Mapletree NAC Dividend- Cash or Stock?

 Great to have the dividend in- but here comes the choice to choose between cash or shares or both.

Personally, I will be inclined towards cash as I think $1.04 isn't very attractive for me given the recent lockdown which will affect REITs in the short term and inflation concerns in the US. Interest rates are also concerning. Price now is $1.06 which is only a 1.5 cent premium. Will skip this time!

Suntec Reit for Now

 Another bullet out to Suntec Reit this time! Revisited my ideas in my post here where I wrote a writeup about it and I am still hopeful for its performance. For now I am just slowly adding stuff which I feel are overvalued, in this case Suntec Reit below NAV of $2+. Fingers crossed!

Thoughts about REITs

I read the article recently about commercial tenants and restaurants being able to hold off paying rent for 6 months if they are unable to do so. So the proposed piece of legislation means that tenants can defer their payments after 6 months. Although I am fairly confident of a good recovery then, I think it will be bad in the short term. In this outbreak, it is pretty likely that most tenants are unable to meet their rental obligations and they will use this to better manage their cashflow.

Therefore, unless the government comes in to fill this gap by supporting REITs, if REITs are forced to swallow this bitter pill, I think the hit in the short term would be pretty bad.

So far the movement of REITs is quite close to STI but it might deviate towards lower grounds. I am guessing REITs might start to raise cash through new debt or new issuance of units. Either way, not gonna be good in the interim, but nevertheless a good long term bet.

Coronavirus and Thoughts

I haven't been posting in a while because of my new job, but I think it is always good to take a step back and formulate my thoughts about recent news.

The best incident to fall back on while considering this issue would be the 2002-2003 SARS outbreak because both incidents are largely similar: SARS started around November 2002 and ended around May 2004. A quick look at the STI:

We can see that from the period from November 2002 to May 2003 there was a clear downtrend in the STI before rebounding decently into 2004.

Currently, the STI seems to be in the infant stage of a downtrend which suggests some potential buying opportunities. I came across this article which aptly compares the two outbreaks.

Further points to take note:

1) China's economy is much bigger now than it was during the SARS outbreak period so the impact is gonna be pretty painful as trade between China and Singapore is quite extensive.

2) Banks will be affected as they have exposure to China; OCBC has the highest exposure here.

3) Airlines are affected too as flights are being cancelled here and there. Example: Hong Kong Airlines being on the verge of bankrupt. Note to self- SIA.

4) REITs with China exposure are already feeling the pain - Mapletree NAC, CapitaChina, Sasseur.

5) Generally, retail should continue to deteriorate as everybody will most likely be minimizing their outside movements. (CapitaMall, Suntec, Mapletree Com, Starhill)

But otherwise, I think it would be a good time to look at the market to consider entry points. Cheers!

Mapletree NAC Thoughts

I am of the view that there will be a short term drop in Mapletree NAC's price.

Chief of all, the growing instability in HK is something to worry about. which impacts its main property Festival Walk, which constitutes 62% of our reit's NPI (based on the most recent annual report). This might lead to lower sales in the mall and lower NPI, which will affect our dividend payout.

Secondly, USD looks poised for a rate cut soon, and if we assume the USDHKD peg to hold, then HKD should depreciate against SGD, which might also contribute to a lower NPI.

Thirdly, the RMB has weakened quite a fair bit to 5.12 against SGD which will also adversely affect the NPI for China properties in the reit's portfolio.

On the other hand, the drop might be mitigated by Japan properties, where JPY appreciated sharply against SGD due the yen being a safe haven currency and everybody flocking to it during trade war concerns. The takeup in yen is so extensive that nearly all of their bonds are now having negative yield which signals the extensive demand for yen.

Of course, let us not forget that approximately 69% of forex conversions have been hedged, so we are dealing with approximately 31% of risk here.

