels. This has been the weak component of FEHT’s portfolio and so it was good to see a growth in it. 

Management quoted the overall improvement is attributed to the uplift from major biennial MICE events in 2018, e.g. Singapore Airshow in Feb, and Food & Hotel Asia in Apr.


One particular thing that brought my attention was the resume of SCRIP dividend this quarter.

This might signal that they are conserving cash for some acquisition, given that their gearing are already on the 40% level.

I believe the management will also probably take their management fees in unit shares for this quarter.

The last time they allow for SCRIP was back in Sep 2017, and a few months after that they did the Oasia Downtown acquisition, mostly funded with debt at that time.

Gearing as a result rises from 32% to near 40% levels.

But there's only so much debt headroom they can undertake now.

We could be seeing something similar in nature, perhaps increasing the stake to the 30% they already owned for Sentosa Village.

Or I could be overthinking and nothing is in the works.

Perhaps they just need to fund their day to day working capital. 

But it’ll be something I want to keep a close lookout on. 

Will we see the days when Revpar was peak back in 2012 when hotel’s revpar was at $171 and service apartment’s revpar was at $202? 

If the next 5 years will look something like that, then there will be tremendous organic growth in this investment. And from a DDM growth model this share price looks cheap.

Only time will tell.

*Vested with 266,000 shares of FEHT as of writing.

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Monday, February 11, 2019

Manulife Reit - Strong Performance To End The Year

Manulife Reit published their Q4 FY18 results this morning which saw them registered an impressive 55.4% increase year on year on the Net Property Income (NPI) due to their 2018 recent acquisitions of the two buildings - Penn in Washington DC and Phipps in Atlanta).

In terms of bottomline DPU performance, it grows by 3.6% year on year to end the financial year at 6.05 US cents.



At the current share price of 85 US cents, this represents a decent 7.1% yield for exposure to a freehold Top Grade A quality of US commercial property.

Do note that even while the properties are freehold, the management will have to do AEI enhancement every now and then for wear and tear, and to remake the office look to attract potential tenants. These AEIs typically cost them in the range of $8m to $10m for a smaller to midscale kind of enhancement which they will manage to self-fund using their free cash flow.

For the past 4 quarters, management has managed to increase the operational performance of their properties based on the increasing net property income that is shown to us in the slides.

You can see this trickles down to increasing DPU in the past 4 quarters, from 1.51 US cents in Q1 to 1.53 US cents in Q2 to 1.51 US cents in Q3 and 1.54 US cents in Q4 this quarter.

In terms of debt maturity, it has gone down to 2.7 years, mostly because they are still negotiating to refinance the $110m loan for their Figueroa property.

The average financing interests rate has slowly creeped up to 3.27% this year and if we based on the latest loan they took on their two most recent acquisitions, we can expect this to go up further.




The value driver to shareholders for this will be if management can pass these costs down to the tenants in the form of rental escalations.

Leases rental reversion in FY18 while stands at an impressive 8.9%, it has gone down from the lower base of double digit last financial year.

Manulife has applied for a $1b multi - currency debt programme to drawdown on their debts in 2018 and with the cap of 45% gearing they have around $200m of additional debts they can undertake to play with.

Judging from their lofty ambition to increase their AUM target, along with the relative 7.1% yield, and the availability of many pipeline in the US yielding more than 5% NPI and 7% cap rates, in particular the Dallas, Houston and Pittsburgh area, it won't be too difficult for them to acquire more properties sooner or later.



This is dissimilar to situations in Singapore where most grade A commercial properties are going for around 3.5% cap rates, which makes it harder for management to "acquire" to grow shareholders value.

This can be both good and bad, depending on what your situations are.

Personally for me, I'm a bit wary of management who tried to grow aggressively at the expense of getting a truly solid property which can grow long term. The higher the share price is, the lower the dividend yield to shareholders, the easier for management to do an equity placement and the likely chances are extremely big.

If I were them, I'd already be working on my next M&A target given the current bullishness of the Reit situation and acquisition can sometimes be a double-edged sword.

Still, what the management has done so far has been very pleasing to shareholders with the way they are engaging minority shareholders like us and allowing us to clarify things with them.

Management has reiterated that their current rental leases for most properties are between 5% to 10% lower than the market rate. I am not too sure if that is due to asset enhancement which will play catch-up at a later stage or management indicating stronger reversion growth once occupancy are higher. Either way, it's good to clarify why their rentals are below the market.

They also managed to renew Hyundai recently in Jan 2019 in Michelson area so it'll be good to understand if they managed to secure the renewal at a positive reversion.

*Vested with 81,000 shares as of writing.

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Friday, February 8, 2019

Cash Flow Suffering? Roll Your Sleeves Up!

Cashflow is one of the most powerful success criteria for a company to survive and we have seen so many instances when a company struggles to stay afloat just because it couldn’t manage its’ working capital adequately. 

Cashflow is the one mighty factor why many of us are seeking so desperately for financial independence. 

Without cashflow coming in, you are basically starved off food and water and maybe more great ideas to make things work. 

