Friday, April 13, 2018

Recent Action - Far East Hospitality Trust

With the proceeds from the divestment from Comfortdelgro which I blogged earlier, I had also purchased 125,000 shares of Far East Hospitality Trust (FEHT) at a price of 68 cents.

This is a company that I once used to own, then divested, then move the funds around, and now back again to the same company. 

I am looking for something with a decent yield, predictable near term both organic and inorganic growth outlook and preferably a Reit, so I thought this company fits the bill for now. I am also bullish on the sectors as I think the Revpar has seen a bottoming in FY17 and looks good to grow over the next few years.




1.) Inorganic Acquisition of the Oasia Hotel Downtown

FEHT made an acquisition from its sponsor on the Oasia Hotel Downtown which was only completed last year for a fee of $220.1m.

The premise is a 314 room upscale hotel located in the Tanjong Pagar area near my office.

The acquisition is funded via debt which means this will automatically be yield accretive, raising NPI pro-forma by 4% higher. Upon completion of the acquisition, gearing has increased to 37.5%.

Revpar for the hotel is currently at SGD170, and the premise will be under Master lease structure for the next 20 years.

2.) Supply of new hotels decreasing

Hotel supply in the past 5 years have increased at a CAGR of 4.9% and has increased faster than the rate of tourism arrival.

By theory of economics, we knew supply > demand means the ADR and Revpar would go down.

In 2018, this increase in supply is expected to slow down to 750 additional rooms, which translates into only 1.1% increase.

There will obviously continue to be pressure, but should demand surge higher than that, we should see a rebound in the hotel and service apartment segment.



3.) Village Hotel, The Outpost Hotel and The Barracks Hotel at Sentosa

This is a joint venture with its sponsor which FEHT owns 30% stake at the moment worth $133m.

This 839 room mega project will be completed in 2019, and will cater to the middle market of people who is looking to stay at the Sentosa area. I find this quite interesting project.

It's still early days but at 4% NPI this should bring in about $6m worth to distributional income every year.


Final Thoughts

ADR and Revpar for the hotel segments dropped marginally to $155 and $136 respectively in FY17 and I believe we will see a rebound in this segment starting FY18.

ADR and Revpar for the service apartment are more affected as it dropped to $219 and $175 respectively in FY17. I think this has probably more room to fall as longer stay tenants number are not strong and doesn't seem to rebound yet.

Current yield is at 5.8% for FY17 based on 3.9 cents, and am expecting a 4% increase through inorganic growth of Oasis acquisition, as well as another 4% increase in rebound of Revpar for the hotels segment. Hence, I would be expecting a net yield of 5.8% x 1.04 x 1.04 = 6.2% yield for FY18, which is still fairly decent. We should see better numbers for hospitality stocks though.


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Wednesday, April 11, 2018

Reits Symposium - 19 May 2018

Readers of this blog would know that my strategy in investing has a preference towards investing in dividend companies and because of this, REITS would be one of the assets that I look at closely as it will continue to form a big part in my portfolio. On the current equity portfolio, 41% of the assets is allocated to REITS, which shows the level of confidence I have in this asset class.

One of the main reason I like about REITS is it is a proxy to investing in real estate asset class with affordability and almost anyone can own them with just a few hundred dollars to start with. in addition, REITS also provide a consistent stream of income base through dividends they pay out to supplement the monthly income that I receive from my current job.

While there has been many REITS events over the past couple of months, REITs Symposium is by far the largest REITS event that is jointly conducted by ShareInvestor and REIT Association of Singapore (REITAS) in 2018. This year, it will be the 4th edition they have conducted where over 70% of the listed REITS will be present. Some of the key management personnel of these companies, such as the Chief Executive Officer and Chief Operating Officer will also be there.



A quick run-down of the programme shows how impressive they are in inviting their guest speakers which boasts the likes of Mr. Lee Yi Shyan (Chairman of OUE Hospitality REIT), Mr. Chan Kum Kong (Head of Research and Products of Singapore Exchange) and Dr. David Kuo (CEO of The Motley Fool Singapore).

The key theme about investing in REITS for this year will be the impact of interest rate hikes. We know that with the rise in the interest rates, the cost of debt for most companies will increase, in particular asset classes such as Reits with a gearing rate that are typically within the 30-45% range. It will be interesting to hear from the management how they will be handling the higher borrowing costs, whether in the form of higher rental escalation or lower borrowings.

