Investment Moats

Singapore Savings Bonds SSB June 2020 Issue Yields 1.05% for 10 Year and 0.57% for 1 Year

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Here is a higher yielding, safe way to save your money that you have no idea when you will need to use it, or your emergency fund.

The 10-yr and 1-yr Singapore Savings Bonds Rate since the first issue in Oct 2015

The June 2020’s SSB bonds yield an interest rate of 1.05%/yr for the next 10 years. You can apply through ATM or Internet Banking via the three banks (UOB,OCBC, DBS)

However, if you only hold the SSB bonds for 1 year, with 2 semi-annual payments, your interest rate is 0.57%/yr.

$10,000 will grow to $11,067 in 10 years.

This bond is backed by the Singapore Government and its available to Singaporeans.

A single person can own not more than SG$200,000 worth of Singapore Savings Bonds. You can also use your Supplementary Retirement Scheme (SRS) account to purchase.

You can find out more information about the SSB here.

Note that every month, there will be a new issue you can subscribe to via ATM. The 1 to 10-year yield you will get will differ from this month’s ladder as shown above.

Last month’s bond yields 1.39%/yr for 10 years and 0.96%/yr for 1 year.

Here is the current historical SSB 10 Year Yield Curve with the 1 Year Yield Curve since Oct 2015 when SSB was started (Click on the chart, move over the line to see the actual yield for that month):

The Application and Redemption Schedule

You will apply for the bonds through the month. At the end of the month, you will know how much of the bond you applied was successful.

Here is the schedule for application and redemption if you wish to sell:

Click to see larger schedule

You have 02 to about 25th of the month (technically the 4th day from the last working day of the month) to apply or decide to redeem the SSB that you wish to redeem.

Your bond will be in your CDP on the 1st of the next month. You will see your cash in your bank account linked to your CDP account on the 1st of next month.

How does the Singapore Savings Bonds Compare versus SGS Bonds versus Singapore Treasury Bills?

Singapore savings bonds is like a “unit trust” or a “fund” of SGS Bonds.

But what is the difference between you buying SGS Bonds and its sister the T-Bills directly?

Both the SGS Bonds and T-Bills are also issued by the Government and are AAA rated.

Here is an MAS detailed comparison of the three:

SGS Bonds versus Singapore T-bills versus Singapore Savings Bonds
Click to see bigger comparison table

What is this Singapore Savings Bonds? Read my past write-ups:

  1. This Singapore Savings Bonds: Liquidity, Higher Returns and Government Backing. Dream?
  2. More details of the Singapore Savings Bond. Looks like my Emergency Funds now
  3. Singapore Savings Bonds Max Holding Limit is $200,000 for now. Apply via DBS, OCBC, UOB ATM
  4. Singapore Savings Bonds’ Inflation Protection Abilities
  5. Some instructions on how to apply for the Singapore Savings Bonds

Past Issues of SSB and their Rates:

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I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

Keppel Infrastructure Trust’s Operating Challenge

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Someone in the financial independence chat asked whether I could make an analysis on Keppel Infrastructure Trust (KIT).

I think there is not much changes or novelty for me to do an analysis on the stock but I could share some of my thoughts about it.

Keppel Infrastructure Trust is structured as a Business Trust. It also gives a good dividend. Currently, it pays $0.0093 a quarter. This works out to be 7.5% dividend yield based on the traded price of $0.495.

Keppel infrastructure trust was formed through the merger of two utility-like companies Cityspring Trust and K-Green trust. Back then, both trust needed each other. K-green do not have debt but the portfolio is made up of utility concession that is rather short. Cityspring is leveraged, has a problem holding in Basslink.

A combination gives it to size, reduces the leverage and more bandwidth to rejuvenate itself. As part of the merger, the combined entity acquire KMC.

Since then, they have acquired Australian supplier and distributor of water treatment chemicals, industrial and specialty chemicals IXOM. You can read about my thoughts about the acquisition here.

