CapitaLand Retail China Trust (CRCT) Q3FY16 Review

Property Tax changes

Due to the change in property tax basis by the local tax authority (Beijing) with effect from 1 July 2016. This has impacted Beijing malls where CapitaLand Retail China Trust (CRCT) derive more than 80% of it is NPI.

This changes has cause 3QFY16 NPI to drop by 6.9% and together with the SGD appreciation against RMB, this has impact the DPU to drop 10.6% from 2.64 cents to 2.36 cents, property tax changes contribute 0.2 (7%) cents drop. Compare against Q2FY16, the disputable income drop about $3m.

Rental Reversion

Rental reversion has been dropping, comparing to 2015 where it has 8.1% rental reversion, for Q3FY16 the rental reversion is 5.6%. Together with the new shopping mall coming alive, this might be one warning sign on the pressure for the rental and occupancy. For Q3FY16, Tenant sales has been up 1.9% yoy excluding 2 non performing mall which might translate to higher rent depending on the rent structure.

Galleria Acquisition

In Q3FY16, the gearing has increased from 29% to 36.7% due to the additional loan to acquire Galleria. Based on the pro forma DPU if it is acquired in 1st Jan 15, it would increase the dpu by 0.34 cents and about $3m attributable income . Galleria will start to contribute to the Q4FY16.

Quoted from the CapitaLand Retail China Trust (CRCT) announcement
“The subject mall is one of the most popular malls in Chengdu. Its existing tenant profile comprises a good selection of popular international brands that will serve as a strong base for CRCT to further enhance the overall tenant mix. Notably, leases accounting for about two-thirds of the mall’s total rent are up for renewal by 2018, presenting us with an excellent opportunity to uplift the rental income through tenant mix adjustments"

With this acquisition, it will minimize some of the drop in DPU due to the Property tax changes.

CapitaMall Minzhongleyuan

With Zhongshan Avenue to reopen on 28 Dec 2016, together with the new Subway Line 6 commencement of operation, this will provide the growth of revenue to CRCT and potential positive rental reversion, currently Minzhongleyuan is contributing to the loss of -2M in NPI in FY2015 and in FY2012, it was contributing around 5m to the NPI.

As for CapitaMall Wuhu, we will need 1-2 years to see the improvement in the occupancy rate based on last AGM. As of end of 2015, the occupancy was 65.3% and as of Q3FY16 it is 64.1%. It is almost a year and we do not see any improvement.

CRCT Manager

The manager will be awarded CRCT unit instead of CapitaLand shares which will align with the unitholder interest and few of the directors own CRCT units and has been participating with DRP.

Lease Expiry FY17

Majority lease expired in 2017 likely will have positive rental revision, below are the lease expiry profile based on the malls

Mall rental reversion for YTD FY16

Mall rental reversion for Q3FY16

Summary of CapitaLand Retail China Trust (CRCT) Q3FY16 Review

With the property tax changes in effective, one of the risk has been materialized. The DPU for FY2016 and moving forward likely will be below FY2015 due to impact of the property tax changes and the growth of the DPU might be limited due to the trend of the rental reversion is getting lower and lower, new shopping mall supply come into the picture (especially CapitaMall Grand Canyon which contribute about more than 10% in NPI). DPU growth likely be supported by the annual step up of the base rent or percentage of the sales turnover, CapitaMall Minzhongleyuan, Galleria and positive rental reversion.

Post on CRCT

AIMS AMP Capital Industrial REIT (AA REIT) 2QFY17 Review

Occupancy

Occupancy has been falling year on year from 2013 was 96.1% to the current 92.7%, one of the attribute was the master lease has been dropping to 8 master lease as of 2Q17.
Following are the lease expiry for AA REIT

1. 9% in the remaining FY17
2. 29.4% in FY18
3. 17.9% in FY19
4. 13.8% in FY20

In 1Q17,AIMS AMP has negative rental revision of -1.6% and in 2Q17 it has negative rental revision of -11.1%. Assuming the next 9% will have negative rental revision of -11%, it will have another loss of around 1.2m. This loss could be substitute by 30 and 32 Tuas West Road property that will be income generating in 2017 with around 4m gross revenue and CWT will be the master tenant.