I see this like an event such as the AGM where you get to meet the management first hand, hear from the man himself and ask burning questions that you have to the management at their respective booths.

Furthermore, there will be 2 panel discussions which will touch upon topics such as:
  • Investment merits of REITS with overseas assets
  • Unlocking opportunities in REITS ETF

For preferential offering for readers, you might want to key in "FOREVERFINANCIALFREEDOM" when you purchase via this link here at a rate of $14, which is 30% cheaper than if you purchase for a walk-in. 


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Tuesday, April 10, 2018

Recent Action - Comfortdelgro & Vicom

I just want to fill in quickly an update I just made since I just made a portfolio update not too long ago for the month.

I divested all my position at Comfortdelgro at a price of $2.09 today for an overall -9.1% loss (inclusive of dividend). Year to date however, this divestment has returned me a positive 5% gains since the start of the year.



I've been reading and following the development about Grab and Uber since last year and to be honest there are structural issues which I was slow to act upon. With the advent of these technology low capex disruptor, it is a cut throat industry to be in right now, with margins coming in at multi years low. Even Chairman Lim has acknowledged this when he mentioned in the recent interview that they are expecting the vehicle margins to erode further and that they would be looking to new business to supplement their income stream.

The latest news being an acquisition of S$30.2m on the patient transport in Australia and the bus charter in Aussie.

CDG continues to make acquisitions their main priority and to be frank it is difficult to gauge the internal returns they were expecting based on the number of their many small acquisitions.

Even with the uber saga out of the way, the company will continue to face an overhang with their continuously high capex intensive nature and I don’t know if this is still the way forward 10 years later. I think if new technologies can come in and attack the private vehicle, they will soon do it with the buses and conquer other areas too.

Being a strong blue chip in the region, and backed by strong institutionals, I think it’ll continue to do fine, generating profits year after year and distributing dividends to their shareholders. The only worry from here is probably how the management is bringing the company forward on this. I have so far remained a shareholder almost only in the hope of their 5% dividend yield and am not expecting anything much more from the growth part.

Since the start of the year, the selling has somewhat abated and is one of my top performer in the portfolio. It’s a bit ironic that I decide to divest at this point in time but I thought it was a somewhat decent exit and lessons learnt from there.

I documented in my 2017 end of year portfolio that I was slow to act upon the development of the incoming news and I was somewhat forced to average down thinking that the market has mispriced them irrationally. I still think though that anything at $2 and below represents a good deal for a 5% yield and a good trade range, this has somewhat becomes my trading stocks like ST Eng and Singtel which I have continuously enter and exit at multiple various prices.

With this out of the way and with the proceeds, I went to buy 2 counters which I think is more defensives, higher dividend yield (and payout) and better outlook certainty I can forecast.

The first company is Vicom (I will blog about the second company in the next post)

Vicom is an existing position that I already have and I have accumulated more at a price of $6.05.

This is in line with my personal strategy of accumulating a stock with a higher than 5% yield.

FY2017 was a challenging year for the company as it saw a 4% decline in their inspected vehicles which dropped from 488,186 to 468,807 vehicles. In the recent annual report, Chairman Lim commented that de-registration is expected to slow down in the next few years ahead which likely means that we would see a bottoming in progress for FY17. 

We should see a better FY18 numbers with de-registration slowing down and inspection numbers to slowly go up.

While earnings per share for FY17 came in at 29.90 cents, free cash flow came in at $28.9m which translates into 32.6 cents/share. This is mostly due to the depreciation of assets which was added back into cashflow. The company paid a full year dividends worth of 36 cents/share for FY17 which was higher than their free cash flow but I think with the strength of their balance sheets and organic growth returning, I am expecting FY18 payout to be the same. This equates to a 6% yield based on my current price.

I’ll blog about my other company buy tomorrow which has an equally high yield and payout.

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Friday, April 6, 2018

"Apr 18" - SG Transactions & Portfolio Update"

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
Comfortdelgro
85,000
2.08
176,800.00
27.0%
2.
M1
75,000
1.73
129,750.00
20.0%
3.
Fraser Logistic Trust
100,000
1.10
110,000.00
17.0%
4.
Ho Bee Land
30,000
2.51
75,300.00
12.0%
5.
Starhill Reit
100,000
0.73
73,000.00
11.0%
6.
Vicom
8,000
6.04
48,320.00
7.0%
7.
Singtel
7,000
3.42
23,940.00
4.0%
8.
Tuan Sing
40,000
0.42
16,800.00
3.0%
9.
Warchest
-
-
         0.00
0.0%
Total
653,910.00
100%

It it time for another month of reporting which means an update on the portfolio.

