Investing 2019 June ... Keppel-KBS & Fortune + Portfolio Review

[Disclaimer: I am an amateur investor and not a financial advisor.  I blog here to chronicle my investment journey.  My stock purchases and sales are unique to my temperament, life situation, risk appetite and investment goals.  All information that you find on my blog such as ideas, commentaries, predictions, or stock picks, whether expressed or implied, are not to be construed as personal investment advice.  I repeat, I am only an amateur investor.  I cannot and will not be held liable for any action that you take as a result of what you read here.  Do your own due diligence and/or seek the help of a qualified financial advisor.]


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This month is quite a volatile month for stocks, what with the continual spat between Trump and China.  This trade war between the world's 2 largest economies, in my opinion, may not go away any time soon.  It might just be a precursor to a larger problem, the new cold war between the US and China.  It is not so much about having technological leadership as it is about military supremacy.  This situation might just get worse, and might even last decades and become the new normal in geo-politics.  But in the interim, things might brighten up, considering Trump and XiJinPing's meeting during the G20 meeting in Japan.  Fingers crossed.

As the tech iron curtain unfolds and falls, poor Singapore is caught in the middle.  Being a small and open economy that is heavily dependent on exports, Singapore will experience the sharpest economic slowdown in SE Asia.  The stock market was in a doldrum as a result of trade war news early in June, but only for a brief period of time.  The bubbles and bounce are back, although the volatility and uncertainty still remain.

In the midst of a possible bitter, drawn-out conflict between the US and China, I thought it more prudent to reduce the amount of capital injection to the portfolio.  And in search of REITs I went.

1. Keppel-KBS

This REIT is a small-cap, pure-play US office REIT which consists of 13 freehold office assets located in 7 key US markets such as in Atlanta and Seattle.  Keppel-KBS has its properties mainly in the CBD as well as suburban office areas. The aggregate NLA is approximately 4.3 million square feet.  The tenant base is diversified, spread out among sectors such as technology, finance and insurance, professional services, and medical and healthcare.  It is a relatively new REIT, having only listed on the SGX mainboard late 2017.

As of the end of last year, Keppel-KBS's gearing stood at 35.1%, so it has sufficient headroom for future acquisitions.  Keppel-KBS enjoys a relatively high committed occupancy rate of 91% and a stable lease expiry profile of some 3.5 years, with no single year having more than 20% of total leases expiring.  That ensures stable cash flows for Keppel-KBS, which in turn makes it a stable REIT.

This REIT, as its name implies, is backed by 2 sponsors, Keppel Capital Holdings of Keppel Corp, and KBS Pacific Advisors (a US real estate investment firm which has more than US$11 billion in AUM and ranked by the US National Real Estate Investor as the 8th largest office owner globally).  Backed by an investment arm of a SG blue chip and a reputable real estate company, this REIT is in pretty good hands.

I was comfortable buying 2 lots at US$0.735 having calculated its intrinsic value to lie between US$0.55 to US$0.77 based on different growth and discount rates.  The current price now of US$0.77 is below its IPO price of US$0.88 per share.  The dividend yield is estimated to be 6.23%, which is more than the top 25% of dividend players.

The main risk with this REIT is currency exchange related.  The US tax code that governs dividend payouts is for now not an issue (see Financial Horse's article on this, https://financialhorse.com/keppel-kbs-us-reit/).

2. Fortune

A month ago, I began to look into Fortune REIT.  It is an excellent REIT with an A score.  Its DPU and NPI yield growth has been on the increase over the past 10 years.  Its future cash flow has also exceeded its distribution payout the past 10 years, a fact which emphasises the manager's prudent financial management.  Its gearing ratio is below 25%, giving it approximately HK$13 billion which could be used to fund yield-accretive acquisitions.  Absolutely fabulous!  See GingWen's article on Fortune REIT (https://www.probutterfly.com/blog/does-fortune-favour-fortune-reit).

One of its assets, Kingswood property at the Tin Sui Wai and Yuen Long area is currently going through asset enhancement.  This value-added revamp has the potential to attract tenants such as gaming stores, boutiques and speciality restaurants that appeal to a younger demographic, making Fortune Kingswood a new 'retail-tainment' centre.  The REIT is expected to perform even better after the completion of the AEI of Fortune Kingswood, with overall NPI increasing further.

E-commerce is not quite a threat to Fortune REIT as more than half of Fortune's tenants provide services (restaurants and catering) which cannot be replaced by e-commerce.  Fortune's properties are all located close to housing areas, catering to residents, and making the REIT more resilient to the volatile retail market.  Fortune's properties are mainly sub-urban malls and as such, are not dependent on tourists' spending (unlike malls in the Tsim Sha Tsui area).

Fortune is now within fair value range (HK$10.55 to HK$11.48), and I was only able to buy it at HK$10.80 on the HK exchange.  Bummer.  Fortune is currently seeking a voluntary delisting from SGX, given its thin trading liquidity in Singapore and desire to eliminate admin overheads and costs involved in complying with SGX's regulations.  The dividend yield is not particularly high at about 4.9%, and I'm gunning for capital appreciation of this REIT.  The main risk with Fortune is also exchange rate exposure.
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Time for a portfolio performance review. The very first one, for period 10/2018 to 06/2019.

I started investing in stocks in October last year.  Thus far, for the past 9 months, it has been an exhilarating ride.

Total value of portfolio: $52361.
Total value of cash: $12460
XIRR: 35.46%

I'm still a novice when it comes to investing, and I have so much to learn.  I have attended some talks but not any courses.  Maybe I should just do that.  Until I find the opportunity to do so, I shall continue to read and brush up my knowledge on the market, research on stock tips, and learn from the wisdom and mistakes of others.





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