I like the idea of Keppel Infrastructure trust as an investment. It is not going to be a stupdenous investment, but as a dividend investor, I like the recurring nature of the cash flow.

However, there are two things that prevented me from pulling the trigger.

  1. Not sure how consistent is this cash flow. It is pretty hard to detect from the financials due to the special nature of each asset.
  2. Senoko Waste-to-energy plant, Keppel Seghers Ulu Pandan NEWWater Plant, and SingSpring Desalination Plant on average have 10 years of concession left. These formed 40% of the cash flow needed to generate the dividend.

The inconsistent cash flow is a bit relative. We are not gonna expect cash flow to be in lock step. I was just wondering just how consistent. This is especially so when they purchase IXOM.

IXOM feels like an operation business. Yes some businesses are always in demand and IXOM basically serves the utility backbone of Australian companies. If their clients are recurring and there ain’t much advantage if they switch from one chemical provider to another, then it should be pretty recurring.

The table below shows the quarter by quarter distributable cash flows of Keppel Infrastructure Trust’s individual assets.

I think we only manage to see 1 year of IXOM’s contribution so I am not sure if the cash flows are seasonal. The cash flow of a few assets depend on KIT’s availability fulfillment.

I think I can live with some of the questions over the consistency of cash flows.

To pay the $0.0093 quarterly dividend, they would need $43 million in distributable cash flows.

Somehow, it is a bit unassuring that 40% of the cash flow will expire in 10 years time.

I dug out a seriously old Investment Moats post where I asked the K-Green Trust’s IR whether my interpretation of the concession is correct. The way they evade giving me a straight forward answer that after 15-25 years, the value of the assets is effectively zero is telling.

If KIT pays out all the distributable cash flows, they cannot replenish this 50% of their portfolio. If this is a traditional utility company, paying out only from earnings, or even free cash flows, they could retain enough money to acquire greenfield or brownfield assets to replenish these short concessions.

This is what we are seeing in the toll roads. They only pay out a portion of earnings. The cash flow can yield 16-20% but they only pay out 8%. They are under no illusion that they have to conserve cash flow and buy younger roads.

Keppel Infrastructure Trust’s balance sheet currently looks like this:

  1. Total Assets: $5 billion
  2. Cash: $470 million
  3. Total Debt (Exclude Basslink debt): $2.1 billion
  4. Perpetuals: $300 million
  5. Net debt to asset: 36%
  6. Perpetuals as a percentage of Equity: 17.6%

I think they can levered up and purchase something that allows them to make up for that loss of concession.

For example, I played around with the numbers, and I think they can acquire some stuff that comes up to:

  1. Return on Asset: 6%
  2. Effective interest: 3% (big step down on the current 4.5% average)
  3. Perpetual Interest: 3.75% (big step down on their current 4.7% perpetual securities)
  4. Purchase $2.1 billion of assets that provides a distributable cash flow
  5. Finance with $470 million in cash, $1.4 billion in additional debt, $200 mil in additional perpetual securities
  6. This will generate $126 mil in gross cash inflow. After additional interest expense of $42 mil and additional perpetual dividends of $7.5 mil, that will generate $76.5 mil.
  7. This will take net debt to asset to 49%.

I think is damn hard to replace KMC, Waste & Water totally but they got to try over time. Perhaps there needs a rights issue.

Don’t take my numbers super seriously. The thought process might not be super thorough.

The asset value will keep going down.

The Waste & Water service concession goes down by $50 million a year and in 5 years that will be gone. From what I see KMC’s PPE also goes down like $60 million a year.

But they better buy some longer running utility.

Perhaps in this period, there are some attractive assets that would present itself to Keppel Infrastructure Trust.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

Why Not Give Us Access to Our Own CPF Special Account in these Special Times?

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One day, when my colleague and I were taking the train back after work, my colleague suggested that the CPF should be flexible enough for people to withdraw their money to fund their sabbatical or mini-retirement.