I've not been spending time lately monitoring the market as there are plenty of other things and errands to run on the personal front so it's been mostly untouched.

After coming back from my trip to Taiwan in March, I've been catching up for my work in the office and have to run errands to Jakarta again earlier this week. I've read the news about the Tariff war between the US and China but didn't take much interest in it. I believe this is just a noise which relates to nothing in the long run in the scheme of things.



For this month, I've added another 3,000 shares of Singtel after seeing some opportunities the other day to add. I didn't have a lot of thesis in Singtel and neither do I have the funds to add a lot, so this is simply a buy at the current valuation waiting for institution to value them back up. Meanwhile, the dividend is attractive to me and I believe they will maintain their current payout.

On another front, I was also allocated 8,000 shares of Sasseur Reit which I manage to allocate them to my wife's account. I've managed to recently convinced my wife to buy some companies with her savings so she's starting out a little in the recent times. I'll manage it for her directly under my own accounts.



Net Worth Portfolio

The portfolio has increased from the previous month of $644,100 to $653,910 this month (+1.52% month on month; +24.8% year on year).

This is the third time in the four months that the portfolio managed to break an all time record high. This is also the first time it managed to break the $650k barrier mark. Despite the constant up and down of the market volatility, I am not so worried as the portfolio is trending in the right direction.

A quick check on the first 3 months return also show that the portfolio is performing slightly better than the STI return, so not all hope is lost. I am still very confident that the portfolio will end 2018 very strongly with the companies that I have.

Family's Portfolio

From this month onward, I am also going to include my family's portfolio as I am handling more accounts under the same CDP account which makes me the need to do the reconciliation at times with the CDP statement. 

So I thought it'll be better to publish it clearly.

1.) Wife Portfolio

I am allocating my wife's savings into Comfortdelgro, a company which I am more familiar with and easier to monitor. I also allocated my recently added Sasseur Reit as part of her portfolio as she is mainly interested in dividend companies.

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
Comfortdelgro
6,500
2.08
13,520.00
68.0%
2.
Sasseur Reit
8,000
0.80
  6,400.00
32.0%
Total SGD
19,920.00
100.00%

2.) Baby B1.0 Portfolio (Age: 3 years and 8 months)

No change here but with dividends up and coming in May, I will be looking to add further to his current holdings.

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
Comfortdelgro
6,500
2.08
13,520.00
85.0%
2.
Singtel
700
3.42
  2,394.00
15.0%
Total SGD
15,914.00
100.00%

3.) Baby B2.0 Portfolio (Age: 1 years and 3 months)

No change here but with dividends up and coming in May, I will be looking to add further to his current holdings.

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
Comfortdelgro
1,000
2.08
2,080.00
35.0%
2.
Singtel
1,000
3.50
3,500.00
65.0%
Total SGD
6,580.00
100.00%

4.) Mum's Portfolio

Also bought for my mum Comfortdelgro which dividends are coming up shortly.

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
Comfortdelgro
3,000
2.08
6,240.00
100.0%

Total SGD
6,240.00
100.00%


Final Thoughts

I am running out of ammo for the equity side so I am looking very much forward to the upcoming dividends as well as the bonus from the company which will add more to the firepower.

Meanwhile, I hope everyone will stay safe during this volatile market.

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Saturday, March 31, 2018

Financial Independence Is Utterly Overrated

Since this blog was started about 8 years ago, the recurring theme has always been about advocating the real incentive behind achieving financial independence and how much benefits we could derive from achieving it than not.

We've always pictured financial independence as having the options to do the things that we want rather than the things that we're forced to do and having that autonomy gives us the flexibility to become happier naturally.

As human beings, I understand that we tend not to like being controlled and we like to define our time according to our own needs. Best still, we could arrange our very own FI weekly schedule to meet the needs of our body and mind instead of the other way round, dealing with the inaugural needs of the society.

When I'm not at the coffee house, I'm on the way to the coffee house

The truth is achieving financial independence is an utterly overrated phenomenon that proves to only be a general marketing gimmick led by masked bloggers like us that try to prove our points because we force ourselves to think like that.

