Gawd..This post took a really really long time for me to come out with (psst.. Pokemon..psst..Girlfriend). π
Basically, I have came up with a template containing all the factors that I will usually consider when analysing REITs, and allocating a value to those factors.
However, I will not be making my final decision solely based on these values though.
This is because I know that this template will not be comprehensive enough and I am bound to miss out on some other variables which will impact the investment.
What this template does is to simply allow me to analyse the REITs systematically so that I get to cover as wide an angle as I possible can.
But firstly! I would like to thank AK for providing some food for thoughts for the creation of this simple template. I attended one of his sessions and he passed us a slip of paper containing his selection criteria for REITs which I find really useful and have since included some of them in my template.
Okay. Back to my post now. Remember when I mentioned in my previous post that I have a few counters that caught my eyes?
Well, Far East Hospitality Trust (FEHT) was one of those few counters.
Why is that so, you asked?
Hmm, a quick glance at its annual report will throw up some pretty enticing reasons for us to bite into itπ! Let's see..
1) NAV of $0.932 is some 51.55% higher than current market price of $0.615
2) Yield of 7.48%
3) Relatively low gearing at 32.7%
4) A portfolio of attractive and well located properties; I stayed in one of'em (The Quincy) and love the stay to bits!
And so the 4 factors above are the usual bare minimum metrics I look into when filtering the REITs that I am interested in before putting more effort into analysing them.
With FEHT fulfilling the above personal selection criteria, let me delve deeper into understanding it before committing more of my scarce warchest to it.
Here we go!
Financial Analysis
1) Is the Purchase price lower or equal to Net Asset Value Per Share (NAVPS)?
Remarks: Purchase Price=$0.615, NAVPS=$0.932, Discount=34.01%
2) Is the Gearing below 36%?
Remarks: Gearing ratio = 32.7%
3) Loan profile. (No. and types of lenders, loan maturity, interest cover ratio, loan denominated in which currency, etc)
Remarks: Total Borrowing of S$819mil. S$37mil due in 2016, S$250mil due in 2017, S$232mil due in 2018, S$100mil due in 2019 and the balance S$200mil due beyond 2020.
S$782.15mil unsecured loan provided by 4nos financial institutions are fully drawn down.
S$100mil uncommitted revolving credit facilities (RCF) available out of which S$36.9mil has been drawn down and fully payable on demand.
4) Yield Per Year?
Remarks: Based on purchase price of $0.615 and 2015 DPU of $0.046, Yield = 7.48%
5) Any financial engineering involved to boost income?
Remarks: I did not manage to uncovered any financial engineering (income support etc.).
6)Are the foreign currency risk sufficiently hedged?
Remarks: No foreign currency risk. All loan and income in SGD.
I discounted the DPU figures for 2012 since I cannot make a full year-to-year comparison between 2012 and 2013.
And so the 4 factors above are the usual bare minimum metrics I look into when filtering the REITs that I am interested in before putting more effort into analysing them.
With FEHT fulfilling the above personal selection criteria, let me delve deeper into understanding it before committing more of my scarce warchest to it.
Here we go!
REIT Analysis Checklist
Stockcode: Q5T
Financial Analysis
1) Is the Purchase price lower or equal to Net Asset Value Per Share (NAVPS)?
Remarks: Purchase Price=$0.615, NAVPS=$0.932, Discount=34.01%
50% lower than NAVPS
|
40%-50% lower than NAVPS
|
30%-40% lower than NAVPS
|
20%-30% lower than NAVPS
|
10%-20% lower than NAVPS
|
<10% lower than NAVPS
|
Score Awarded
|
|
Score
|
12
|
10
|
8
|
6
|
4
|
2
|
8
|
2) Is the Gearing below 36%?
