Portfolio Update July 2020

Portfolio value decreases to $183k due to declines in retail Reits and hospitality related counters and sales of 2 counters. 

Sold 3,000 shares of Mapletree Industrial Trust at $3.20 for 17% gains in 1 month.

Sold 1,500 shares of Frasers Centrepoint Trust at $2.39 for 3.5% gain in 2 weeks.

I feel that MIT is fairly valued and technically may retrace for re-entry opportunity but it shoots up higher instead. It is my price to pay for timing the market.

I am using my daily expenses to nibble FCT so as it remains weak and the next dividend will be paid only 3 months later, I decided to take back my rice money.

 

War chest is at $13k.

SRS portfolio declines to $68k.

The local stock market remains weak and sluggish as the pandemic rages on. Local blue chips have lost their moat, cutting edge and earning power. Undervalued bank counters have lost their shine as income generating assets due to MAS' guideline to cap their dividend payout to 60% of 2019 levels. Strong resilient Reits are overpriced while hospitality and retail Reits are battered and lacks catalyst to recover. 

I will remain on the sidelines while continuing to build up war chest to ride on any good opportunities that present themselves.

Stay safe and thanks for reading.

With love & peace,

Qiongster 

6 Reits in my Portfolio reported results today and I will receive $1.5k of dividends

It is time for the exciting financial reporting season of the year for many Reits.

By coincidence, these six Reits in my portfolio reported their quarterly financial results today.

1. Capitaland Commercial Trust
2. Aims Apac Reit
3. Suntec Reit
4. Ascendas Reit
5. Mapletree Commercial Trust
6. Frasers Centrepoint Trust

1. Capitaland Commercial Trust

CCT announces a 4.5% year-on-year decline in net property income to $151.1m for 1H 2020 due to rental waivers to tenants in Raffles City, upgrading works and lower occupancies. Portfolio occupancy stands at 95.2% and positive rental reversions are achieved for 479,000 sqm of leases renewed in 1H 2020. DPU drops 24.1% year-on-year for 1H 2020 to 3.34 cents.

Dividend I will receive = 10,000 x 3.34 cents = $334

2. Aims Apac Reit

AA Reit announces an 18.6% year-on-year decrease in net property income to $18.8m for 1Q FY2021 due to waiver of rental for tenants and lower contributions from properties converted from master leases to multi-tenanted leases. Portfolio occupancy increases to 93.6% due to demand for logistics and warehouse space. DPU drops 20% year-on-year for 1Q FY2021 to 2 cents.

Dividend I will receive = 28,800 x 2 cents = $576

3. Suntec Reit

Suntec Reit announces a 20.6% year-on-year decrease in net property income to $90.9m due to lower revenue and weakened AUD. Portfolio occupancy rate is 96.4% and positive rental reversion of 11.1% is achieved for leases renewed in 1H 2020. DPU drops 31.3% year-on-year for 1H 2020 to 3.13 cents, of which 1.533 cents will be paid for 2Q 2020.

Dividend I will receive = 5,000 x 1.533 cent = $76.65

4. Ascendas Reit

A Reit announces a 11.2% year-on-year increase in net property income to $388m due to 30 newly acquired business parks in Dec 2019. Portfolio occupancy rate is 91.5% and positive rental reversion of 4.3% is achieved for leases renewed in 1H 2020. However, DPU drops 10.8% year-on-year to 7.27 cents due to enlarged number of units after rights issue.

Dividend I will receive = 8,000 x 0.727 = $581.60

5. Mapletree Commercial Trust

MCT announces a 10.7% year-on-year drop in net property income to $78.9m due to rental rebates given to eligible retail tenants.Occupancy remains high at 98.2%. Income from Mapletree Business City II acquired in Nov 2019 helps to cushion the drop in income from retail in Vivocity. No DPU is announced as the Reit has changed their DPU frequency to semi annually. It is inevitable that their net property income would be adversely impacted by the Covid-19 circuit breaker measures implemented in 2Q 2020. I would be surprised if there is no drop in DPU.

6. Frasers Centrepoint Trust

FCT announces a 0.6% year-on-year in increase in net property income to $72.3m due to contributions from AsiaRetail Fund offsetting the rental rebates given to retail tenants. Occupancy remains resilient at 94.6%. DPU declines 24.2% to 4.67 cents for 1H 2020 due to larger unit base and retention of cash to provide rental relief for tenants but will not be paid this quarter as the Reit starts to adopt half yearly dividend distribution policy.

Total Dividends declared for me: $1568.25

I am pleased as this is decent passive income for me doing nothing during a pandemic and recession. In peaceful booming times, I believe these Reits would be able to generate much more property income for higher dividend payouts.

Thanks for reading.

With love & peace,
Qiongster

2Q 2020 Results of a forgotten pure Office Reit

T Tower, a freehold 28 storey office building in Jung-gu, Seoul, South Korea owned 99.4% by Keppel Reit

Keppel Reit (SGX: K71U) reported its 2Q 2020 Results on 20 July 2020.

Key Highlights:
a. Net property income declined 7.2%
b. Distribution income increased 0.4% due to capital gains of $5m
c. DPU for 2Q inched up 0.7% to 1.4 cents Year-on-Year
d. Gearing ratio is at 36.3% and all-in interest rate reduced to 2.48% per annum
e. Occupancy rate is high at 98.6%
f. Commencement of 30-year lease for Victoria Police headquarters at 311 Spencer Street, Melbourne

Source: Keppel Reit 2Q Results Announcement

The acquisition of T Tower, Seoul in Apr 2019 helps to cushion the impact of income loss for the sale of Bugis Junction Towers in Nov 2019.