You see, most of us financial bloggers are no different from the usual snake salesman you see on the street trying to get passerby to buy things and packages that we sell. Like them, our income is very much dependent upon hitting the group of mass market on the street who were too weak to believe in their own capabilities and therefore are being targeted so bloggers can receive more online income to sustain our self-proclaimed lies and lifestyle.

We like to influence the general public with our sexy dividend stories by publishing quarterly dividend reports and putting up a nice beach instagram photos sipping pina colada on the beach to further enhance our stories but the fact remains that the beaches in the photos are not as elegant as they were in real life and you've got to pay a premium to even pay for that benches you sat on the Patong beach.

We also know that while dividend income and capital gains are not taxable under the Singapore jurisdiction, one of the top early retirees' wish list is to actually go back to the workforce and pay taxes because workforce is actually awesome after they found out how overrated is the goal of financial independence that they've been seeking for decades.

Being in a different time zone with the norms also means that you are likely to be alone and outcast during the day when everyone is having their awesome lunch together at lao pat sat squeezing both  literally and figuratively sandwiches between the hour lunch.

You start to live your life as if the world is just about you - shopping for groceries, reading book in a library, eating in an empty restaurant without the lunch crowd and no one to talk to. The best thing that can happen is if you can find a similar clone elsewhere that lives the lifestyle like you did, but even so it is extremely rare.

As I am approaching my target destination soon on the path to reaching the dreaded financial independence goal, I am afraid of what the new life may take me to. I am afraid of having no more goals to look forward to and life would go downhill from there.

You see, I'm not trying to put a salt on the wound that may break the heart of anyone who's just starting out, but in my journey so far, it has been the case and I so very much regret my decision to pursue it in the first place.

Financial independence is utterly overrated! Urgh....

And to everyone who reads this, hope you have a good Happy April Fool's Day :)

99.9% of the above statement are probably the complete opposite
And let us instead give thanks and celebrate Easter day for the blessings for what God has given us :)


Happy Easter Sunday

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Wednesday, March 21, 2018

Sasseur Reit IPO Analysis

Sasseur Reit is the latest investment trust to file a lodging to list in the attractive Singapore Reits platform, is offering 266.6m units at 80 cents per share.



This comprises of 252.8m placement shares, which are mostly taken up by institutional investors and  public tranche of 13.8m which are available for the public.

Public can start bidding from the 21st March and closes noon on the 26th March.

It is expected to commence trading on the 28th March.


Business Overview

Sasseur Reit will debut with an initial portfolio comprising of 4 retail outlet malls located across the growing city of the PRC, namely Chongqing, Bishan, Hefei and Kunming.

Their occupancies rate as of 23rd Feb 2018 are at 96.4%, 91.5%, 95.8% and 96.1% respectively.

They are the first outlet mall to be listed as a Reit in Asia.

Business Moats

The portfolio offers an unique proposition to investors in the form of an integrated "1+N" outlet business model by providing not only a traditional shopping experience but also the various lifestyle options to shopping goers.

An outlet is defined as a form of retail trade selling private label items from past seasons, surplus stocks or exclusive lines directly to customers at a discounted price. It carries various brands, including branded and local.

The current market size of the overall PRC outlet mall is at USD7.4B, which is higher than the Japan outlet malls, but is very much smaller than their counterparts in Europe (USD16.1B) and USA (USD47.4B).



There has been a recurring selling point for PRC retail reits listed in Singapore market such as the recent BHG retail and Dasin Retail Trust on the spending power of the Chinese middle market, and this is not different from others. The per capita consumption pattern is expected to grow between 6% to 8% over the course of next 5 years.



The outlet spending per consumption started at an even lower base, and this is why there are much more room to grow once the industry grows and the per capita consumption goes higher.


It is expected that in the year 2030, China outlet malls will grow to become the biggest in the world, surpassing the already giant Europe and USA, with a CAGR of over 24.2% per annum. If that materializes, this could be a gem in the well making.



Rental Business Model

There are 3 business models currently being adopted in the China's outlet market.

They are the leasing model, direct sales model and concessionary sales model.

The leasing model follows a traditional model where the tenant pays a fixed rental agreement based on the agreement signed.

The direct sales model follows a model where it buys inventory from the manufacturer and borns the risk of having an unsold stock at the end of the day.

The concessionary sales model is 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 all to the operator.

The concessionary sales model is where the Sasseur Reit will be using.