The challenge will be FY18,
There will be three master leases expiring in FY18, those are 20 Gul Way (progressive expiry over four years from FY17 onwards), 3 Tuas Avenue 2 and 2 Ang Mo Kio Street 65. These three master leases constitute approximately half of the expiries in FY18 and 29.4% based on 2QFY17 will be around 35m.

With the current outlook, using negative rental revision refer to 2Q17 there will be a loss of around 3.8m and this provided those 3-master leases do extend their lease and the rest of tenant renew their lease. The key here will be CWT as based on FY16 the total gross revenue of 2 other property is around 4.3m, so CWT will account around 12m.

In the past AIMS AMP has been converting master lease to multi tenant from 13 master lease to 8 master lease.

1. 10 Soon Lee Road, Singapore was 0.81m in 2014, in 2015 was 0.86m and in 2016 1m.
2. 10 Changi South Lane, Singapore before was 2.56m in 2014, 2015 is 2.37m, in 2016 2.64m
3. 11 Changi South Street 3, Singapore was 2.3m in 2014, 2015 is 1.97m, in 2016 1.8m
4. 1 Kallang Way 2A (Xpress Print Pte Ltd was 1.05 in 2014, in 2015 was 0.91m, in 2016 0.3m

Hence assuming the worst case where the master lease is not extending (there are few Industrial REITs either having challenge to extend the master lease or convert to the multi tenancy), the gross revenue will drop before slowly stabilizing the occupancy rate if the master leases does not extend.

To note, in FY2016 AIMS AMP extended the master lease for 8 Senoko however the term is not disclosed.

Another saving grace will be 8 and 10 Tuas Avenue 20 target to be ready in 2Q 2017and can mitigate the loss of revenue due to negative rental revision, this also provided if it starts to generate income.

Majority of industrial supply will be coming in between 2016-2017. Moving forward from 2017 hopefully it will be a better year ahead for industrial REIT.

FY22 will be another milestone we will need to take a look as well as 20 gul way will have the remaining lease to expired. To note CWT is a sponsor of CACHE Logistic.

Management

The performance fee was based on DPU growth and the chairman currently holding around 7.9% of the total shares.

Dividend

The dividend has been growing from 0.1053 in year 2014 to 0.1135 in year 2016, however we will likely to see pressure on the dividend for FY17 and FY18.

Summary

I would like to add more when the market push down the price further in 2017. When the occupancy drop and more negative rental revision, moving ahead when economy recover there will be a growth potential instead of buying at the peak market rate

Post of AA Reit

Mapletree Logistics Trust (MLT) 2QFY16/17 Review

Mapletree Logistics Trust (MLT) focus on logistic real estate and it has portfolio over 8 countries which provide diversification instead just focus on a local market. Based on FY15/16 Below are the NPI weightage for the 8 countries – this weightage has change in FY16/17 as the management has acquired additional 4 properties in Australia (5 years WALE) , 1 property in Vietnam (1.8 years WALE) and 1 in Malaysia (1.7 years WALE)

1. Singapore 38.5%
2. Japan 19.3%
3. Hong Kong 17%
4. South Korea 9.7%
5. China 7.1%
6. Malaysia 4.3%
7. Vietnam 1%
8. Australia 3.1% (around 18 years’ lease term)

Mapletree Logistics Trust (MLT) Lease expiry profile

1. FY16/17 - 4.1% SUA and 6% MTB (Singapore 2.3%, Hong Kong 0.2%, South Korea 4.7%, China 2%, Malaysia 0.2%, Vietnam 0.6%)
2. FY17/18 - 4.1% SUA and 12.9% MTB (Singapore 3.9%, Japan 2%, Hong Kong 1.8%, South Korea 1.5%, China 4.6%, Malaysia 1.7%, Vietnam 1.4%)
3. FY18/19 - 4.9% SUA and 15% MTB (Singapore 7.7%, Hong Kong 2.4%, South Korea 0.5%, China 3.8%, Malaysia 4.2%, Vietnam 1.3%)
4. FY19/20 - 5.9% SUA and 6.8% MTB (Singapore 5.0%, Japan 0.8%, Hong Kong 1.1%, South Korea 2.6%, China 0.8%, Malaysia 1.5%, Vietnam 0.7%) FY21 - 6.7% SUA and 4.1% MTB (Singapore 4.9%, Japan 3.2%, South Korea 0.3%, China 0.5%, Malaysia 1.9%)

The occupancy for MLT has been pretty stable hovering between 95% to 97% and based on the lease expiry profile for FY16/17, Singapore 2.3% and South Korea 4.7% might be the challenge.

