Comparison of Industrial Reits Part 2

I will be comparing Mapletree and Ascendas Reit in this post.

Both are bigger reits with government-linked heritage.

Capital management

Both have prudent refinancing schedule stretch over more than 6 years. With the exception of FY19/20 (27%) for Mapletree, both have less than 20% of bank borrowing scheduled for refinancing for any one year.

Portfolio management 

Both reits managed positive rental renewal across all property segments. Average rental reversion is 6.3% compared to a year ago for ascendas, but data not available for Mapletree. As for new leases, light industrial new leases rate is 21% lower than 1 year ago for ascendas. Again, no data available for comparion with Mapletree.

In terms of occupancy rates, Ascendas did better in Business Park Segment and Hi Tech/ Hi Spec industrial segment, but lost out to Mapletree in light industrial segment.

In terms of lease expiry, Ascendas has better profile, with  maximum of 20.3% of NPI due for renewal at 2016/7, whereas for the next 3 years, Mapletree has 20.3%, 23.8%, and 27.9% of NPI due for renewal.

Growth management

Ascendas's Aperia is only completed in 15 August, and it is only 49.6% committed, with 15% under negotiation, and has yet taken physical possession.

DBS phase 2 of 7081 sqm already committed.

That will be 51071 sqm of space, 1.7% of Ascendas's GFA

Maple tree has 2 BTS projected that are 100% committed and will 772200 sft of space, 7.2% of Mapletree's GFA.


In conclusion:

Both are prudent in their capital management and while Mapletree face more risk in terms of renewal of lease expiry, exodus of tenants is highly unlikely. Mapletree also has better growth visibility, and offer better yield.

Hmm... ...

Comparison of industrial Reits Part 1

I will be comparing Sabana and Cambridge Reit in this post.

Both are smaller reits with weaker sponsors.

Sabana and Cambridge has similar Master Lease to Multi-tenant mix.

Sabana is 59% to 41%

Cambridge is 56.5% to 43.5%

Theoretically, Sabana with its higher Master Tenant Lease, should have a lower operating expenses. But given the difference in insignificant, lets not be too harsh.

Cambridge's NPI to revenue is 78%

Sabana's NPI to revenue is 72%

Cambridge managed "renewed approx 300,000 sq ft of leases in 3Q2014, amounting to 1.6 million sq ft of leases YTD2014 with positive rental reversion", I cannot find similar statements in Sabana's presentation. Maple is enjoying positive rental reversion too, although it might not be in the same league. Sabana's sub-tenants have been in a increasing trend, although it is scant console to anyone with falling distribution, but it provide hope. That hope is not very hopeful now, with sub-tenants reducing for the first time. (only 1 la, no alarm, but if you are thinking they are going to fill it up quickly... ...)

Coincidentally, Both have Gross revenue of 25 mio, but Sabana operating expenses is 2 mio more than Cambridge despite Cambridge having more than twice number of buildings to manage.  Do not tell me economical of scale, given gross revenue is the same, if anything, concentration of revenue in one building should reap economic of scale, just like the shipping companies are building bigger and bigger ship to bring down cost per container.

Both have weak refinancing schedule, with refinacing spread out over 5 years for Sabana, and effectively 3 years for Cambridge, with 2016 having a particularly high sum of loans due to renewal. If Cambridge can break down that loan over more years, it will have a more appealing profile. Both are unable to use 1 year of NPI to offset most years of refinacing. (Unlike big boys like Maple Industrial and Ascendas Industrial)

Sabana all in cost of loans is 4.1%, whereas Cambridge is 3.69%

Sabana has 2 Master leases under negotiation and 1 already concluded to be converted into muti-tenants.

I wonder what Tong Jingguan see in Sabana?

Maybe the Changi Warehouse purchase will be a good idea? Since it is 100% occupied, but there is no info and when the Master lease will expire.

I will compare the big boys, Maple and Ascendas when Ascendas announced its results later.

Random thoughts: Pain, the indispensable ingredient for success

Pain, get ready for it.

The faster you accept it, the better you mind is attuned to face it.

What I show my students 1 week ago, before I start my intensive revision.

In order not to feel guilty, I decided to do something too. I like to take little snacks to treat myself as comfort items. I sometimes go out of my workplace to have lunch, have a good breakfast, buy some snacks to eat before I start the afternoon session of work.

Now, for the past week, every time I feel like buying the "Gong Cha" for a snack, feel like getting roti prata for breakfast before I go to work, feel like having lunch out, I reminded myself, I am not even facing pain, I am just fighting craving.

Almost a week, so far, so good, although the money saved is not significant, guess my body is doing better with oats as breakfast rather than prata, and less Gong Cha is better.

Now, just wonder how long this mental exercise will last. I outlasts most of my pupils. They are not following up with the revision. I am still keeping my little "diet"

Tomorrow, I am planning a run, I hope I do as I planned.

