Monday, October 21, 2019

Recent Action- Mapletree NAC Trust

I added 5,000 shares of Mapletree NAC Trust on 1st Oct at $1.31 and another 5,000 shares on 15th Oct at $1.26 against the backdrop on the current situation in Hong Kong. It’s a share counter that I had been wanting to add for a long time but couldn’t manage to catch the price and the current unrest in Hong Kong gave me the opportunity to buy on weakness.

It used to be known as Mapletree Greater China Commercial Trust (MGCCT) and got its new name after acquiring Tokyo freehold properties in May 2018. Despite having a portfolio of properties in China and Japan as well, 62% of its Net Property Income comes from Festival Walk, a suburban shopping Mall in Hong Kong which explains the drop in share price recently.

While the protests in Hong Kong continues with no end in sight send many Hong Kong shares tumbling, especially hospitality sector, and property counters; yet I see it as an opportunity to explore some defensive counters which are beaten down and MapletreeNAC Trust is one of them. Here are some of my thoughts and I will be focusing more on the Retail side of Festival Walk.

Resilient in the face of economic headwinds
Before Festival Walk was listed as a REIT, it was owned by Mapletree Investment since 2011. During the SARS incident in 2003, Asian Financial Crisis in 2008 and Occupy Central Movement in 2004, it managed to register revenue growth year on year, and I think management deserves a lot of credit for that. Its occupancy ratio stands at 100% since 2000. While Festival Walk isn’t immune to the political instability, its occupancy ratio track record and its ability to grow its sales and revenue during times of economic slowdown indicates its stability and resilient through economic cycles. Personally, I believe that the current political unrest in Hong Kong will be resolved eventually though recovery may take a long time. Hence, when bearish sentiment emerges, the sell down of this REIT presents an opportunity for me to ‘buy on weakness’.

Not so Touristy

Tripadvisor's customer review of Festival Walk

Festival walk is located near Kowloon Tong MTR station which caters to the daily needs and lifestyle of locals – Supermarket, F&B, cinemas, and a massive ice skating rink. Regular visitors to Hong Kong will be well aware that Kowloon Tong is a residential area above Kowloon City, and there is actually not much tourist attractions along the area. It serves as a heartland mall, a neighbourhood shopping centre that caters more for the locals. While locals would exercise more caution out in the streets, life still has to go on. They would still have to do their groceries in supermarkets, replenish their personal care products in Watson/Mannings and catch the latest movies during the weekends.
According to the news, recent protests are prevelant in CBD and touristy areas like Mongkok, Tsim Sha Tsui, CauseWay Bay and Central. The only incident I recently came to know about in Kowloon Tong is where protesters shone laser pointers at PLA Barracks. This should point to the fact that Festival Walk has limited impact by the protests.

Because the sponsor is Mapletree

Mapletree North Asia Commercial Trust also has the advantage of a strong sponsor, Mapletree Investments with aligned interest with unitholders. Its alignment is evident in its management fee structure, which consists of a base fees- 10% of distributable income for financial year and performance of 25% of difference in DPU in the preceding financial year instead of Net Property Income (NPI). In instances where fees are pegged to its NPI, there may be incentive for them to acquire more properties to artificially boost its income to earn a higher fee. Such structure only incentivises the manager to grow its assets rather than improving its distribution per unit.
 In the case of Mapletree NAC’s payout structure, the REIT manager will earn a higher performance fee by acquiring more properties which are yield and DPU accretive.

One of the hallmarks of having a reputable and good sponsor also its potential to grow its portfolio by acquiring properties from its sponsor through its right of first refusal. Having a credible sponsor also eliminates the possibility that the REIT is seen as a dumping ground for the sponsor to divest their unwanted properties to raise additional cash. While there’s certain degree of concentration risks with 62% of NPI derived from a single country, the REIT manager has diversifying the risks over the years by actively acquiring properties from China and Japan, which are yield accretive and improving the DPU at the same time; Not to mention a pipeline of properties from the sponsor that could be injected into the Reit to further diversify the portfolio.

