February Portfolio

As mentioned in the previous post, I will report on my portfolio with a slightly different format. I hope this provides clarity on the performance of my portfolio and the information will be more useful.

Performance

The past two months, market has performed well and my benchmark STI ETF has returned about 7.3%. My portfolio also has a good run and it has returned 17.4%. Current dividend yield stands at 4.2%.

Allocation

	Planned	Actual
Dividend	~ 60%	56.2%
REIT/ Business Trust	<= 30%	26.9%
Growth	~ 40%	30.8%
Punt	<=10%	5.0%
Cash	0%	13.0%

Action

I have provided update on my actions for January and February earlier. You can read them in these two earlier posts:

• January and February portfolio

• Update on February portfolio

Core holdings

I have decided to report on my top 8 holdings based on initial cash outlay. I will also indicate the purchased price as it might affect the buying/selling decision psychologically even though theoretically, we should just value the company using the current price.

1. Raffles Medical @ $1.48
2. Parkwaylife Reit @ $2.32
3. Straco @ $0.84
4. Best World @ $0.60
5. Valuetronics @ $0.56
6. Fraser Centrepoint Trust @ $2.01
7. SingTel @ $3.82
8. Mirco-mechanics @ $0.91

Update on Goal and Strategies

Two years ago, I had set new investment goal and strategies. You can read about it here. A review was made in December 2016 and you can read about it here.

I would say I have a greater clarity and will like to update my goal and strategies. It’s not far off from what I set in 2015 but there more details are provided.

Goal and Target

Main goal is to achieve financial independence by 55. Stretched goal is to achieve financial independence by 50.

To achieve the above, I am aiming for a compound annual growth rate (CAGR) of 8% for my cash portfolio. My stretched target is to achieve CAGR of 12%.

Strategies

1. Allocating approximately 60% of portfolio to invest in companies (including REIT and business trust) that provides consistent and sustainable dividend. REIT and business trust will not take up not more 30% of the portfolio.

2. Allocating approximately 40% of portfolio to invest in companies that has growth potential. These companies should have great management that has proven track record or they have clear catalysts that will fuel their growth. Approximately 10% of the portfolio can be invested in potential companies that I might not have done my due diligence yet.

Implementation

In the past 2 years, I searched for ideas to build up my portfolio. In theory, I should have done my due diligence before making my purchase. However, that does not quite work out for me, as I am afraid that I would take up too much time to look at the company in depth. By the time, I decided it’s time to buy, the valuation might become too steep.

So typically I would take a small stake (relative to the portfolio) before looking more in depth at the company. Of course, the problem with this approach is that some companies will not fit my requirement and will fall out of my portfolio. Hence, there was a large amount of churning in my portfolio for the past 2 years.

Moving forward, I foresee less churning and my core holdings should remain pretty stable.

Monitoring and Review

For the past 2 years, I have also attempted to report monthly my actions and companies that make up my portfolio. I have decided to relook at how my reporting will look so that it provides the reader and most importantly myself the progress of my portfolio.

Alright, that is about it on this Sunday morning. My next post will be a report on my portfolio at the end of February.

Update on February Portfolio

A few more days to the end of the month and took a few more actions after the release of various results over the past 2 weeks.

I have divested the following:

• Sing Medical: Punted on it in January due a dip in its price (@$ 0.45) and thinking that the new management is doing a good job in turning around the company. It has since risen by 32% and I decide to take profit (@,$0.595) since my understanding of the company is pretty limited. 
• UMS: Took a look at its 3rd quarter report and wasn't quite impressed by it. While it has given out good dividend for many years, my lack of knowledge of it makes me divest it again. This time round  I am lucky, I manage to sell it off @ $0.675 when my purchase price was $0.65.

I have added the following positions.

• Valuetronics: Further increased my stake due to its excellent Q3 results. I expect the good results to continue for Q4 and it should be able to maintain its 20HK cents dividend and there might be a special dividend in celebration of its 25th Anniversary.
• SingTel: Added for its good performance and possible special dividend for its upcomign Netlink Trust IPO.