I think that is forward looking.

But I do not think the government will go that far to allow such dynamism in the CPF.

On a very high level, the purpose of CPF is to fund the traditional retirement of those folks in the 2nd quartile of Singapore.

If you have the means, fund the sabbatical or mini-retirement with your surplus from work.

The CPF is probably not ready for such flexibility. It would be ready if the private pension portion is ready. This would allow Singaporeans to voluntarily contribute more of their money into private pension for some tax incentives.

But I wonder why it is not a good idea for the government to let the citizens tap their CPF during this time.

Commerce has come to a standstill. Consumer spending has dropped drastically and investments are probably put on hold. In this year’s National Budget, stimulus aid was announced to help families.

After the National Budget, two more support packages were announced to help businesses and individuals in different areas.

The Singapore reserves have been activated.

We Spend Our Working Lives Building Up Our Own Reserves

Singaporeans have put away about 37% of our gross lifetime salary into our CPF as a form of forced savings.

A lot of us use our CPF Ordinary account to repay our residential mortgages. But our Special account is untouchable and meant for our traditional retirement.

For those who are employed but taking no pay leave, perhaps the government can allow controlled distributions to be made.

  1. Maybe allow the disbursement from CPF SA equivalent to one month’s salary for a start.
  2. If the lockdown is extended for one more month, let us tap one more month.
  3. If you have worked for about 2 years, you should have an equivalent of one month’s salary in your CPF SA.

I think this will be more useful than giving Singaporeans $300 to $900 here and there.

We have a Good Taxation and Payment Infrastructure in Place

Unlike other countries, our government has built up a system where they can make money from us, but also disburse money to us, so process-wise it is not a problem.

In exceptional times like this, you got to ask yourself whether it makes sense that you have saved a bunch of money (in your CPF), and you have no means to get access to it.

The money is for a long term financial goal, but if you cannot live past today, who would have the time to worry about the long term goals?

I think we can all agree that the rules to build wealth is to delay gratify, forgo spending today so that we can meet our goals in the future. This means that giving access to the CPF SA should not be a very frequent thing.

As a general cohort, we might not always make the soundest financial decisions. In times of stress, we make even poorer financial decisions. This is the role of the government.

If you use it strategically, it will also quell the murmurs that our CPF money is not there.

But Access to Funds in CPF Special Account do not Solve The Problem for Everyone

Unfortunately, one of the biggest group affected is self-employed. There is a fairly large group of them who needed to be physically out and about to work. They cannot do that now and this creates a big problem for their cash flow.

They are also the ones who have the option not to contribute to their CPF Ordinary Account and Special Account. So even if the government allows the disbursement from CPF Special Account, they might not have this buffer to use.

For those who are against contributing to the CPF, they could look upon this episode and think there is another valid reason for topping up their CPF SA.

There are a number of people who commented that the CPF is a shifting goal post. It remains to be seen whether they want such a shift in the goal post this way.

Giving to Those Who Do Not Have the Means

Locked down is a strange event for me.

I think it forces some of our habits to change. It is likely when lockdown ends, some of us would do shopping in a different way. A lot of people will be more comfortable ordering from a supermarket online.

For myself, I still prefer the old fashion way by going to the supermarket to buy what I need. It is quite hard to teach an old dog new tricks. And this might be my Achilles heel. For all other things, I am perfectly comfortable doing things online.

Being cooped up at home, I do observe that I am more willing to spend on little online purchases. These purchases are a want and not a need.

It feels that when you are trap at home, you fall into a routine of waking up, eating, working, exercising, you want something to surprise yourself.

Buying something online, and seeing someone dropping things off, not sure what time they will come creates that surprise effect.

We cannot go out and enjoy something that we like to do, so we fill that void with online purchases. At least I think I am in control of my spending but I can envision some of you will only realize what you have done when it is too late.

One online purchase is to donate to those who are in need.