Distribution and Risks- Foreign Exchange Risks and Regulatory Risks

I have done up the above charts for its quarterly distribution since 2013 till present. Unfortunately, unlike Mapletree Industrial Trust, there are some quarters which DPU was lower than its previous quarter year-on-year. The lower distributable income was attributed to a lower gross revenue and higher property expenses: lower gross revenue due to a weaker HKD and RMB, and higher property expenses due to additional property tax from Gateway Plaza imposed by local authorities with effect from July 2016. This affected the 3Q DPU as well, due to a higher property tax of $3.2mil.

For the FY2017/18 4Q, there was a significant dip in DPU compared to its previous year which is mainly due to reversal of VAT payable in 4Q FY2016/17 which was assumed a higher rate hence giving that previous quarter a slight boost in DPU.

You may notice that SGX listed Reits with majority of assets in Singapore are traded at a premium compared to their peers with more overseas exposure (i.e. higher yield, lower p/b) as the market perceives them to be safer and subject to lesser risks i.e. currency risks, regulatory risks and political risks. In the case of Mapletree NAC Trust:

From a layman’s perspective, because a Reit that higher exposure to overseas market is riskier than a domestic reit, you need a higher return to compensate the risks you are taking.

I have skimmed through many news articles about hospitality sector in HK experiencing sharpest downturn since 1997/SARS. The slowdown in tourism is one thing, but the actual consumer spending and impact on Reits are hard to guage. The earnings season is up and as Mapletree NAC REIT will be releasing its 2Q financial results on 25th Oct, I will be keeping an eye on its earnings as this will be the first quarter where we will be able to gauge the extent of Hong Kong protests affecting its rental income and to decide my next move.

If you are keen to follow my posts or get updates, do like/follow my FB page here where I will update it when there's a new post and when I buy/sell shares.

Monday, August 12, 2019

Personal & Portfolio Update


It’s been so long since I blogged! Since my last post, I kept telling myself I should start blogging soon but procrastinated about it all the time and 1.5 years like passed like that. Part of the reason why I stopped blogging for awhile was that I committed most of my days at work, including many weekends and I just wanted to do nothing when I reach home and just wanted some rest.

Though I stopped blogging for awhile, I regularly kept myself updated on the stock market: particularly in SG, HK and US, but lacked time to do research on individual stocks. (more macro then micro) I have been watching the HK updates like weather report these days, since I loved HK and it's my favourite holiday destination with no jet lag and good food. Another reason why I have been keeping up with the HK news was that I also invested in HK shares which started well this year but underperformed recently due to protests. The local market didn’t fare well either these few weeks due to the uncertainty in US China trade war. There’s a saying to be greedy when others are fearful; hence I have been trying to identify good stocks which were sold off steeply.

Since it’s 1.5 years since you last heard from me; I shall start off with personal and portfolio updates.
There isn’t much personal changes; I am still staying at the same place, same job, same hobby, same height and weight etc. The only change is that I have bought a car last month. I used to take public transport for meetings and take cab/grab when I am in a rush. However, as my business grows, it makes more sense to own a car. It’s an investment to my business, in a sense to trade money for time. With a car, I can go for more meetings, contact my clients and reply some emails along the way. During the weekends, I can explore nice food places which may not be easily accessible by public transport. 

The drop in COE also gave me another reason to purchase it at the point in time. I bought Hyundai Avante 1.6S, with a 27k COE. My initial plan was to get a Toyota because Japanese cars are always known to be reliable; which costs about $97k but what stopped me from going ahead was the prerequisite is to take a 5-year loan. A car loan uses the Flat Rate method, the interest you pay is fixed based on the original principle. Hence, I suggest not to be fooled by its low advertised interest rates but focus on the effective interest. You can read more here: I went ahead with Hyundai Avante 1.6S with a two-year loan of $30k (because that’s their min loan size) and paid off $50k. 