Pain. Get ready for the pain.

Same as investing, resist the temptation of trigger happy. Stick to your plan. So easy it sounds, isn't it? Painful to be sitting on cash, painful to see the boat missing us by. So painful to see portfolio halved? (Have not seen that, although I seen my counter reduced to nothing.)

Take pain easily? You are on your way to success. Sadist? I think so...

Random thoughts: striking a balance between engagement and effectiveness

Between the two, which is a must have? Which is a good to have?

My answer is, there is no good balance. You sought both, you get nothing. One has to make some way for the other.

However, if you are very highly effective, there will be rub-off engagement, vice versa is true.

In my previous school, engagement is the key to effectiveness, now, effectiveness is the key to engagement. 

A fellow colleague from another workplace, told me his boss value , engagement a lot, care a lot of his staff welfare. Nope, it is not lip service, all meetings must end by 3, all official events must end by 5. While I spend 2 weeks after the school holiday starts for review and planning next year work plan, their staff are off to their holidays just 3 days in the holiday. My colleague admits her staff are spoilt now, and will suffer when their boss goes for rotation.

I ask, how is the results. She told me it is improving over the years, the staff go all out for the pupils, since they are not bothered/ burdened by admin. In fact, many managers come to their school as it is the few in Singapore where staff engagement score is an A. Those in the industry will appreciate how difficult it is to get A in they climate survey. 

Didn't know there is still such wise boss around. Engagement driving effectiveness. I have seen the other too, effective robots, who are so use to process that they like what they are doing since they know what to expect.

I am gunning for effectiveness now, as my wife says, my clients have change. 

Always fully vested vs Market Timing (War Chest) approach

I did a simple test, using these 2 approaches to STI index investing and want to see which one will fare better when back dated 20 years. At such, the investor would have go through AFC, Sars + Gulf war and the GFC.

To do this test, I make a lot of assumptions, for academic purposes, investors from either 1 approach could well do better or worse if some of the assumptions do not hold true.

Assume:

1) Investor A and B both start with $5000 and have $1000 fresh funds to invest every year.

Investor A:
Investor A stay fully vested and invest annually. For every year, I use roughly the mid point of the STI for the year to determine his entry point, someone with luck or better TA skills might have an entry point lower than the one I used.

Investor A invest fully when he start in 1995, and thereafter every year, invest $1000 into the STI.

At 2014, he will have STI units worth about 36K, and his total invested capital will be 24K.

A ROA of 50% over 20 years.


Investor B:
Investor B will only enter the market when STI corrects 40% from the last known peak with half of his money, and another half if Market correct 60% from his last known peak. He will liquid half his units and hold cash when returns exceed 100%.

At such, he did not invest his 5k in 1995 but did vested 3.5 k in both 1997 and 1998. He saved his annual 1k and invest 2k in 2002. In 2005, he liquidated half his units and continue to accumulate cash,

In 2009, he became fully vested again 2 tranches of 40% and 60% off the peak of STI.

He has no chance to liquidate his units till now.

So at 2014, his units are worth 38K and still holding 6K cash. Total portfolio is 44K

A ROA of 83% in 20 years.

Conclusion:

This is a simplistic test, more for fun than analysis. Just wonder if my temperaments is more suitable to be Investor A or Investor B.

The worst thing that could happen is selling out at a loss in a bear market. Also, if we are holding companies instead of STI index, they could do better(Dividend effects) or worse (belly-up) than STI.

My thoughts on S-chips

There is plenty of negative sentiments surrounding s-chips and I would say it is not without justifiable reasons. There are plenty of fraud cases, and I have my fair share of hits and misses. The thing is, for me, those that I was vested before, at least they're still around, and some did well. What I am sharing is just my personal opinion.

Different types of S-chips:

S-chips are defined by companies with all of its business or most of it business in China. There is a tighter definition, S -chip are companies with most of its business in China and owned by Chinese National. It is argued that if it is run/ owned by Singaporean, it is less probable fraud case, since the owner will be less able to get away with things. Straco, valuetronics are examples of non- chinese Nationals at the Helm. (HKers not counted) However, not all s-chips are equal, at least in terms valuation by Mr market. 

1) Those with SOE parentage or connection. While it is no guarantee for success, it is less likely an outright fraud too, as the Chinese like "face" CAO is not fraud but mismanaged its trading business. The parent company step in and roped in Strategic partners to restructure the company. 

Other examples include China Merchant Pacific Holdings, and to a certain extent SIIC, which counts china sovereign funds its biggest shareholder. But do note that parentage while providing some assurance is not formula for success, just like at Cosco.