You can thread your way lightly to manage your working capital adequately through your recurring monthly paycheck or with the multiple credit cards you apply for that will last you over a cycle, but in the long run, you’ve got to fix the roots of the problem. 

Let’s face it. Some months are more difficult to manage even for the most of us. 

Whenever there is an unexpected wear and tear in your apartment that you need to fix, or the visit to the doctor because your children is sick, all of them require a cash outflow that you will need to tide through the month. 

And it can be very demoralizing to see your bank account with no money left to save. 

I was hit almost with a negative month recently, and that feeling sucked. 

It feels like I didn’t have a productive month saving what is left meant for spending. 

And it simply means I didn’t do a good job forecasting my expenses. 

My negative month would go dry at certain months of the year, in particular the 3rd,6th,9th and 12th month of the year. 

his is due to expenses such as school fees, insurances and tax bills coming up which can take up quite a large chunk at one go. 

Like most people, this is on top of the recurring expenditures I have such as utilities, mortgage, TV cable, credit card bills, grocery spending, etc. 

Hello Cash! Just hold on for a day more...


Roll Up My Sleeves

What I did to negate the situations is to “pay myself first” and I’ve been doing that for a number of years successfully now. 

What this means is when I get my monthly dose of paycheck at the end of each month, I would “pay myself first” by allocating around 45% of my take home pay to fund my investment portfolio. 

This is on top of the mandatory 20% CPF savings from the government which I have no choice but to abide. 

This means barring other circumstances, I have saved around 60% to 65% from my paycheck, which makes me feel good. 

The rest of the money is meant to fund the day to day expenses which forces me to tinker through the difficult working capital puzzle at certain times. 

This allows me to force capital inject into my portfolio strategically while managing my expenses strictly based on what is only needed. 

The fruitful month usually comes 4 times a year for me, which typically tends to fall during Feb, May, Aug and Nov, and this is where I would suddenly get a huge cashflow windfall in the form of dividends. 

I usually DRIP these dividends back into the portfolio almost immediately into some other companies I am interested in so this cashflow portion quickly goes barren once again but the intention is to have an increasing portfolio base so the compounding can work its magic way up. 

Start With The Basics

There are many people who faces the same predicament as myself week in week out in seeing your cashflow goes dry during the end of the month. 

You can start by identifying the low hanging fruit then move your way up slowly. 

Reduce Your Redundant Recurring Charges

Recurring charges are one items in your to do list that you have to watch out for. 

Because recurring charges are usually small in amount due to the nature of their charges monthly, you may simply overlook it because it may seem immaterial at first sight. But they can add up over time into material amount and becomes a pest if you left it there redundantly. 

One of them is interest expense charges you have on your credit card which charges you a small absolute amount in figure. Over time, this can adds up quite a bit which eats into your cashflow. 

At one time, I was constantly being charged monthly by subscribing to a movie channel online which I had seldom use since I signed up a couple of years ago. Even though the charges were only at $9/month, and honestly it did not help my cashflow positively in anyway even if I were to remove them, this ended up to more than a couple of hundreds spreading across a number of years. 

Auto Recurring Payment is usually a Killer!

These are monies which I could channel it to a better use than simply letting it “rot” away like that. 

KonMarie – Sparking Joy 

The KonMarie method is a great way to start identifying what matters to you and what does not.

The idea of only leaving items that spark joy to your belief means you live in the world of minimalism and you are clear about what you need in life.

I've previously written an article on KonMarie here in this link.

Do a High-Level Budget 

Budgeting bores people and they are such a hassle that many tends to choose to do away without them. 

If you are one who hates to do budgeting and forecasting on your detailed expenses, have at least a high-level item details that you can reference of when you need to justify your spending at some point. 

It does not have to be specific to the details because I don’t think that will work for beginners but have a rough guide on how much you are willing to allocate to each bucket of expenses. 

For instance, I allocate myself a $100 spending budget in each of the Saturday and Sunday for a family of 4. This means that if we choose to start the day by taking a cab to a particular place and it costs $15, that leave us $85 to work on for the rest of the day to buy stuff or eat at a better dining place. If we had to eat at a better restaurant like Din Tai Fung for instance and it costs us $70, then we’d have only $30 to spend on other things. 

Constantly juggling considerations like this help to build a stronger mind to manage our expenses prudently and put us in our guard mode every time we choose to spend our money. 

Reduce Savings 

This is more applicable to folks who are more financially savvy and knows what he is doing. 

Some people, perhaps like myself, tries to save too much and as a result have a stretch month to go by once in a while. 

If you are one in this category, perhaps it is also good to slow down the pace of your savings and have them reduced so you might be able to allocate more cashflow to your more important expenses. 

The downside of doing so is that you will build your wealth at a slightly slower pace but hey life is not just about saving! 

Abandon DRIPS 

If you are at this point where your dividend income are relatively significant and play a huge part in your cashflow movement, then you might want to abandon DRIPS and instead enjoy the dividends as part of your hard work by increasing your cashflow.

Again, this is subjective from each person to the next depending on where and how you want to gear up your wealth building activities. 


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