What this means is in a retraction period where sales are low, they will then pay a lower overhead cost subsequently to the operator as well and in periods of good turnover sales, they will pay higher. The key lies in the margins they earn. This will cap the risk they are taking but also the gain they could be making.

Risks

Two of the properties in Hefei and Kunming are only recently operational in 2016, which means they do not have a long track record to speak with.

As written above, the China outlet industry is in the infant baby stage so a lot are just starting and they start with a low base.

The use of the land right is also usually limited to maximum of 40 years based on China regulation and owners are required to submit an extension application should they wish to extend. This is subject to the public tender bidding or auction.

The properties have a land use right of up until 11 May 2047, which gives approximately 29 years from now. This is in line with all the other properties you have with the other PRC commercial and retail reits listed here.


Why choose to list in SGX?

There are always the same queries on why companies choose to list in SGX market and not in their home country.

I believe the answer to this is because of regulations and tax laws which opens up to a lot of debates.

In Singapore where it is a tax haven for Reits offering platform, Reits listed here enjoy a preferential taxation status and Reits are considered a special vehicle income transmission tool and are thus exempted from corporate and income tax.

Under the China taxation system, your rental income first get taxed at 12% under the real estate tax law and a subsequent 11% VAT is then imposed. In addition, there are also the 25% income tax on the profit from the corporate level. Based on total, net income only amounts to 60% to 70% of the rental income received before it reaches the hand of the shareholder.



Sponsor & Cornerstone Investors

The sponsor to the Reit is Sasseur Cayman Holding and is one of the largest retail outlet operators in China. Currently, it operates 9 retail outlet malls, some of which are pipelines to be injected in years to come for outlets in Guiyang and Xian.

The sponsor will be the largest single unitholder in the range of 55%, which is a good sign of alignment of interest. The closest we can find in our local listed Reits is SPH Reit, which the parent owns around 67%.

The management fee structure is also very much aligned to unitholders as they will receive 10% base fee as distributional income and performance fee of 25% of the difference in DPU between the financial years. This is to ensure that DPU objective is aligned with investors.

They have also engaged a strong set of cornerstone investors with the likes of:

  • Adroit Ideology Limited - Subsidiary of JD.com (largest e-commerce in China)
  • Bangkok Life Assurance
  • CKK Holding - Owned by Charles & Keith group
  • Entrepolis Limited - Private investment vehicle of Dr. Yap
  • Great Achievement and Success Ltd
One thing to note however though is that these cornerstone investors do not have a lock up period but with an even spread across strong institutional investors, I think this won't be a problem.

Valuations

The offering is forecasted to be at 7.5% yield for FY18 and 7.8% yield for FY19. 

This is based on 100% mandatory payout based on their policy, which they can then reduce to provide of up to 90% the years after that.

Like most young operational Reits in its infant stage, there will be some form of financial engineering used in order to boost the operational yield.

For Sasseur Reit, they will be entitled to receive a Minimum Rent for FY18 and FY19, provided that the aggregate resultant rent of the properties do not exceeds RMB 472.9m (~S$98.2m) for FY18 (9 months) and RMB 611.4m (~$127.1m) for FY19.

Based on the prospectus,  the DPU and distribution yield for the initial portfolio will be $0.05 or 7.5% based on annualized basis for FY18 and $0.06 or 7.8% based on annualized basis for FY19. In the absence of the financial engineering, the DPU and distribution yield for the initial portfolio will be $0.04 and 6.1% based on annualized basis for FY18 and $0.06 or 7.8% based on annualized basis for FY19.

This is way much smaller form of financial engineering as compared to other Reits like Dasin Retail Trust, which trades at an attractive P/BV level and close to 9% yield but take away the financial engineering and it will collapse to sub 4% yield. It's interesting to see what will happen to Dasin later in 2021.

Final Thoughts

Overall, I thought the offering was fair and it is currently at an infant stage where it can provide explosive growth if the cards are play right.

I also like the fact that the financial engineering is kept to the minimal which means it can functionally operate at sustainable yield in the future and also participate in future growth and acquisitions.

The strong cornerstone investors also provide a butterfield stamp that they are into this and the sponsor holding a large stake similar to SPH would mean that they would be in control and are align with the expectation of investors.

Based on the past results of BHG and Dasin, this seems like a 1 to 1 ratio for balloting and in view of this, I will be applying for a small 20,000 shares on this in view that I like the business model and other criterias abovementioned.





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