Investment Moats

How much investment returns is City Harvest Church looking for?

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I came across this commentary on Freight Links Express, a SGX listed entity business and was intrigued by their latest loan to Galaxy Capital.

The terms is this:

  • Freight Link subsidiary Glory Capital will loan 45 mil to Galaxy Capital
  • 6 years 8% interest rate
  • On top of this, City Harvest will pay a front-end fee of $13 mil over 5 years, yearly 2.6 mil installment
  • Loan is secured against Suntec Singapore. In the event of default, Freight Links can in turn own the equity of Suntec Singapore
  • Total Unleveraged return to Freight Links 12.8%
  • Galaxy Capital will use majority to refinance loan which in turn, is loan to City Harvest to finance the acquisition of a portion of Suntec Singapore

City Harvest Church has increased its stake in Suntec Singapore International Convention and Exhibition Centre to 39.2 per cent, from its original 20 per cent in 2010.

Speaking at its Saturday evening service, the church’s executive pastor, Aries Zulkarnain, told the delighted 6,000-strong congregation that “to put it simply, we are co-owners of this property together with Suntec REIT.”

However, he reminded he congregation, “We are not into building buildings, we are into building lives. All we have done these 23 years has been in obedience to God and his call.”
He explained that in 2010, CHC’s wholly-owned subsidiary, Urban Property Investments Limited acquired a 20 per cent effective shareholding in Suntec Singapore for a total of $43.8 million.

Last year, it then acquired an additional 19.2 percent for a purchase price of $54 million. To date, the church has spent $97.8 million on purchasing its current 39.2 stake in the property. – Yahoo Singapore 2012

 

While I am intrigued by the rate of return and the downside protection structured, what goes through my head is

  • Why can’t Galaxy Capital go to a financer like the 3 big banks, Hong Leong to get this loan? Couldn’t they get a cheaper financing?
  • While the terms is short, the amount of coupon paid seems to suggest that there are some risks that I have not account  for. What could that be?
  • The unleveraged ROA for most REITs, Infrastructures  and similar have fluctuate around 5-7%. The fact that this wasn’t part of a REIT lets us know that the ROA for this convention is much higher than that.
  • Assuming Galaxy Capital is the only loan source and they are geared 50%, investment returns will have to be 6.5% upwards

Certainly I think the returns are very handicapped by such high upfront sales charges and interest.

If ROA is 10% their leveraged return will be 7%, the equivalent of an industrial REIT.

I wonder can the convention return 10% ROA.

Are HDB Flat better investment than stocks and bonds?

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It is probably the trend that property is a good inflation hedge, since it will definitely end up higher in value compare to stocks, which can just die off under mismanagement.

It got me thinking while I was studying for my exams.

A 5 room HDB flat that you bought in 1999 for $267k. Now can sell for $550k.

Duration = 13 years

Appreciation = 106 %

Annualized returns = (1+1.06)1/13 = 5.7 % per annum

If you are not renting it, is 5.7% a good return? I think you have to rent because if you don’t rent it doesn’t show the full potential of HDB.

If you rent at least 2 of your room for $1000 per month, your 13 year return is $156k. or 58.42% returns from rental.

Total returns = 106% + 58.42% = 164.4%

Annualized returns = (1+1.64.4)1/13 = 7.7% per annum

Man, I thought the figure will be higher! Still its not bad!

Corporate Bonds

Bonds are a bit out of reach for retail investors. You have LTA bonds yielding 4.17% for the 10 years duration. If you hold the bonds for this 10 years, unless LTA defaults, you get back your principal sum.

Dairy Farm

Lets take mom and pop store operator Dairy Farm Group. It operates your Cold Storage, Giant, Guardian I have records of it from 2002.

Duration = 10 years

Appreciation = 1523%

Dividend Returns = 311%

Total Returns = 1834%

Annualized returns = (1+ 18.34)1/10 = 34% per annum

Dividend returns = (1+3.11)1/10 = 15% per annum

SIA Engineering

Another stable maintenance house that have a sturdy economic model. I have records since 2001

Duration = 11 years

Appreciation = 200.76%

Dividend Returns = 150.76%

Total Returns = 351.52%

Annualized returns = (1+3.5152)1/11 =  14.68% per annum

Dividend returns = (1+1.5076)1/11 = 8.7% per annum

Suntec REIT

A real estate investment trust that didn’t carry out any rights issue. We have records since 2006, which is near the height of the Great Financial Crisis

Duration = 6 years

Appreciation = 14%

Dividend Returns = 72.45%

Total Returns = 86.45%

Annualized returns = (1+0.8645)1/6 = 10.9% per annum

Dividend returns = (1+0.7245)1/6= 9.5% per annum

Singtel

One of South East Asia’s biggest telco. Lousy service according to a lot of folks but still you can’t live without it. Share price have been in zombie mode.