I have a friend on my Facebook who asked for help.

So I donated to Beyond Social Services. Beyond Social Services is a charity dedicated to helping children and youths from less privileged backgrounds break away from the poverty cycle.

The parents in a lot of low-income families worked in jobs that cannot be done remotely. With all these locked down, they lose income. They do not have much cash on the sides (since every dollar is put to use immediately).

The government support seems to have omitted those who are already on ComCare assistance. As they cannot send their kids to school, all these just increases their stress levels.

You can read this Channel News Asia article to get a better picture.

As a recovering saver, donating is not something that comes easily to me.

I can donate my time into coming up with posts to improve peoples financial situation but I realize those posts are not going to reach the people who most needs it.

You could argue that I make an impact to people’s lives at work, but honestly, I spend a large part of my life writing to people with means not without means.

A recovering saver first needs to learn to give money to help without much judgement. So this is helping them as well as helping myself.

But if you ask me, I find it quite difficult to look at the situation of the family in the video above with my rational brain and not judge at all.

One of my former colleague stayed in estates where a lot of families are in need of such help (in pre-COVID-19 times). At one point, his family needed such help as well. He shared that when you are in an environment where you cannot break out of that social cycle, you get consumed in it.

This means that what some will do is to put their family in such a situation that they qualify for these government help.

This is like a programming While Loop where the exit condition is seldom triggered.

This is no different then the difficulty of the sandwich generation to escape the rat race, or move up the social ladder.

They have got more life levers to pull. (A lot probably can be found in my Wealth Foundations series)

But because their friends around them mostly do the same things as them, they do not hit that exit condition from that While Loop as well.

I slowly come round to the idea that the real way to help if you are financially independent is to commit the time I free up to work directly with these people. Whatever I write probably hits the upper 2 quartiles of Singapore.

If you can, do help to donate as well.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

Understand Prime US REIT better in 24 Points

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With the latest move to semi-annual reporting, Prime US REIT will not be announced it’s official financial results.

However, as with many REITs, they are providing business development updates.

The results looked good on paper. Distributable income rose 12.9% from IPO projection. Net property income rose by 6.7%. One of the main reasons the results looked better was because it factors in about 40 days contribution from new acquisition at Park Tower.

Management was kind enough to update us in a media brief. Here are some short points that I could gather.

