Saturday 13 May 2017

A Peon Analysis - Soilbuild Business Space REIT

I have never thought much of Soilbuild Business Space REIT (SB REIT) before.

However, I was chatting with another REIT investor a couple of days back and he mentioned that he saw potential in Soilbuild Business Space REIT (SB REIT).

Let me quote his exact words as to why SB REIT attracted his attention:

1) Founder of SB REIT's parent, Soilbuild Construction Group, has a pretty big stake in the REIT itself. Thus, his name is intricately tied to the Soilbuild name and substantially all his net worth. If Soilbuild fails, his entire empire he spent his whole life building comes crumbling down

2) Once the industrial sector recovers by 2019, its will rise easily to 70-75 cents

3) Not forgetting the 17% div for two years while waiting for the recovery

4) It's also underpriced compared to other industrial reits

5) Dividend will likely be maintained at current levels

Fwahhh. Once he said that, I took out my phone and googled for SB REIT and the first thing I saw was that its yield was an eye-popping 8.76%!

Waaa. I usually try not to be a dividend whore as much as possible, solely chasing yield only. But SB REIT is a damn attractive proposition with a yield of 8.76% and certainly deserve some degree of study man.

REIT Analysis Checklist  


Stockcode: SV3U.SI

Financial Analysis

1) Is the Purchase price lower or equal to Net Asset Value Per Share (NAVPS)?

Remarks: Purchase Price=$0.680,   NAVPS=$0.72,   Discount=5.88%


50% lower than NAVPS
40%-50%  lower than NAVPS
30%-40%  lower than NAVPS
20%-30%  lower than NAVPS
10%-20%  lower than NAVPS
<10%  lower than NAVPS
Score Awarded
Score
12
10
8
6
4
2
2



2) Is the Gearing below 36%? 

Remarks: Gearing ratio = 37.5%


Gearing Ratio more than 40%
Gearing Ratio 36%-40%
Gearing Ratio 31%-35%
Gearing Ratio 26%-30%
Gearing Ratio 20%-25%
Gearing Ratio less than 20%
Score Awarded
Score
6
8
10
4
2
0
8



3) Loan profile. (No. and types of lenders,  loan maturity, interest cover ratio, loan denominated in which currency, etc) 

Remarks: No refinancing required until 2018 and at current gearing, SB REIT will be able to absorb an additional debt of approximately $50mil.

Currently, loans are obtained from three different sources, namely the banks, Medium Term Notes, and interest free loan from sponsor.

The average interest cost currently sits at 3.37% p.a., with a interest cover ratio of 4.8x and overall average debt maturity of 2.8years.

86.5% of borrowings are fixed, with a weighted debt maturity of 1.9years.

Current cash and equivalent stands at $16.57mil (based on 2015 AR) in comparison to next refinancing of $155mil due in 2018.

Frankly, although the loan profile is not particularly worrying; it also does not install much confidence too. Of particular concern is the upcoming loan repayment of $155mil in 2018 where I am rather uncertain if SB REIT will be able to refinance at a lower interest rate.


Strong 
Neutral 
Weak
Score Awarded
Score
5
2.5
0
2.5



4) Yield Per Year?

Remarks: Based on purchase price of $0.68 and 2016 DPU of $0.06091, Yield = 8.96%


Yield more than 8%
Yield between
6% - 7.9%
Yield between
5% - 5.9%
Yield between
4% - 4.9%
Yield between
3% - 3.9%
Yield less than 3%
Score Awarded
Score
12
9
6
4
2
0
12



5) Any financial engineering involved to boost income?

Remarks: While not exactly a form of financial engineering, I discover that the multi-tenanted building, Solaris, which contributes to 26% to SB REIT income, is under a master lease structure. Under this arrangement, a subsidiary of the Sponsor, SB (Solaris) Investment Pte Ltd, acts as the master lease,  guaranteeing rental income to SB REIT with yield of 4.86% (after deduction of all property expenses) until Aug 2018, after which it might be subject to renewal, most probably with different lease terms.

Based on figures obtained from 2015 AR, the actual occupancy level of the Solaris is probably in the range of 97.4% instead of the 100% reported.