Duration = 10 years

Appreciation = 83.83%

Capital Return (from share reduction) = 5.3%

Dividend Returns = 87.03%

Total Returns = 176.16%

Annualized returns = (1+1.7616)1/10 = 10.69% per annum

Dividend returns = (1+0.8703)1/10 = 6.4% per annum

Capitaland

South East Asia big property developer. If the housing boom in Asia is great they must be doing even better!

Note: Gave out 1 CapitaCommercial Trust shares for 5 Capitaland shares in 2004, one rights issue at $1.30 in 2009

Duration = 12 years

Appreciation = 35.21%

Dividend Return = 27.47%

Value of CapitaCommercial share returns = 10.6%

Total Returns = 73.28%

Annualized returns = (1+0.7328)1/12 = 4.68% per annum

Ascendas REIT

The oldest REIT around since 2002. It had a total of 4 rights issues in 2004 (twice), 2005 and 2009 during crisis times

Duration = 10 years

Appreciation = 125%

Dividend Return = 104%

Total Returns = 229%

Annualized returns = (1+2.29)1/10 = 12.6% per annum

Dividend returns = (1+1.04)1/10 = 7.3% per annum

OCBC Bank

The world strongest bank according to some metrics. We have 11 years data.

Duration = 11 years

Appreciation = 68.76%

Dividend Return = 60.09%

Total Returns = 128.85%

Annualized returns = (1+1.2885)1/11 = 7.8% per annum

Dividend returns = (1+0.6009)1/11 = 4.3% per annum

Conclusion

Surprising the stocks did pretty ok going through one bull market and a very bad bear market.

Note that I covered some random REITs and blue chips.

There are some that I include it will show that asset selection plays a part. The returns are worse than that of HDB flats. Then I have many if you hold for 6-8 years you get the kind of Dairy Farm returns.

When we talk about asset selection we are talking about the quality of the company, the valuation you buy it at.

I came to a conclusion that housing like stocks and bonds go through their cycles, and the investor have to be smart enough to know that and buy at the right valuation.

But the one thing that you can do with HDB that you cannot do with stocks and bonds easily: cheap leverage.

You can leverage up to 80% and that will boost your returns.

Other than that, the advantage and disadvantage are not that different. Suntec REIT and Ascendas REIT have shown you can get pretty good returns by having competent management to look after it.

The idea that your flat returns are great is perhaps people didn’t take into account how long the flat have been held. Using the formulas i have shown here you can calculate your own flat’s annualized returns.

So do show me some crazy flat returns going back to 1980s!

I run a free Singapore Dividend Stock Tracker . It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.

Yield Watch:Suntec, Ascendas and M1 at oversold levels

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We got 3 stocks today that looks pretty over sold

Ascendas REIT

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It has been hovering at this level for some time. One of the biggest REIT around and certainly a good forward yield at 6.9%. It does look like it has a tendancy  of turning down.

Suntec REIT

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The office REIT sector have been hard hit by a slew of office spaces fighting for occupancy. Is 1.36 a good level? Do note that forward yields are lower than the past.

M1 Limited

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Or thats what we will be calling it in the future as part of the AGM resolution is to change the name to such. I really hope they did a feng shui analysis on this. Although the breadth indicators look good, i am skeptical that i am suppose to pay a historical safe 6.4% yield at this price.

We really hope that there is a earnings revision upwards, else the yield does not present a good risk vs reward.

I run a free Singapore Dividend Stock Tracker available for everyone’s perusal. Do follow my Dividend Stock Tracker which is updated nightly  here.

Yield Watch:Good Day for Suntec REIT

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Gotta say that cause of work i missed out on an anticipated trade for Suntec REIT. Moved up quite well today. This end of the year work year can be a bitch to an investor like me who is still working hard.

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For those of you interested in investing in the 3 Telcos in Singapore, i have come up with a guide to telco investing on M1, Starhub and Singtel.Its my most comprehensive yet.

Judging by this current state i would most likely take up a position in Starhub rather than M1. The risk to M1 seems larger due to the execution of NBN and its contribution to bottom line. I would rather see one quarter and how it looks like.

Both have reached overbought levels and it may be prudent to wait and buy on the dips for these counters.

Here are today’s figures. Do follow my Dividend Stock Tracker which is updated nightly  here.