After the above actions, dividend yield of portfolio stands at 4.1%. My top 8 holdings in terms of initial capital outlay are:

1. Raffles Medical @ $1.48
2. Parkwaylife Reit @ $2.32
3. Straco @ $0.84
4. Best World @ $0.60
5. Valuetronics @ $0.56
6. Fraser Centrepoint Trust @ $2.01
7. SingTel @ $3.82
8. Mirco-mechanics @ $0.91

Raffles Medical Group FY2016

Last September, I have written why I buy RMG at a high valuation of 37x PE. You can read about it here. The group has just announced its results this morning and it is within my expectation.

Revenue has grown 15% but net profit grew by 1.3% only. As mentioned earlier, I expected its earning to be lumpy for the next 2 years due to its expansion. Staff cost which takes up about 50% of the revenue has increased by 19%. Having said that it is heartening its operation cash flow has increased by 8%.

I took a look at its performance in 2001 when Raffles Hospital opened. That year, they made a loss. The loss was reversed the subsequent year and from 2002 to 2012, RMG earning grew at CAGR of 29%. With a much stronger balance sheet now, I doubt they would go into a loss but a dip in net profit in 2017/2018 is definitely possible. However, from 2019 onwards, I expect a good growth in its earning.

So why not sell now and purchase only in 2018 or 2019? I guess I am afraid that management proves me wrong and do even better than my expectation and earning continues to grow from 2017 and I would not be able to participate in its growth for the next decade.

I will continue to hold on to my current stake but will not add on in the short term.

January and February Portfolio

It has been a busy past 6 weeks. Things are finally looking to settle a bit and it's time to continue to keep in touch with my thinking and reflection on my investment.

It has been a good start to the year for the market and my portfolio also benefitted from it. Year to date, it has returned 12.8%. Woohoo, I hit my target in less than two months. So would I achieve another 40% return this year? I hope so but you never know. Who knows? The market might just turn south any time. So continue to monitor the company's performance and invest/divest at the right time for the long term.

I have divested the following for the first one and a half month to increase my cash buffer and to reduce my REIT exposure.

• Best World: Partial sold as it has rose more than 50% within a month. It continue to be in my top 5 stocks holding.
• Thai Beverages: Among the few counters that I punted, I am just more excited about the rest.
• Raffles Medical Group: Partial sold to reduce my exposure. Remain my top stock in terms of initial capital outlay.
• CDLHT: To reduce my REIT exposure to within 30%.
• Starhill Global: To reduce my exposure to retail reit. And currently I favour neighbourhood reit more.

I have added the following positions.

• Valuetronics: Increased my stake slightly for its dividend.
• UMS: Bought a small stake after reading its plan to divest its customer base and attracted by its consistent dividend.
• Micro-mechanics: Increased my stake after it announced its good improvement in its latest quarter. Attractive dividend and potential of further growth.
• Dutech: Took a very small stake after reading Thumbtack Investor's detailed analysis
• Sing Medical: Took a very small stake as I perceived that the new management will continue to improve the group's performance
• Fraser Logistics and Industrial Trust: Took a very small stake after reading about it on The Edge and Dividend Warrior's analysis.

After the above actions, my top 5 holdings in terms of initial capital outlay are:

1. RMG @ average price of $1.48
2. Plife Reit @ average price of $2.32
3. Straco @ average price of $0.84
4. BWL @ average price of $0.60
5. FCT @ average price of $2.01

REIT Reporting Period Part 3 (Final) - Industry REIT

Decided to divest from industrial REIT in 2015 as I do not quite have a sense of the industrial space business. Unlike retail REIT where I can have rough sense of mall's occupancy and traffic by visiting the malls, I do not visit the business spaces.

So why did I purchase a small stake of AReit in the last week of December? The yield of about 7% for a blue-chip industrial REIT was just too tempting. In a way, I bought impulsively without even looking at its performance for current year. I am lucky that it turned out well thus far with a positive performance this year.

Revenue grew 7.6% and net property income grew 9.0%. DPU grew by 1.2% to 3.993 cents despite increase in units.  NAV of $2.08 and gearing at 31.8%. 

After browsing thought its presentation slides, I think AReit DPU should stay fairly stable. Will continue to hold on to my small stake.

Full presentation by company here.

REIT Reporting Period Part 2 - Healthcare REIT

Another stable set of results from both PLife REIT and First REIT.