Currently, NAV is at 1.438 which is about a 13 cents premium from its current price of 1.3. I will be looking to wait for it to drop to its 52-week low of 1.07 (although might be too difficult to wait for).

What are your thoughts about the pluses and minuses? Please share!

Market Thoughts

Recently, there have been a lot of ups and downs in the market. The first thing that caught my eye was the falling yuan which broke the seven level against the US dollar, which signaled the current monetary policy in China. The casualties today were Mapletree NAC which dropped 4.48% and CapitaR China which dropped 1.99%. The drop in RMB also meant it dropped against SGD which means it will affect the two reits' profits.

Hong Kong also saw the escalation of protests in the airport where Cathay Pacific got the brunt in the falling HK market. It dropped about 7-8% these few days as flights were blocked.

But interestingly, US market has rebounded today due to simmering of US-China trade tensions and yields and stocks prices are soaring.

I am focusing on Bank of China at the moment which is 2.97 HKD and giving a 7% yield. At point of writing, SGDHKD is 5.67 which might go lower if USD is going to strengthen further this year (assuming if USDHKD peg remains intact).

Moreover, SIA seems to be an interesting point too since the HK airport protests will affect airlines (albeit not as much as Cathay),  but currently at 9.05 and today had a 52-week low of 8.95.

Probably HK market will rebound (briefly) due to the rebound in the US. But I believe in the short term the HK market is probably going to breach new lows as the protests do not seem to be subsiding.

Suntec Reit Ideas

Amidst the market movement this week, I have been on the hunt for any stocks to buy to add to my portfolio. I am sure the most prominent piece of news that caught everybody's attention was the two Trump tweets which knocked off $1.3 trillion off the global markets this week, where tariffs on USD 200 billion have already been effected. Recently, Trump even said 'a no rush' about the China deal. In the worst scenario, tariffs might lead to a continued slide in Singapore markets (it caused quite a drop this week) but we will see.

One stock which caught my eye was Suntec Reit, which looked cheaper as compared to its peers (it is currently trading at a price of 1.79 as of 10 May 2019.

Here is the performance for this quarter here.

Source: Suntec Reit 1Q 2019 Financial Presentation

Net Property Income dropped from last quarter, where possible reasons could be the depreciation of AUD against SGD and lower NPIs from its constituents (Suntec City and Suntec Singapore). Distribution Per Unit remains constant with about +0.04% y-o-y. Furthermore, office accounts for 66% of NPI and Singapore accounts for 85% of NPI. Net Asset Value stands at $2.09 which gives us a 30 cent discount over its current price. In terms of interest rate matters, average cost of debt is 3.04% and 77% fixed. However, I think this will largely depend on the Federal Reserve interest rates, which has yet to see a standstill with Trump.

Furthermore, looking at the occupancy numbers, Weighted Average Lease Expiry (WALE) is 2.24 years for Singapore and 5.37 years for Australia. Longer WALE might be more predictable and stable but since the bulk of money comes from Singapore (85%), a 2.24 year WALE may be worth zooming in to see if the economy will continue to strengthen beyond 2020 (or weaken).

I will be looking to buy the stock at a favorable price, where its last 52-week low was at 1.63 and I did have the intent to buy. But we will see again.

Thoughts about timing the market

I haven't posted a while because school was really busy this month with me rushing through my FYP! Nevertheless, I am glad to post again and share some ideas I have.

We always ask ourselves when to enter a stock and either lament when the stock drops after we bought, or when the stock rises if we did not buy. Now, I would like to present this situation in a more technical format, in the form of an Excel spreadsheet. One example I will be taking here is Capitamall Trust.

I scrapped the price and dividends data from Yahoo finance and did a simple analysis here. For simplicity's sake, I used the closing data of every month to look at it from a monthly point of view. The gain here is the net profit here. For example, if gain is 172.82%, that means you will get $1.72 for every $1 invested.