Based on FY15/16 annual report, the challenge will be for industrial properties in Singapore (major supply in 2016 and 2017), Japan (a large supply of over 6 million sqm of logistics space, projected to come on-stream between 2016 and 2017) and South Korea (its rental revision cause the overall rental revision to be negative -6% in 1Q FY16/17) due to Pyeongtaek master lease expired)

Singapore account for 38% NPI, Japan account for 19% NPI and Korea account for around 9% NPI.
It need to be noted in FY15/16 the management manage to have positive 4% rental revision, in 1QFY16/17 the management manage to have positive 3% rental revision excluding South Korea (including South Korean would be -6%) and in 2QFY16/17 the management manage to have positive 2% rental revision despite the challenge.

The dividend of MLT

The dividend has been hovering around 7 cents and the current dividend include gain from the divestment of 20 Tampines Street 92 of S$1,000,000 per quarter (for 8 quarters from 3Q FY15/16) and 134 Joo Seng Road of S$505,000 per quarter (for 4 quarters from 3Q FY15/16) respectively.

For FY 15/16 the adjusted dividend excluding the gain from the divestment will be 7.26 cents where for FY16/17, the 1H adjusted dividend will be 3.59 cents.

Revenue and NPI has been growing so do the gearing however the DPU does not seems to go anywhere.With the current challenge, the upcoming expire leases, recent acquisition, built in rent escalation and management trying to improve the occupancy, I hope the dividend at least can be maintained.

Management ownership,

The directors of the manager have increase their ownership in the past years.

1. Paul Ma Kah Woh (2014 - 800,731) (2015 - 855,257 ) (2016 - 902,443) (Resign in 31 July 2016)
2. Cheah Kim Teck (2014 - 416,000)
3. Pok Soy Yoong (2014 - 567,910) (2016 - 767,910)
4. Tarun Kataria (2014 - 100,000) (2016 - 300,000)
5. Hiew Yoon Khong (2014 - 2,366,000) (2015 - 2,756,000) (2016 - 3,156,000)
6. Chua Tiow Chye (2014 - 1,315,431) (2015 - 1,405,001) (2016 - 1,507,077)
7. Ng Kiat (2014 - 125,000)

Summary,

With the past performance, recent acquisition, asset enhancement initiative, management ownership. I would like to get some of the units when the opportunity come as it will provide a diversification and exposure to other countries instead of just on local market and this will come with 

1. Risk of the currency from those 8 countries which will be minimized by the management is hedging some of the income and the economies.
2. Risk from interest rate hike considering the current effective interest just 2.3% with the gearing of 37.6%
3. Losing master tenant (42% of the revenue) which will cause occupancy and loss revenue till management fill up the gap
4. China Tax Implementation based on revenue impact for those properties located in China

2017 Resolution

Dividend

I am aiming for $26k dividend which if nothing goes wrong with the stocks I own, i should be pretty comfortable to achieve this target in 2017. In 2017, I will try to get ready to achieve my 2018 target which $28k target.

$26K will give me and my family enough income for the basic necessity needs which I consider as my 1st step achievement toward my financial freedom journey. There are few more steps to go however I will be need to slow down as I intend to diversify my investment to the real brick and mortal property and my war chest is getting smaller :D

SRS Account

I just opened and contributed $15K to the SRS account which I will used to invest into the stock in year 2017. By doing this I will earn "advance" interest from the tax saving which I can put back to the equity to work harder, the draw back is the money will be lock for a long time.

I will continue to do the contribution whenever my financial allow me to do so to save some of taxes.

Better Person

After watching and reading few of those successful people interview, their wisdom definitely have a positive impact for me to try to be a better person as a son, husband, father, colleagues and look thing more on the positive lens.

Those successful people really are people with positive mindset, love to watch more and absorb such wisdom.

Opportunity

Keep looking for opportunity where I can generate the 3rd stream income, let me know if you have one to offer to me !

Capitaland Mall Trust (CMT) 3Q16 Review

Management

The recent changes where the management remuneration for the equity based component now will be issued based on CMT Unit instead of CL Shared. This is a positive sign to align with the unitholders interest.