  1. One of the key criteria for Prime US REIT’s acquisitions is to focus on less dense areas, more affordable areas where there can be population growth and employment growth. Park Tower fits the selection.
  2. Prime US REIT do not have much debt refinance obligations to do until 2024. I did not ask what about the debt obligations maturing in 2022 and 2023.
  3. Just yesterday evening, Prime US REIT announced that they have proactively restructured their existing interest rate swaps by entering a new agreement with Bank of America that locks in the lower interest rate on its borrowings through 2026. This lowers their interest rate from 3.3% to 2.8%. CEO Barbara Cambon guided savings in excess of US$1 mil through 2023. I would think that the savings are actually more, not sure why it is only $1 mil. In this climate, I think it gives investors confidence that such improvements can be done and show evidence of the long term banking relationship built up by KBS with the banks.
  4. Part of the reason the actual numbers looked better than IPO projections was that they can find improvement in interest expenses and trust expenses.
  5. The breakdown in the 12.9% variance in distributable income
    1. 3.2% organic growth
    2. 6.6% park tower
    3. 3.1% savings in trust and interest expenses
  6. Despite MAS relaxing the leverage to 50%, their strategic leverage level has all the while been less than 40% leverage.
  7. Management of Prime US REIT have an aim to see if they could stagger the debt maturity more and diversify their lender base.
  8. Kyith: Interest coverage of 5.8 times and unencumbered assets of 84.8% is very healthy buffer levels.
  9. Their debt covenant on their debt is 45% loan to value
  10. Atlanta, Texas, and Georgia have started plans to re-open for work. Utah was not affected at all during this period.
  11. Companies are starting to strongly consider renewing spaces as opposed to moving out of spaces primarily due to the uncertainty of the economy. There is also a cost for them to move as well.
  12. Out of the 6% lease expiry in 2020, a large percentage belongs to Wells Fargo bank. Pre-IPO, Prime did a very large renewal with Wells Fargo and as part of the renewal, they have the right to give back two floors of space. So there might be more spaces to lease out. Out of all the tenants that management feels are more unknown, they managed to re-leased 45% of them. The tenant retention for these unknown tenants would be closer to 88%.
  13. One of the tenants has sub-leased spaces to sub-tenants. They believe that the sub-tenant will lease the space directly from them.
  14. 9% of the portfolio will expire in 2021 and management is actively negotiating with tenants on 50% of those spaces. They feel that going into 2021, they will have a strong year. They were negotiating for new leases but that died down because prospective new tenants could not go and view the properties. COVID-19 has not slowed down the negotiations.
  15. Across the markets, there have been strong absorption except for Philadelphia
  16. Sodexo’s office is their headquarters
  17. Apache has paid their rent and their lease expires in 2024.
  18. All top 25 tenants paid their rent in April except for WeWork who did not pay 100% of their rent. Aside from WeWork, Prime has 3 more co-working spaces owned by Regus, who is a more traditional co-working player with private offices.
  19. Co-Working spaces represent 3.8% of their cash rental income
  20. The WeWork space is in the San Francisco area and a significant portion of the WeWork tenants are enterprise companies. There is an opportunity to establish a direct relationship with these enterprise companies.
  21. They have provided deferral of rent to about 12 retail tenants. These form a very small percentage to Prime’s rental revenue
  22. Social distancing may become a requirement over time. While leasing may soften, these requirements may mean companies still need quite a fair bit of space.
  23. Management believes this is the first test for remote work. Some companies might find a way to make it work while others may find that they still need an office. IBM and Yahoo tried to do the same 10 years ago but eventually reversed that. There are technologies out there that track their employees when they work at home, mainly because productivity is a suspect. California is considering mandating the spaces per square foot per employee. Prime has fielded inquiries from 4 existing tenants (in banking and technology) with an existing very dense seated environment. If the mandate is to have 250 sqft separation between employees and a company that has 20% of their workforce working from home, the company in question will have to double their spaces based on square foot.
  24. Some sub-leasing colors (In United States, tenants cannot easily break leases. They can, however, sublease to sub-tenants. There is a sub-lease market):
    1. Village Center I: About 25,000 sqft of space sub-leased out. When that expires, Chartered Communications is obligated to take that space
    2. Sodexo: About 18,000 sqft of space
    3. Rovi Corp at Crosspoint: About 36,000 sqft of space
    4. 222 Main: About 12,000 sqft of space
    5. All added up to about 2% of the portfolio

I think it was a good update for me. There is a lot of uncertainty about how real estate will be like after this Coronavirus situation. Everyone is guessing what will happen, and someone is bound to get it right and some will get things wrong.

The situation on the ground probably reflects the real situation: Everyone is trying to figure this out. We hear that prospects are enquiring. Even before this episode, there are companies that have rationalized and have sub-leased out spaces. Existing tenants are enquiring about how to increase their spaces.

Update: This morning, I came across this post talking about how Coronavirus may prompt Americans to move out of cities.

I think a lot of these things are abit of hyperbole. If the best jobs are still going to be in cities, then you got to stay near there. However, it might make sense to stay close by. This could be like the situation for both Manulife and Prime in their Sacramento purchase. It is to tap into the proximity to the more expensive San Francisco area.

Anyway here is what the experts think:

Hopefully this update can give you a better idea about this US Office REIT. Prime US REIT has run up in price a bit. Still provides a prevailing dividend yield of 9.4% based on a unit price of $0.74.

You can learn about REITs from my REIT Training Center below. It is free btw.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works