Compound Annual Growth Rate (CAGR) will be what I'm using to gauge here and for those not familiar with it, it is just the (Ending Value of Asset - Beginning Value of Asset) taken to the power of (1/number of years), then divided by 1. Basically, it measures the growth rate of an initial investment to its current value. To be clear too, I am accounting for dividends in the ending value to have a more accurate view and the ending value is the current price of Capitamall Trust now. For a more elaborate explanation of CAGR, you can check here.

I then plotted a CAGR graph over time here for a better visualization. 

So we notice that CAGR has been fairly constant at about 6-7% and then a sudden spike up at 2017-2018. This can be attributed to the run-up prices during the 2017-2018 period if many of you all may recall. But ignoring this outlier, we can see that any point of entry will yield us a decent CAGR of at least 6%. So during any point, it will be good to enter even when prices are higher than normal. 

But of course this model has its caveats. The reason why the picture looks so rosy is because the reit now is close to its 52-week high, which greatly inflates its ending value. If the price was any lower, CAGR would be lower than the current illustration. Another reason would be because of the consistent flow of dividends. I suppose if you replace Capitamall Trust with a bearish stock, things will not be so brilliant. 

However, I hope to bring through the message that timing the market might not be that important after all, it is identifying stocks with good potential that is the key. Of course, if we can time the market, our returns will be better enhanced but if we can't do that, we still can enjoy pretty good returns.

But of course, based on the argument that I have just presented, should I buy Capitamall Trust when it is hovering very high? Well, of course I hope I can time the market if possible. But we will see...

Learning the Shiller Ratio and some random thoughts

Happy Chinese New Year everybody! I can't believe that it has been 2 months since I started blogging.

I guess if you have been following my previous posts, I am mainly concerned about the current valuation of the stock market as it gives me an indication of when to buy. So one thing that caught my eye on Investopedia was this which was quite interesting to me.

The Shiller Ratio is a measure which is equivalent to the current price divided by the average of 10-year period of real earnings per share. It is inherently an extension of the Price-Earnings ratio, albeit adjusted for inflation and different phases of a normal economic cycle. It is a ratio to determine an overvaluation or undervaluation of any financial asset, but also accounting for cyclical factors that artificially inflate or deflate a company's earnings.

Of course, Singapore is my main point of interest, so I managed to find the historic Shiller Ratio from the Barclays website.

Source: Barclays Shiller Ratio (Singapore)

As of 31 December 2018, Singapore's Shiller Ratio stands at 15.21, which is pretty decent considering that it is rather low given the peaks you see in the above diagram. Notably, the peak was around 35 in October 2007 before plummeting during the Great Financial Crisis. Looking at current levels, it does seem compelling for a buy.

Let's look at the pros and cons here. The pros should be quite evident, where the Shiller Ratio has accounted for expanding and contracting business cycles using a 10-year period to smooth earnings, which is not represented in a normal PE ratio. This can ensure that outliers like the Great Financial Crisis will not greatly affect the conclusion we will get. After all, this is all about the law of large numbers, where the end result should be stable and generally similar.

Obviously, there are some disadvantages which might/might not be of significance. I think the first point is that the Shiller Ratio is based on past data which is retrospective and does not provide any prospective meaning, aka knowing what happens in the past does not make you 100% sure about what the future entails. 

But still, I think the Shiller Ratio is a good enough gauge for us to assess the valuation of the market.

As we celebrate Chinese New Year in Singapore, US markets are still up and running so I thought I should have a look there too 

I am currently thinking of diversifying outside of Singapore and buying some undervalued US shares but if we do apply the Shiller Ratio which we previously discussed, it seems that the US market is even more overvalued than the Singapore market.

Source: Barclays Shiller Ratio (Singapore and USA)

The US market has a Shiller score of 26.64 which represents a pretty huge margin over Singapore's score of 15.21, which generally means it is harder to find undervalued gems in the market. But it is always good to shortlist first, and then pull the trigger later.