Despite a 3% annual escalation, I believe Solaris will be able to provide better yield than 4.86% if it is not under this Master Lease arrangement, due to expire by Aug'18.

Hence, it is of my opinion that this arrangement does not artificially inflate SB REIT's income.

It is also noted that another SB REIT property (Bukit Batok Connection), which contribute 9.2% to the gross rental income, is also under the master lease scheme with another subsidiary of the Sponsor, SB (Westview) Investment Pte Ltd. 

Under the master lease scheme, SB (Westview) Investment Pte Ltd will contribute $8mil per annum with a 2% annual rental escalation, for a period of 7years until FY2023. Based on the purchase price of $96.3mil, the annual yield of the property under this master lease scheme will be around 8.31%.

Due to the master lease scheme, the occupancy for Bukit Batok Connection has been artificially inflated to 100%. I am unable to obtain the actual occupancy for Bukit Batok Connection but I believe that with the current excess of industrial space, the actual occupancy should be somewhat lower than the 100% reported; thereby affecting the yield of 8.31% if it is not under the master lease scheme.


Yes 
No
Score Awarded
Score
0
3
0



6)Are the foreign currency risk sufficiently hedged?

Remarks: Incomes and Expenses indicated only in SGD.


Yes 
Not Applicable
No
Score Awarded
Score
5
5
0
5



7) Did the DPU improve for the last 5 years?

Remarks: FY2016-$0.06091   FY2015-$0.06487   FY2014-$0.06193
                  FY2013-$0.02270 (Only 2 quarters of distribution due to IPO) 


DPU improve for 5 out of 5 years
DPU improve for 4 out of 5 years
DPU improve for 3 out of 5 years
DPU improve for 2 out of 5 years
DPU improve for 1 out of 5 years
DPU improve for 0 out of 5 years
Score Awarded
Score
12
9
6
4
2
0
4



8) Is the receivables too excessive compared to ' Cashflow from Operations'?

Remarks: As of 31 Dec'15, Trade receivables are at $2,436,000 while based on FY2015 Annual report, Cashflow from Operations are at $68,449,000. Hence, receivables are 3.56% of cashflow.


Receivables <11% of Cashflow from Operations
Receivables 11% to 20% of Cashflow from Operations
Receivables 21% to 30% of Cashflow from Operations
Receivables >30% of Cashflow from Operations
Score Awarded
Score
6
4
2
0
6







Fundamental Analysis

9) Quality of Management

9a) Any directors with political connection?

Remarks: Although the founder, Mr Lim Chap Huat, is active in community service and has been conferred the PBM and BBM medals by the President, I am of the view that this does not provide much value-add to SB REIT.


Yes 
No
Score Awarded
Score
2.5
0
0



9b) Any directors with banking background?

Remarks: Mr Chong Kie Cheong (UOB, DBS).


Yes 
No
Score Awarded
Score
5
0
5



9c) Any directors with outstanding relevant experiences with respect to the industry in which the Company is involved in?

Remarks: Mr Michael Ng (Real Estate), Mr Lim Chap Huat (Property Development), Mr Eugene Paul (REIT)


Yes 
No
Score Awarded
Score
5
0
5



9d) If the Company has operations overseas, does the Company have any directors well-acquainted with the oveaseas' culture?

Remarks: No overseas properties.


Yes 
Not Applicable
No
Score Awarded
Score
2.5
2.5
0
2.5



10) Quality and diversity of tenants

Remarks: Only 2% of the gross rental income is derive from the oil and gas industry, which is under tremendous stress currently.

On another note, based on Q4 2016 presentation slides, I note that SB REIT has a very good diversified tenants base, encompassing tenants from a huge range of industry sectors with not a single sector contributing to more than 13% of SB REIT gross rental income.


Strong 
Neutral 
Weak
Score Awarded
Score
2.5
1.25
0
2.5



11) Quality of lease (WALE, rental escalation, etc)

Remarks: Current WALE is 3.4 years and starting from FY2017, there will be a further tenants' lease expiry of 13.67%, with a further 25.3% in FY2018. This will be occurring during a period of oversupply in industrial/logistic space while enduring poor demand due to the slowdown in the manufacturing  sector.

In view of the current economic climate as well as the excess of industrial space, I would not be expecting positive rental reversion for the next 1-3years.