PLife - 2016
Revenue grew 7.2% and net property income grew 6.7% with recurring DPU up by 2.8%. NAV of $1.72 and gearing at 36.3%. Next few quarters should continue to be stable with slight increase in DPU due to divestment gain of its 4 Japan properties and its rental reversion model.

Based on 2016 DPU of 12.12 cents, my yield at average cost of $2.32 stands at 5.2%. I am satisfied with the return and might add on when the price is right.

Full presentation by company here.

First REIT - 2016
Revenue grew 6.3% and net property income grew 6.6% with recurring DPU up by 2.0%. NAV of $1.00 and gearing at 31.1%. Dropped in gearing due to issue of S$60 million of subordinated perpetual securities in July 2016.

From 2010 onwards, First REIT has on average acquire 1 property from its sponsor per year. I believe this will continue as it has more headroom for debt with the reduce gearing and its sponsor has a pipeline of hospitals which the REIT has the right to first refusal.

With rental revision from 2020, that will be another boost of its DPU.

I bought First REIT using my CPF in 2007/2008 and have enjoyed the increase in its distribution for the past decade. Also, as I have reached my CPF limit for stock investing, I have participated in DRIP for First REIT to increase my holdings. Unless something drastic happens, I will continue to do this for the next decade.

Full presentation by company here.

REIT Reporting Period Part 1 - Retail REIT

In general, I am satisfied with the reported performance of the REIT that I owned. I will briefly touch on their performance and my take on them.

FCT - 20171Q
Revenue dropped by 6.4% and net property income dropped by 5.7% but interestingly DPU increased slightly by 0.7%. Read somewhere but can't remember where that this is due to REIT Manager receiving their payments in units instead of cash, hence able to maintain the DPU. NAV remains at $1.93 with gearing of 29.7%.

Next 2 quarters should see a further drop in all metrics as average occupancy rate of Northpoint due to AEI will be about 65% compared to the average of 78% for phase 1 AEI. However, things should look better after that with the expected 9% increase in rental reversion after the AEI.

I am pretty confident that FCT should more or less be able to maintain its 2016 DPU. Even with a drop of 5%, the dividend yield based on my average purchase cost of $2.01 will be around 5.5%. Pretty decent I would say and am sure that the manager will continue to look for way to grow the DPU just like it did over the past decade.

Full presentation by company here.

Starhill Global - 2016/17 2Q
Revenue dropped by 2.8%, net property income dropped by 5.4% and DPU dropped by 4.5%. NAV remains at $0.92 with gearing of 35.2%.

Weaknesses are seen Singapore office space in both Wisma and Ngee Ann, retail space in Wisma, Plaza Arcade redevelopment and of course the drag by Renhe Spring Zongbei Property performance.

I think SG Reit will continue to be affected by the weakness in Singapore office space and redevelopment of Plaza Arcade for the rest of the year. It is good that they have resolved the issue of Renhe Spring Zongbei Property. Assuming the continue drop in DPU widen and 2017 payout reduced by 10%, my purchase yield is still about 7% and based on current price of $0.75, yield is about 6.2%. Again, pretty decent but unsure if payout will continue to trend downwards.

Full presentation by company here.

CMT - 2016
Revenue increased by 3.1%, net property income increased by 2.9% but DPU dropped by 1.1%. NAV remains at $1.86 with gearing of 34.8%.

There isn't much catalyst or concern in near term. I expect CMT to continue to sustain its dividend. Funan redevelopment will only be completed in 2019 and that should boost its DPU then.

Full presentation by company here.

My Thinking and Action
Unlike the past decade, growth of retail reit is slowing down. I think it will be able to sustain its dividend but I do not expect much growth. While e-commerce is a concern, I think retail space is still necessary and I do not foresee a huge drop in occupancy rate soon.

With purchase of FCT and CMT over the past few months, I am a tad overexpose in retail reit and am looking to trim some holdings from Starhill Global. While it offers me the greatest yield, I am more attracted to the stability of FCT and CMT at this moment. Among the 3 REIT, current favourite is FCT with its lowest gearing. I am hopeful that its Northpoint AEI will boost its return and would love to have Waterfront Point to be inserted to its portfolio soon.