The current Shiller Ratio for the S&P 500 is 29.75, with mean of 16.6, median of 15.7 and a range from 4.78 to 44.19, where the current market is slightly overvalued and above its mean.

My recent call on SATS at 4.5 has not been feasible, where SATS is trading at 4.8 currently. Parkwaylife Reit is also at 2.79 and Capitamall Trust at 2.39 which is a tad too high for my taste. Mapletree Industrial is at 1.99 and Mapletree NAC is at 1.25. All the stocks had run up pretty high after my writing so I didn't get the chance to buy. But I do hope I am rewarded for my patience as I am of the view that high prices don't always last, just like how bullish markets don't continue forever. We will see again!

I will write more again after the new year about some US stocks I had some interest in. But for now, it's visiting time. Cheers to the new year ahead!

My Capitamall Trust Ideas

It has been a bullish market so far where there has not been much buying opportunities in my opinion. SIA is the nearest to its 52-week low at 9.64.

Even so, I am quite amazed at the bullish streak so far. Capitamall Trust is now trading at 2.4, a 52-week high and a whopping 38 cents premium over its NAV of 2.02. It is on my radar but I will be waiting to drop back. A 52-week high is definitely not the best time to go in but still, it will be good for me to document my rough analysis here.

So a quick glance here tells us that the DPU has increased from last year, which is a pretty good sign with all the rejuvenation and asset enhancement works in FY18, which we can superficially infer that there is some correlation. Dividend yield is 5.22% at the time of the report, and probably lower now when Capitamall Trust is trading higher now.

Source: Capitamall Trust Full Year 2018 Financial Results

What I also like here is the general increase of distribution income (DI) over its 2003 inception with a 13.1% CAGR. But a observation I would like to point out here: we can see that the rate of growth of DI was generally much higher during the 2003-2008 periods where DI increased by roughly 20-30% yearly as opposed to recent periods where increase year to year was slightly less than 10%. This may suggest a slowdown as we are approaching a saturated market in Singapore where future growth might be inhibited.

Source: Capitamall Trust Full Year 2018 Financial Results

At an individual property basis, net property income is generally increasing by 3.2%, where we can see that redevelopment and selling of Sembawang Shopping Centre did not adversely affect the whole portfolio.

Source: Capitamall Trust Full Year 2018 Financial Results

Other important information include a gearing of 34.2%, interest coverage of 5.2 and a 3.1% average cost of debt.

Lastly about the debt undertaken by the reit: 

Source: Capitamall Trust Full Year 2018 Financial Results

We can see here that the reit has averagely S$400-500 million worth of debt from 2019 to 2024, which accounts to a rough gauge of S$12.4-15.5 million of interest coverage assuming a 3.1% cost of debt. This is still pretty manageable by the reit for this period if they can maintain their net profit.

Talking from a macro point of view now: Capitamall Trust is easier for me to evaluate as it is local and in Singapore. Although the threat of e-commerce is still there, it is not as prominent as in other countries like China. Consumers still like the brick and mortar feel where they can enjoy the love of shopping. I am also inclined to believe that the shopping malls here cater to families who just want to enjoy a lovely weekend night out, so e-commerce should not too much of a threat here.

However, if the slowdown from China persists and there is a macro recession, Capitamall Trust may not be spared too. Nevertheless, it should be less affected by the other reits who derive overseas income so it is a good bet if we are banking on the Singapore consumer industry. 

2.4 is too expensive for me and I will be looking at a price of 2 which represents a comfortable margin of safety for me. Once again, the only cost I am going to incur here is opportunity cost but I will like it over an unrealized loss so we will see how it goes with the Singapore Budget 2019 coming next week. Cheers!

My Reading List- Mapletree Industrial Circular

So this came in my mail. My dad is an unitholder of Mapletree Industrial so I thought this would be something interesting to read and look up. (finally a nicely printed color book instead of reading online presentations!)

In a nutshell, Mapletree Industrial is proposing to buy 18 Tai Seng Singapore and adding it into its portfolio. A quick overview here from their website.