As for portfolio updates, there has been much transactions in my portfolio as I took profits/partial profits on Singtel, SATS, First Reit, SGX, MicroMechanics, M1, ComfortDelgro and 800Super.

SGX Portfolio with CDP
Total Value= $285,034

I added HKLand, Mapletree Industrial Trust, Parkway Life Reit, and UOB and increased my position in three local banks over the months. I still see much value in local banks as they are traded 1 to 1.3X book value, with dividend yield around 4% with less than 50% payout ratio.

Along the way, I came out with an investment strategy for my equity portfolio. Moving forward, I will be focusing on US and HK stock market for growth stocks and SG stock market for dividend income. For SG dividend stocks I am referring more to Banks and REITS.

Low interest rate environment and Federal Reserve's decision to lower interest rate gave REIT a boost and had a good run this year. With the tightening yield spread, I don't see much value in local Reits and many investors are exploring Reits with property overseas with higher yields such as Sasseur REIT, Prime  REIT or Business trust such as ARA and Eagle Hospitality.

I have opened a DBS Treasures Accounts to enjoy lower trading fees (no min charges) and since then transferred some of my SG shares which I planned to sell in the next 12 months.

DBS Treasures Securities= $84,129

I have changed the monthly purchase of ST Engineering to Singtel late last year. I then sold away the shares which I bought, (yet I still hold STI ETF). Now I am setting aside $1,000/month in DBS shares. At. It is paying a dividend of, and with a payout ratio of, it is attractive in my opinion compared to Reits.

ShareBuilder = $1,945

I started buying US stocks early this year via StanChart Online Trading with more focused on growth companies with long term plans to own about 15-20 US stocks. Most of them are trading at high pe ratio, or no pe ratio at all as they are in their stage of growth but loss making. Hence, I invested in small amount each time, and plan to add them in batches during market correction.

StanChart Portfolio Value= $52,219

The Standard Chartered Statement is updated as of 31 July. I have added 3,000 shares of Champion Reit and 10 more shares of Twilio.

I have closed my MayBank KimEng account as some of you may know they stopped the monthly investment plan. I transferred my Tencent Holdings Shares to Standard Chartered and the staff are kind to waive off the transfer fees.

For Nikko AM STI ETF under POSB InvestSaver, not much changes so far. I decided to keep it that way.

As for my HK portfolio with HSBC, there has been no changes too other than adding Xiaomi and PingAn Insurance. Looking at current situation in Hong Kong, I am having second thoughts if I should continue investing in 2800.HK. I will update this again in the next post.

POSB InvestSaver= $12,634

HSBC Portfolio= $35,749

80 Shares of Tencent 0700
600 Shares of Xiaomi 1810
250 Shares of Ping An Insurance 2318
4,102 Tracker Fund of HongKong 2800

One of my favourite shares in my watchlist is Hang Seng Bank. If you have been to Hong Kong, you will see Hang Seng ATM machine like you see POSB/DBS ATM in Singapore. It's actually HK's local bank, and owned by HSBC. 

I briefly looked through their financial statement and I thought that their results were more impressive than DBS. Their managed to achieve a higher ROE of 16%,vs DBS of 12.1%, Cost/Income ratio is 36% compared to DBS of 43%. Common Equity Tier 1 Ratio if 16.% and 13.9% for DBS. The only reasons which stopped me from investing is it's high valuation in terms of pb ratio of 2 times and pe ratio of 16. Recently the pe ratio has eased to 13 due to higher quarterly earnings reported and the sell down of it's shares but with the situation in HK I am having second thoughts now to invest.

Cash Available for investment= $57,000

Total= $528,710

I am sorry if this post doesn't really add much value other than showcasing my portfolio. Reason being that I hadn't been doing much stock research these days due to lack of time. I am trying to restart the blogging momentum. Will update when I find interesting stocks to invest.

If you are keen to follow my posts or get updates, do like/follow my FB page here where I will update it when there's a new post.