Strong 
Neutral 
Weak
Score Awarded
Score
2.5
1.25
0
0



12) Occupancy level (in comparison to industry average)

Remarks: Portfolio occupancy stands at 89.6% as at 4Q 2016 while the industry average occupancy stands at 89.1% as at 3Q 2016.

While not an apple-to-apple comparison due to the different time frame, I believe that this is still a reasonable comparison as the time periods are near.

Hence, in comparison with the industry average, SB REIT occupancy is neither outstanding nor particularly weak.


Strong
Neutral
Weak
Score Awarded
Score
5
2.5
0
2.5



13) Type and duration of property lease.

Remarks: With an average unexpired land lease of 44yrs and with more than 71.5% of the lease expiring more than 30yrs from 31 Dec'16 onwards.

At current yield of 8.96%, and further discounting it by 13.67% in view of the nos. of tenant's lease due to renewal in 2017, return on capital deployed will be between 12 to 13 years, thereby proving me with free money annually for at least 25 more years!


Strong 
Neutral 
Weak
Score Awarded
Score
5
2.5
0
5



14) Is the market sector in which the Company is involved in, currently on a uptrend, stagnant or on a downtrend?

Remarks: Although industrial properties are facing some pressure from an oversupply (average 3.9mil sq ft of supply every year, estimated to last until FY2021), we have to bear in mind that such space only constitute  33% of SB REIT's portfolio.

On the other hand, business park properties (Eightrium and Solaris) constitute 33% of SB REIT's portfolio and there are no significant pipeline of business park space in the coming 5 years. Hence, there is possibility of an upside for business park space after this FY.

Therefore, although SB REIT is bound to be affected by the significant oversupply of industrial space in the coming 5years, it is somewhat mitigated by its 33% stake in business park space.


Uptrend
Stagnant
Downtrend
Score Awarded
Score
2.5
1.25
0
1.25



15) Are the economies of the countries in which the Company has operations in, currently on a uptrend, stagnant or on a downtrend?

Remark: Singapore economic growth for 2017 will remain within the same range as 2016, which is in the low 1% to 3%.

1% to 3%? Bahh..That's stagnant to me.


Uptrend
Stagnant
Downtrend
Score Awarded
Score
2.5
1.25
0
1.25



Total Score Awarded = 64.5 out of 100 Points


Not a particular strong indication for me to purchase SB REIT, given that it is only scores 64.5points in my analysis and I would much prefer to conserve my warchest at this point of time.

However, I will revisit this proposition again should it's share price drop to a level that is more appealing to me; somewhere in the range of $0.60 maybe?

Saturday 11 March 2017

A Peon Analysis - AIMS AMP Capital REIT

AIMS AMP Capital REIT (AA REIT) is one counter which I have been eyeing for a seriously long time but have not undertake any concrete steps to study it.

And here's the "whys" in case you are wondering why did it fall into my radar in the first place:

1) NAV of $1.477 is some 9.41% higher than current market price of  $1.35.

2) Yield of 8.31%

3) Relatively low gearing at 34.6%

4) A portfolio of well designed, well located and sector-specific (logistic, industrial) properties; with higher than average occupancy.

With the above factors establish, I shall delve into the nitty-gritty and boring process of studying it now:(

#noworknomoney #nomoneynohoney

REIT Analysis Checklist 

 


Stockcode: O5RU.SI

Financial Analysis

1) Is the Purchase price lower or equal to Net Asset Value Per Share (NAVPS)?

Remarks: Purchase Price=$1.36,   NAVPS=$1.477,   Discount=9.41%


50% lower than NAVPS
40%-50%  lower than NAVPS
30%-40%  lower than NAVPS
20%-30%  lower than NAVPS
10%-20%  lower than NAVPS
<10%  lower than NAVPS
Score Awarded
Score
12
10
8
6
4
2
2



2) Is the Gearing below 36%? 