The support measures by Singapore Government help to cushion the impact of Covid-19 health pandemic on the property income as 4.7% of local tenants have received relief to offset their rental payments totalling $9.2m. In Australia, 1.2% of the SME tenants received rent waivers and deferrals from the Australian government. In South Korea, none of the tenant qualify for any relief measures.
Keppel Reit has also allowed $1.6m of rentals to be deferred.

The occupancy rate remains high at 98.6% and the property portfolio has a decent WALE of 4.6 years. There is also slight positive rental reversion from the leases renewed in 1H 2020 at an average signing rent of $11.86 psm above expiring rents of $10.45 psm. There are only 2.2% of the leases expiring for the remainder of 2020.

This will be the last quarterly DPU for Keppel Reit as the manager has adopted half-yearly reporting for next half onwards. So the dividend payout for 2H 2020 will be in 2021.

Moving Ahead
The new normal of working from home due to the Covid-19 health pandemic will pose an impact to occupancy risk and may result in further negative rental reversions for Keppel Reit even though there will be lower supply of office space in Singapore for the next few years. Many tenants will review the need to occupy the same office space. Struggling tenants who fail to survive may contribute to increased occupancy rate. Depreciation in AUD and KRW would result in lower contributions from the properties in Australia and South Korea. Hence, I would expect NPI and DPU of Keppel Reit to take a slight hit in the short to mid term.

Honestly, Keppel Reit has not been doing well over the past few years due to declining net property income, falling DPU and high management fees. But what I like in Keppel Reit is its best-in-class office skyscraper portfolio comprising of Grade A offices in the prime CBD of Singapore such as the likes of One Raffles Quay, Marina Bay Financial Centre and Ocean Financial Centre. T Tower in Seoul, with a freehold tenure, seems to be a shrewd tactical acquisition for geographical diversification and stabilisation of recurring property income. The completion of 311 Spencer Street as a HQ for the Victoria police in Australia further helps to provide another source of consistent stable recurring income for the next 30 years.

Keppel Reit will be the only local pure play office Reit left on SGX after the merger of Frasers Commercial Trust with Frasers Logistics & Industrial Trust, OUE Commercial Trust with OUE Hospitality Trust and the upcoming merger of Capitaland Commercial Trust with Capitaland Mall Trust. Who knows if Keppel Reit will be merged with Keppel DC Reit or being acquired by Blackrock or Keppel Land in the future?

It is currently undervalued at a market price of $1.09 and priced at 0.8x to book value of $1.33. At an estimated DPU of $0.055 cents per annum, its yield is 5%.

I am vested at an average holding cost of $0.82 with a yield of 6.7% and enjoying a decent margin of safety. Hence I will not consider selling my Keppel Reit shares at below book value of $1.33 even though I am not particularly pleased with its performance over the past few years.

Thanks for reading.

Love & Peace,
Qiongster

What will I do about Sembcorp Industries? Part 2

After the announcement on the recapitalisation of Sembcorp Marine and demerger of Sembcorp Marine from Sembcorp Industries in Jun 2020, I have shared my opinion on the possible action plans for this demerger.
What will I do about Sembcorp Industries?

Sembcorp Industries has announced their poor but expected 1H 2020 results on 17 June 2020 and reported a $131m loss, compared to $191m profit in 1H 2019.

The urban segment is able to make profits of $38m. The energy, corporate and marine divisions all chalked up losses, with marine contributing up to $117m of losses.

It is important to note that the loss on paper is largely attributed to the one-off exceptional items of $191m. Writing off of asset values and impairment of investments are accounting treatments and do not result in actual cashflows.

The energy business actually has a net profit of $156m before a write off of $161m to become accounted with a net loss of $5m.

Source: Sembcorp Industries Presentation Slides for 1H 2020 Results

The energy business is still largely profitable from operations despite general drop of oil and gas prices in recent months. However, the profit from operations is dragged down by business operations in Singapore and India. In Singapore, the 47% drop in operational profit is due weaker demand caused by Covid-19 and lower price of high sulphur fuel oil (HSFO). In India, the $29m drop in operational profit is caused by lower electricity demand and lower prices by Thermal Power Project 2.

It is disappointing that there is no interim dividend declared for 1H 2020 as the company board has prudently decided to defer the dividend consideration to the full year.

Despite gauging $2 to be a fair value and having plenty of opportunities to sell it above $2, I am keeping my little shares in Sembcorp Industries after considering having to suffer a massive loss from an average holding cost of $3.30 and having kept them for more than 5 years already. I decided to give Sembcorp Industries a fighting chance for another 5 years to propel its energy utilities business if they can get rid of the disastrous marine sector.

Sembcorp Industries will be able to start off with a clean slate in Sep 2020 if the EGMs approve the recapitalisation and demerger plans by end Aug.

It is important to note that the ex-dividend price of Sembcorp Industries can drop to possibly as low as $1 and we should be conservative to not assume the share price of the "free" Sembcorp Marine shares will trade above $0.20. There is no free lunch. Institutional funds have pumped up the share price of Sembcorp Industries and unloaded to retail investors for the past month.

We should not buy Sembcorp Industries at $1.80 now thinking of getting a good deal from the "free" shares or eyeing a great trading opportunity speculating on the EGMs to approve the recapitalisation and demerger plans. We should buy Sembcorp Industries at $1.80 now only if we believe in the profitability and resiliency of its energy and urban business in the long run, and as an additional bonus, there is a possibility of a future merger of some sort between Sembcorp Marine and Keppel O&M.

I am doing nothing and will wait for the demerger to pan out. I will consider cutting loss above $2.

Thanks for reading.

Love & Peace,
Qiongster