In the Millionaire Teacher's last chapter, Andrew Hallam recommends that if you really cannot refrain from picking individual stocks, do not commit more than 10% of your portfolio for stock picking. This is one rule that I agree with, and stick to religiously.
Like I have mentioned previously, this blog is about a personal story. A real story. My story. I won't kid you and declare that I don't pick individual stocks. I like to keep my finance journey fun. Who says growing my wealth cannot go hand-in-hand with having some fun?
The next question is, what stocks am I holding on to, besides STI ETFs?
Apple Inc. (AAPL) <USD>
No. of Shares : 1
Buy Price : $434.04
Prev Close : $489.56
Intention : Short / Mid Term
CapitaMall Trust (C38U) <SGD>
No. of Shares : 1,000
Prev Close : $489.56
Intention : Short / Mid Term
CapitaMall Trust (C38U) <SGD>
No. of Shares : 1,000
Buy Price : $1.85
Prev Close : $1.98
Prev Close : $1.98
Intention : Long Term
Both are very interesting companies which appeal me for a variety of reasons.
Trivial Question of the Day
Q : What does Apple and Capitamall Trust have in common?
A : Both pay quarterly dividends.
PS -
It was only a little more than a month ago that the STI almost dived under 3,000 points, halting at 3,004 points. Looks like it is sitting tight at 3,147 points today. Life goes on.
PS -
It was only a little more than a month ago that the STI almost dived under 3,000 points, halting at 3,004 points. Looks like it is sitting tight at 3,147 points today. Life goes on.
Hi, you have a nice blog!
ReplyDeleteUnderstand you prefer index investing over individual stock picking. But since you brought up CapitaMall Trust (CMT), would like to just tap your brains.
Paying quarterly dividends is attractive to some. How about other aspects?
CMT's net asset value (NAV) is S$1.68 per unit. Two points from that: (1) if you pore through the past annual reports, a substantial part of the NAV is due to upward revaluation of investment properties. Should there be a property downturn or events like Fed tapering, valuation might suffer, bringing down NAV. (2) last traded price is S$2, which is a 19% premium over NAV. A quick conclusion from the two observations is that asset-based metrics suggest overvaluation, not under.
Price to earnings still ok at around 14 times, but 27% of earnings in period is due to upward revaluation of properties. Sustainable if economy turns? Given that dividends are tagged to earnings, payout might suffer too.
Given the above, CMT's dividend yield of 2% is small change for a potentially big risk, risk-reward profile may not be that appealing.
Or am I too pessimistic? Ha!! Pardon me, I tend to be.
Hi there!
DeleteGood points that you're brought up here!
I agree that if you look at the value of REITs from the NAV perspective, then it would seem to be overvalued at this point in time (S$1.98) given the points you've listed. I probably won't buy it at current prices - I admit that I waited quite a bit for S$1.85 to come by during September 2013.
Interesting that you bring up the scenarios of property downturn or Fed tapering. Based on the annual reports, you would also have noticed that valuation of CMT properties hardly suffered (perhaps with the exception of Atrium @ Orchard), and successfully weathered the 2007-2008 financial crisis. In fact, seemed like the valuations have continued to increase because it was supported by the increase in net property incomes of the underlying properties.
Even though an event such as Fed tapering would no doubt have a negative impact on CMT (and all REITs in general) dividends, a closer look at CMT's debt profile reveals a clearer picture.
http://f.singapore.foolcdn.com/wp-content/uploads/2013/09/5-facts-capitamall-trust-chart-1.png
CMT's debts are somewhat spread out over the next ten years, and Fed tapering, even when it occurs, would not likely cause an immediate devastating impact given cushion provided by the debt profile even if low cost credit would be harder to come by.
This brings me to the next point - my personal view is that CMT has a pretty kick-ass management team. The value of a REIT lies not just in the value of the investment properties, but also in the capability of the management team. Net property income has increased year after year (again, even through the financial crisis NPI continued to rise) for each of the property through asset enhancement initiatives, an unique option that only retail REITs can employ. Higher net property incomes translate to higher valuation year after year.
On a personal note, I find retail REITs are particularly interesting because you get to really see what the management is doing. Over the years, have you noticed the massive changes to Junction 8, Funan Mall, IMM etc? Did you notice the "before" and "after" of malls such as Illuma vs Bugis+ that really illustrate what poor management Illuma was under?
I feel that retail REITs in particular are very resilient to unfavourable economic conditions. I can't say the same for other type of REITs. CMT has large population catchment areas catering to daily lives and necessity shopping, with most shopping malls located beside MRT/LRT lines for huge human traffic. Strong sponsors (CapitaMalls Asia, CapitaLand, etc) and excellent management with asset enhancement initiatives (AEIs). Growth in disposable income coupled with stronger tourists arrival and limited supply of shopping malls.
In my opinion, CMT earnings will be sustainable regards of what happens with the economy. Boost to Net Property Income will be expected when Westgate goes 'live' and AEIs for Bugis Junction and Tampines Mall complete.
Oops, pardon me, I think I've blabbered on a little too much =) by the way, how did you arrive at the 2% dividend yield for CMT?
Hi JAAG,
DeleteThanks for the quick and good reply.
I think in terms of CMT's debts, I am less worried on the debt maturity profile which as you have rightly pointed out are spread out.
REITs need to comply with Code on Collective Investment Schemes which sets 35% cap on gearing, or up to 60% if Reit obtains, discloses, and maintains a credit rating from rating agencies. As at Q3, CMT is at 34.8% which is ok, and given CMT does disclose credit rating (A2), so there is room for more debts.
Sounds fine but if property valuation drops drastically during downturn etc, CMT might face debt recalls? (in order to comply with the code) Current cash levels would be insufficient to plug the gap, around 1/5 of interest-bearing debts. Usually what would happen next is for dividends to be reduced, or maybe rights issue to recapitalise the balance sheet.
Obviously it's all doomsday scenario and if CMT is facing this, other REITs will likely face such risks too.
Fully agree with you that it is comforting that we can see and feel better mgmt's capability from how the shopping malls are managed. I share the same view on the underlying business' resilience.
Only sharing my concerns on asset valuation, gearing, low-interest rates (which will go up for sure, issue is when it would happen. I don't see mgmt being worried about it and if it happens, how will they respond?). Is this a valid concern or it's too far-fetched? Is it even something that mgmt can do anything about given its the REIT structure?
It just baffles me how year on year valuations can rise so fast and as a result of the upward valuation, REITs can borrow more and the risk seem negligible now given the low interest rate environment. I hope too that the party would continue. Unfortunately, I never attended a party that has no end.
Sorry, the 2% dividend yield is wrong, my bad. The latest presentation suggests an annualised yield of 5%.
I beg your pardon too, I am a relatively long-winded person.
Thanks very much for your sharing.
Keep up the good work, enjoy seeing fellow investment bloggers being passionate about the topic.
Hi HL Tiong,
DeleteNo worries on being long-winded. On the contrary, I love it when visitors share their inputs as it gives people the chance to look at things from different perspective. To me, it is all about learning from one another.
I too feel that the magic bullet, if necessary, is a rights issue. There are only limited options that are available to REITs. During the last "doomsday scenario" which happened in the 2008/2009 financial crisis, CapitaMall responded with a rights issue to reduce debt, which was over-subscribed despite the challenging economic climate.
Your concerns are fully valid and would do a lot of good to investors who are considering CMT as an investment choice. Are they willing to take on these risks?