Debt

The average cost of the debt has been lowered from the previous year 3.3% to 3.2% with the average term to maturity is 5.5 years. Current gearing stood at 35.4%

I don’t expect this will going down when everyone is speculating the fed will increase the rate soon.

Lease Expiry

From the recent result, we can see the following property having negative rental revision

Property	Average Percentage to total NPI	Rental Revision	2017 Lease Expiry	2018 Lease Expiry
Westgate	3%	-12%	60.40%	18.10%
Bugis+	3.9%	-7%	17.80%	47.20%
The Atrium@Orchard	6.9%	-6.2%	19.60%	9.4%
Other Asset (Sembawang and JCube)	5%	-5.9%	13.4% and 13.7%	37.5% and 35.8%

Based on some source, the rental was peak in 2014, which mean those rental expired in 2017 and 2018 will might continue to have negative rental revision. We will need to watch out the above properties as it is might to continue to have negative rental revision.

Next to watch out will be Bukit Panjang Plaza where about 40% of the rental will expired in 2018 which where Hillion Residences will be receive TOP in Sep 18, this is likely to put rental pressure. We will see how the management will manage and overcome this.

As for Funan closure, the loss of revenue will be cover by Bedok Mall and Bedok Mall contribute bigger NPI than Funan which can shield the drop from the negative rental revision. Thing to note, Bedok Mall has 73% gross rental income expired in 2017, if management can keep continue to have positive rental revision for Bedok Mall – this is a good one.

For moving forward for the rest of the property, the positive rental revision might be minimum. Based on the historical trends, rental revision has been getting smaller and smaller. Seems we will need to be happy for 1-2% positive rental revision.  Guess what’s go up must go down before thing to start to pick up.

Summary

With the current retail condition and uncertainty in the economy, likely we will see limited growth on CMT due to

1. 2017, 2018 renewal will be for 2014 (peak) and 2015 which is might be negative rental revision for those properties that already have negative rental revision in 2016.
2. Historical trend of rental revision has shown pressure on the rent, the past revision unlikely to happen unless economy, tourist and spending picking up
3. Interest rate hike
4. eCommerce (Alibaba & Amazon)

Potential growth will be new acquisition and when Funan Redevelopment finish in end 2019.

With the current yield about 5.7%, limited growth and risk free rate 4%. I will keep CMT in the watch list and wait for the opportunity to come when it gives me more margin of safety.

Frasers Logistics and Industrial Trust (FLT) REIT Review

Following are my reason for buying FLT REIT

1.       Board Directors of the FLT REIT Managers has a stake

• HO HON CHEONG - 1,021,000
• PANOTE SIRIVADHANABHAKDI (Non-Executive Director) - 89,887,000
• LIM EE SENG (Non-Executive Director) - 400,000
• MICHAEL BOWDEN NEWSOM (Non-Executive Director) - 60,000
• GOH YONG CHIAN (Independent Non-Executive Director) - 300,000
• PAUL GILBERT SAY (Independent Non-Executive Director) - 150,000
• Robert Stuart Claude Wallace -40000

2.       Gearing 

     At 28.2% with 2.8% interest which will have ample room to growth the dividend via DEBT – However with such low 2.8% when Interest rate is up, this will impact the finance interest cost.

Below is the current debt information

• 2019 - 170m
• 2020 - 160m
• 2021 - 169m

3.       Lease Expiry Profile

The nearest significant lease to expired will be in 2018 and this is something we need to watch as the current lease passing rate is higher than the market rate. If the market rate does not catch up to the current lease passing rate – then DPU will likely drop unless it is supported by new acquisition however I think if we use the market rate, the gross revenue will drop around 1.5% which should be insignificant drop to the DPU and with annual rental increment this would be mitigated by other property that is passing rate below the market rent.

• 2018 Sep, 8.3%
• 2019 Sep, 14.4%
• 2020 Sep, 8.5%
• 2021 Sep, 10.6%

4.       Dividend Yield

The current dividend has a very strong potential (due to it having 6 years WALE) to growth for next year till early 2018 when we see the lease expiring in 2018 that has higher passing rate than the market rate kick in that might have some impact if the Manager unable to renew with positive reversion.

a.       Built in 3.2% average annual rental increment

b.       11 ROFR property development pipeline from the sponsor

5.       Risk

• Currency Risk
• Interest Rate
• Few of the property passing rate is higher than market rate
• New REIT yet to prove its performance