Remarks: Gearing ratio = 34.6%


Gearing Ratio more than 40%
Gearing Ratio 36%-40%
Gearing Ratio 31%-35%
Gearing Ratio 26%-30%
Gearing Ratio 20%-25%
Gearing Ratio less than 20%
Score Awarded
Score
6
8
10
4
2
0
10



3) Loan profile. (No. and types of lenders,  loan maturity, interest cover ratio, loan denominated in which currency, etc) 

Remarks: Total Borrowing of S$518.6 mil. S$130.1mil due in FY2018, S$208.5mil due in FY2019, S$80mil due in FY2020 and the balance S$100mil due beyond FY2021.

S$90.3mil uncommitted revolving credit facilities (RCF) available.

Interest Cover Ratio of 5.1 times.

It appears that current cash and equivalent of $8.9mil will be sorely insufficient to cover the upcoming repayment of S$130.1mil due in FY2018 (Nov'17) and there are no news on the refinancing options as of now.


Strong 
Neutral 
Weak
Score Awarded
Score
5
2.5
0
0



4) Yield Per Year?

Remarks: Based on purchase price of $1.35 and FY2017 DPU of $0.1103, Yield = 8.17%


Yield more than 8%
Yield between
6% - 7.9%
Yield between
5% - 5.9%
Yield between
4% - 4.9%
Yield between
3% - 3.9%
Yield less than 3%
Score Awarded
Score
12
9
6
4
2
0
12



5) Any financial engineering involved to boost income?

Remarks: I did not manage to uncovered any financial engineering (income support etc.).


Yes 
No
Score Awarded
Score
0
3
3



6)Are the foreign currency risk sufficiently hedged?

Remarks: Received incomes in both SGD and AUD, as well as possessing loans that are denominated in both AUD and SGD also. 

Nonetheless, it is not a big cause of concern as the exchange rate between AUD and SGD have remained relatively stable over the last couple of years.


Yes 
Not Applicable
No
Score Awarded
Score
5
5
0
5



7) Did the DPU improve for the last 5 years?

Remarks: FY2017-$0.1103   FY2016-$0.1135    FY2015-$0.1107
                  FY2014-$0.1053   FY2013-$0.1072  


DPU improve for 5 out of 5 years
DPU improve for 4 out of 5 years
DPU improve for 3 out of 5 years
DPU improve for 2 out of 5 years
DPU improve for 1 out of 5 years
DPU improve for 0 out of 5 years
Score Awarded
Score
12
9
6
4
2
0
9



8) Is the receivables too excessive compared to ' Cashflow from Operations'?

Remarks: As of 31 Dec'16, Trade receivables are at $9,200,000 while based on FY2016 Annual report, Cashflow from Operations are at $74,628,000. Hence, receivables are 12.32% of cashflow.


Receivables <11% of Cashflow from Operations
Receivables 11% to 20% of Cashflow from Operations
Receivables 21% to 30% of Cashflow from Operations
Receivables >30% of Cashflow from Operations
Score Awarded
Score
6
4
2
0
4







Fundamental Analysis

9) Quality of Management

9a) Any directors with political connection?

Remarks: NIL


Yes 
No
Score Awarded
Score
2.5
0
0



9b) Any directors with banking background?

Remarks: Mr Eugene Paul (Citigroup, JP Morgan).


Yes 
No
Score Awarded
Score
5
0
5



9c) Any directors with outstanding relevant experiences with respect to the industry in which the Company is involved in?

Remarks: Mr George Wang (Real Estate, Fund Management), Mr Norman Ip (BCA, Securities Industry Council, Real Estate), Mr Eugene Paul (REIT)


Yes 
No
Score Awarded
Score
5
0
5



9d) If the Company has operations overseas, does the Company have any directors well-acquainted with the oveaseas' culture?

Remarks: Properties mainly in Singapore with a small portion in Australia. Mr Nicholas Paul and Mr George Wang is well acquainted with Australia, having spent a good part of their career there.


Yes 
Not Applicable
No
Score Awarded
Score
2.5
2.5
0
2.5



10) Quality and diversity of tenants

Remarks: 43.5% of rental incomes are derive from tenants from the logistic and warehousing sector, representing a huge concentration within this sector. The balance rental incomes are obtained from tenants from various sectors, with non exceeding more than 18%.