Source: MIT Investor Presentation Slides

So firstly, MIT is exploring a variety of options to come out with the cash, either by equity or debt or both.

Source: MIT Investor Presentation Slides

LTV, meaning loan-to-value represents the amount of money being loaned with respect to the total acquisition cost. Conventional wisdom does tell us that issuing equity to fund the acquisition will cost a dilution in current unitholders' holdings as the number of outstanding shares increases and each share is worth less prior to the issuance with a lower net asset value (NAV). Similarly, issuing debt will mean that gearing will increase, while NAV might also drop due to an increase in liabilities. From a macro point of view, if interest rates do rise as projected, perhaps it would be better for the reit to go for the equity option, or a 40% LTV option as illustrated above. This can allow them to service their debt more easily. As you can see, a 100% LTV (pure debt no equity option) drives gearing up to 38.7% from 35.1% as opposed to a 40% LTV. There is no 0% LTV here (no debt pure equity option) but it seems that the idea of dilution might not be popular with the unitholders.

The second observation was that 18 Tai Seng is dependent on Sivantos Pte Ltd which makes up 36.6% of its gross rental income. Sivantos is a manufacturer of hearing aids and the income from Sivantos will have the most impact on this new property's income.

Source: MIT Investor Presentation Slides

Although that being said, Sivantos only makes up 1.9% of the entire MIT portfolio. Additional benefit includes reducing the reliance on the other properties in the portfolio, where the top tenant HP drops from 10% to 9.4%.

Source: MIT Investor Presentation Slides

Of course this is a double-edged sword, if Sivantos fails to perform, reducing the reliance on other properties won't really matter too. This is my assumption here, but I will be inclined to think that income from Sivantos will be stable and not volatile, as demand for hearing aids is price inelastic as it is a pretty specialized good.

The final part of interest is of course the effects on distribution per unit (DPU) and NAV.

Source: MIT Investor Presentation Slides

In theory, DPU will be the maximum at 12.11 cents if you use purely debt to fund it (same number of outstanding shares) and the least at 11.83 cents if there is some equity issuance. We note that the predicted number is higher than the current DPU of 11.75 cents. Given the closing price of 1.97 on Tuesday 15 January 2019, the previous DPU translates into 5.96%, the LTV 40% option translates into 6.01% while the LTV 100% option translates into 6.15%.  NAV will remain the same at 1.47 if it is 100% debt and increase slightly to 1.49 if there is some equity issuance.

Of course, this probability of the predicted scenario is not guaranteed. Whenever I look at a decision-making process, what I like to look first is the entailing risks which the decision carries.

From my own experience, Tai Seng is not really popular for me and I recall the last time being there was taking driving lessons at Comfort Driving Centre (CDC). So the 'proximity to mature housing estates like Hougang, Bedok and Toa Payoh' point might not draw maximum benefit for the reit and retail elements in the reit may have a risk of not outperforming.

Secondly, the current market price is 1.97 and NAV is 1.47, where you are paying a whopping 50 cents extra for a unit. Although the yield is still pretty acceptable at 5.9-6.0% levels, this is a point of consideration for me. Because assuming they go for the LTV 40% option which is a mixture of equity and debt for a 6% yield, waiting for the price to drop is also a good way to increase dividend yield.

Thirdly, the risk of ecommerce is still there. This might not be very pertinent in the current market but I am going to include it here for my reference (I have written a little about ecommerce in my previous post).

52-week low for MIT is 1.84 which is still a distance away from 1.97.

Technical-wise, price is currently above the 200 exponential moving average which signals a uptrend for now.

Personally, no matter the acquisition, I will not be looking to buy the stock at its current price due to the 50 cent premium over its NAV. I think even the 52-week low of 1.84 is too high for my taste and I am looking at 1.60 levels which was a support in early 2017. The probability of this price happening is pretty low but I will prefer a higher margin of safety at a 13 cent premium.