2) Those that give regular dividends that is significant to earnings. Real cash flow to shareholders is important. The key word here is regular. YZJ, Yanlord and China Sunshine are good examples. It is even more assuring if the dividends pay out over the years exceed the fund raise from IPO or already is a high percentage of fund raise. Again YZJ and CMHP come to mind. Eratat will fulfill the criteria of constant dividend payout but they raise money from the market rather frequently. Gaoxian pay special dividends due to its success of it dual listing. But that should not provide too much comfort.

3) Those that attract strategic investors.

Funds do not count. We are talking about competitors or operators of the industry buying a significant stake in the Company. Examples include China Minzhong and Sino-Food Grandness 

4) The rest... ...

The rest are trading at ridiciously low valuation as compared to their assets or earnings. But you have to seriously ask yourself if they do not fulfilled one or more the criteria above, is it worth it?

I know it is a stretch to call the rest all frauds or potential losers. But if u Still insist on investing in "the rest" category of S-chips, please learn to identify red flags such as receivables, discrepancies etc. and be ready to lose everything on that investment. The risk reward profile might still be worth it, but the risk is total loss, and you must have that in your mind when you invest, if there is too much for you. Walk away. 

Another way to get some reassurance is the profile of customers. If it has big name customers which are also listed, it is easy to verify its numbers. Maybe not totally, but obvious fraud will be easier to detect. YZJ has big names customers, straco Acquarium in Shanghai is for all to visit. Oops, they are already not in the "the rest" category. Yes, see what I mean, Mr Market might be temperamental, but he is not stupid. 

The third way, baidu the subsidaries and the city/ province it operates in. Search top tax contributors in Jiangsu, for example. Chinese tax bureaus like to rank the top tax contributors, and they put then in various tax bands. Counter check those with the numbers of income tax paid of the company AR. I did that and found discrepancies is Eratat numbers and tried to warn forummers to no avail. I did that for YZJ and sleep better knowing that it is the top 50 tax contributors in Jiangsu for 2012 and 2011. In fact, the ranking improved. Once is enough, I didn't bother to check further years. You can read Valuebuddies or Nextinsight forum for my post. Search Eratat.

Lastly, try not to be iron teeth. Try not to find excuses or reasons for management.  If multiple red flags are flashing, run. No dividends, super low cash level at company level, in a industry where many peers has fumbled? E-g. Textile industry from Fujian. Remember, when you find crockcoach in a closet, it is usually infested with it, with more than just 1 skeleton. ( sound disgusting? Halloween effect ) LOL.

Cheers,

Silly Investor

Besides numbers, what to look for in an ARs

There is no end to numbers and ratio when I dig a company ARs. Maybe I share some of my thoughts when reading annual reports qualitatively.

1) management assessment of industry:

You can also read about the management outlook. You can read if it's pessimism or optimism is valid. The safe approach is always to be conservative and surprise on the upside. But I have read reports where managements stick their head out and say their see growth pockets or headwinds. It is ok to be wrong ocassionally, we Are no oracles, but if they are right most of the time, it would be good. It is important that management is Ernest and sincere in their assessments, and not always give standard balance assessment. Remember a broken clock is right twice in a day.

Although it might be difficult to understand when a CEO speak about specifics of the Industry or product, it is very useful, as we can google it, wiki it or read it over a few times to understand it. We cannot understand it like an industry Insider, but we should still learn. Be wary of motherhood statements. Meaning it is laden with adjectives but not specifics. E.g. We continue to pursue R and D to provide innovation to value add our propositions to customers. Then ... ... (Examples Will be very welcoming please!)

2) Identification of growth areas:

MTQ identify growth areas in 2002, and never look back from their niche area in the O & G sector. The same goes with sembcorp industries, and ST. engineering. Growth areas can be new products or new markets. Such as a new country which they break into.

3) Focus

If a growth area is identified, is there consistent milking or efforts to make it works. And if it works, is that constant attempts to scale it up. No point keep hitting on different products, services or markets.

While it might sound contrary to what is said above, if a product/ service/ or market is proving to be of less snergy value with no results to show after years, e.g. Unable to scale after many years, restructure it or sell it.

4) SiZe and integration of services

Many of the Temeask owned companies, very often merge/ combine/ before branching out in a big way overseas.

5) candidness

Warren has talk about this, I do not wish to be a broken recorder here.

6) Focus on the people

May be a coincident here, but I notice some names tend to change as company expand into new areas or expand. CES got senior executive from Wingtai. CES has been on a roll. MTQ has a new director when they expand overseas. Shares option only for directors and executives only or also for employees. It show if they are paying lip-service when they say they value human capital. Is the data on productivity per head.

Conclusion

Do note that it does not mean these readings and analysis will pitch u a winner in the market, but maybe make more sense and know what to look for when reading.

If you have other points when u read annual reports or do researches. Let me know and drop me a comment, will ya

Thanks in advance,
SI