However, I am of the opinion that the concentration in the logistic and warehousing sector is not a weakness but a strength instead. This is given Singapore positioning as a logistic hub, with a world class seaport and airport facilities, as well as the increasing popularity for global shipping of goods (online purchase, etc). Although there are definitely headwinds ahead, but I believe that Singapore position as a shipment hub will continue to stay in the near future as we play to our strength (efficiency, location, punctuality, etc) while we sail with the growth story in the logistic industry.

On another note, their tenant, CWT Limited, contribute 22.6% to AA REIT income and this situation is worth monitoring as they have a rather huge direct impact on AA REIT performance should the situation changes.


Strong 
Neutral 
Weak
Score Awarded
Score
2.5
1.25
0
2.5



11) Quality of lease (WALE, rental escalation, etc)

Remarks: Current WALE is only 2.49 years and starting from FY2018, there will be a further tenants' lease expiry of 29.6%, with a further 17.7% in FY2019. This will be occurring during a period of oversupply in industrial/logistic space while enduring poor demand due to the slowdown in the manufacturing  sector.

Due to this poor economical climate, it is hence not surprising to see that the average rental revision for the last quarter was in the negative territory (-13.6%).


Strong 
Neutral 
Weak
Score Awarded
Score
2.5
1.25
0
0



12) Occupancy level (in comparison to industry average)

Remarks: Not much to be said. Solid.

At current level (3Q FY2017), it outperform the industrial average regardless of whether it's the overall occupancy or by the various property profile (warehouse, industrial, Office Park, etc).


Strong
Neutral
Weak
Score Awarded
Score
5
2.5
0
5



13) Type and duration of property lease.

Remarks: Once again, very solid with an average unexpired land lease of 38.7yrs and with more than 71.5% of the lease expiring more than 30yrs from 31 Dec'16 onwards.

At current yield of 8.17%, return on capital deployed will be between 12 to 13 years, thereby proving me with free money annually for at least 25 more years!


Strong 
Neutral 
Weak
Score Awarded
Score
5
2.5
0
5



14) Is the market sector in which the Company is involved in, currently on a uptrend, stagnant or on a downtrend?

Remarks: I wanted to say that the market that AA REIT is in looks pretty bad. But on second glance, it doesn't look all that shabby for AA REIT at all!

For a very detailed report on the outlook, you may wish to refer to their FY2016 Annual Report (Pg46 onwards).

But lucky you! I'm not feeling lazy so I'm going to summarise some of my findings.

Firstly, although the industrial properties are facing some pressure from an oversupply (average 3.9mil sq ft of supply every year, estimated to last until FY2021), we have to bear in mind that such space only constitute  26.4% of AA REIT's portfolio.

On the other hand, logistic properties constitute a 53.2% of AA REIT's portfolio and yet the oversupply of logistic space is estimated to end by FY2018, providing an opportunity for upside after FY2018.

Similarly, although business space takes up 20.4% of AA REIT's portfolio, the oversupply is estimated to stop by this FY and hence providing upside after this FY. Then again, business park is not a huge portion of AA REIT assets.

All in all, due to various segment that AA REIT has its' hands in, it is not adversely affected or gaining from the various situations.


Uptrend
Stagnant
Downtrend
Score Awarded
Score
2.5
1.25
0
1.25



15) Are the economies of the countries in which the Company has operations in, currently on a uptrend, stagnant or on a downtrend?

Remark: Singapore economic growth for 2017 will remain within the same range as 2016, which is in the low 1% to 3%.

For Australia where AA REIT has some presence in, the GDP forecast is also expected to be rather muted. Then again, Australia only contributes about 12% to AA REIT income, so I will apply heavy discount to their contribution to AA REIT results.

Overall, both economies are expected to grow. But at such low rate of growth, it's kinda like watching paint dry (boringggg).


Uptrend
Stagnant
Downtrend
Score Awarded
Score
2.5
1.25
0
1.25



Total Score Awarded = 72.5 out of 100 Points



With a score of 72.5, I am actually rather comfortable with nibbling at AA REIT at its' current price without losing a great deal of sleep if it tanks.

Should the price falls again later this year, I will consider making another tranche of purchase provided that its' fundamental remains the same.

Heh.. I used "I" a lot in this blogpost. So please take note that all the comments above are basically my own opinion only. All the best in you forming your own :D

Ciao~

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