What are your ideas on this? Looking forward to a constructive discussion.

Current Market Idea- Mapletree NAC Trust

There has been a recent market rebound and this is rather evident from the 52-week low table we have here (prices are as of Thursday 10 January 2019 closing prices)

All the highlighted stocks from my previous post have rebounded and none are near their 52-week low as of now (the nearest being Singtel which is 6.91% away from its low). My buy call on SATS at 4.5 has to wait unfortunately, but nevertheless it never does harm to do more market analysis on stocks of interest. My previous stock of interest Parkwaylife Reit also rebounded to 2.71, well I suppose in a bullish market, it is tough to buy stuff so I'll have to wait and see!

One stock which I am currently interested in Mapletree NAC which is currently trading at 1.18 at this point of writing. My analysis might not be really accurate as I am using the 26 October 2018 financial presentation which is fairly outdated information.

So a quick look will tell us that the reit has been increasing the money rolling in, with gross revenue and NPI increasing by 12%, which is pretty good. Distribution income and DPU has also been increasing, which should be our utmost concern as unit holders.

Source: MNACT 2Q 2018 Results Presentation

We also note that debt which has fixed interest rates stands at 78%, annual effective interest rate for its debt stands at 2.48% and 80% of distribution income hedged against the Singapore Dollar. Let's look at these three points: for the first, the Federal Reserve is projected to have 2 rate hikes this year (this might change if Trump does pressure it politically) so our risk here is the 22% of debt which might incur higher interest costs. Secondly, the annual interest rate is 2.48% which is pretty ok and I am using the 10 year treasury yield of 2.725% as my basis for comparison. Lastly, we note that the currencies that we are concerned about is the Hong Kong Dollar, Renminbi and the Japanese Yen. Since HKD is pegged against the US Dollar, we can just directly use the USD for our analysis. My take is this: if the rate hikes do happen, more investors will be inclined to buy USD for its higher yield, which will cause an appreciation, which means the USD aka HKD will appreciate against the SGD. This might be already on the way to being true, where the USD rebounded from its 1.30-1.31 lows to its current price of 1.35-1.36 following the rate hikes. Renminbi might continue to depreciate where China faces the pressure of its mounting US debt and dwindling financial reserves. I particularly like this article which clearly depicts the risk it is facing, and if that holds true, the Renminbi should continue to depreciate in value. The Japanese Yen might continue to appreciate as it is a safe haven currency which investors will want to hold in volatile markets. But overall, I believe that currency risks will not have an adverse effect on the reit's earnings.

NAV of the reit stands at 1.325 as opposed to the market price of 1.18, where we are paying 89% of its NAV for a unit. This does signify some sort of undervaluation as opposed to the other S-reits which are trading above their NAV. Gearing is at 39% which is below Singapore's regulation of 45% which looks decent. 2018 dividend yield is at 6.45% which is pretty good as it is 4+% over the current SSB which yields 2.2%. Mapletree NAC's low was at 1.07 which I was contemplating to buy but it rebounded rather quickly.

The risks here would be e-commerce which will erode profits especially in China where e-commerce is so prominent. A recession might also cause a drop in household income and people are less inclined to spend and leading to lower profits for the reit. During my Hong Kong trip, I had the chance to visit Festival Walk on a weekday and I noticed that although the traffic for the mall was good (Festival Walk is on Kowloon Tong interchange and there are many universities in the vicinity), the actual number of people buying stuff wasn't that many. Food court and restaurants were very packed though during lunch hour so the shopping mall might just be a place for people to pass through to their destination (although I may be wrong as weekends might save the day!).

Since I am in view of a bearish market, I will not be buying at its current price and I will be looking at a higher margin of safety at a price of 1, where yield is 7.5%. This will be a long term price that I am comfortable with holding, as a recession does not last forever (so do bullish markets).

Any interesting ideas here? Please share!