Remarks: Gearing ratio = 32.7%
Gearing Ratio more than 40%
|
Gearing Ratio 36%-40%
|
Gearing Ratio 31%-35%
|
Gearing Ratio 26%-30%
|
Gearing Ratio 20%-25%
|
Gearing Ratio less than 20%
|
Score Awarded
| |
Score
|
6
|
8
|
10
|
4
|
2
|
0
|
10
|
3) Loan profile. (No. and types of lenders, loan maturity, interest cover ratio, loan denominated in which currency, etc)
Remarks: Total Borrowing of S$819mil. S$37mil due in 2016, S$250mil due in 2017, S$232mil due in 2018, S$100mil due in 2019 and the balance S$200mil due beyond 2020.
S$782.15mil unsecured loan provided by 4nos financial institutions are fully drawn down.
S$100mil uncommitted revolving credit facilities (RCF) available out of which S$36.9mil has been drawn down and fully payable on demand.
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
5
|
2.5
|
0
|
2.5
|
4) Yield Per Year?
Remarks: Based on purchase price of $0.615 and 2015 DPU of $0.046, Yield = 7.48%
Yield more than 8%
|
Yield between
6% - 7.9% |
Yield between
5% - 5.9% |
Yield between
4% - 4.9% |
Yield between
3% - 3.9% |
Yield less than 3%
|
Score Awarded
| |
Score
|
12
|
9
|
6
|
4
|
2
|
0
|
9
|
5) Any financial engineering involved to boost income?
Remarks: I did not manage to uncovered any financial engineering (income support etc.).
Yes
|
No
|
Score Awarded
| |
Score
|
0
|
3
|
3
|
6)Are the foreign currency risk sufficiently hedged?
Remarks: No foreign currency risk. All loan and income in SGD.
Yes
|
Not Applicable
|
No
|
Score Awarded
| |
Score
|
5
|
5
|
0
|
5
|
7) Did the DPU improve for the last 5 years?
Remarks: 2015-$0.046 2014-$0.0514 2013-$0.0564 2012-$0.0209 (IPO in mid-2012)
Remarks: 2015-$0.046 2014-$0.0514 2013-$0.0564 2012-$0.0209 (IPO in mid-2012)
I discounted the DPU figures for 2012 since I cannot make a full year-to-year comparison between 2012 and 2013.
DPU improve for 5 out of 5 years
|
DPU improve for 4 out of 5 years
|
DPU improve for 3 out of 5 years
|
DPU improve for 2 out of 5 years
|
DPU improve for 1 out of 5 years
|
DPU improve for 0 out of 5 years
|
Score Awarded
| |
Score
|
12
|
9
|
6
|
4
|
2
|
0
|
2
|
8) Is the receivables too excessive compared to ' Cashflow from Operations'?
Remarks: Based on 2015 Annual Report, Trade receivables is at $30,510,000 while Cashflow from Operations is at $110,621,000. Hence, receivables are only 27.58% of cashflow.
Fundamental Analysis
9) Quality of Management
9a) Any directors with political connection?
Remarks: Mr Koh Boon Hwee served on the board of Temasek Holdings from 1996 -2014. While not a political party, the opportunity to sit on the board of Temasek Holding would have provided invaluable insight on Singapore economy masterplan, such as for the hospitality sector.
9b) Any directors with banking background?
Remarks: Mr Koh Boon Hwee (DBS), Mr Wee Kheng Jin (Citibank), Mr Willie Cheng Jue Hiang (UOB)
9c) Any directors with outstanding relevant experiences with respect to the industry in which the Company is involved in?
Remarks: Mr Koh Boon Hwee (SIA - Aviation), Mr Kyle Lee (CapitaLand Mall Trust), Mr Huang Cheng Eng (Singapore Tourism Board)
9d) If the Company has operations overseas, does the Company have any directors well-acquainted with the oveaseas' culture?
Remarks: No overseas operation. Not applicable.
10) Quality and diversity of tenants
Remarks: Bulk of FEHT revenue are derive from visitors. Commercial tenant consisting of only 20.6% of revenue.
Hence, there is not much of a tenant mix for hospitality sector as tenants consist of either independent visitors on leisure purpose, or corporate visitors; both of which will be immediately affected adversely in a climate of economical uncertainty or strengthening SGD.
11) Quality of lease (WALE, rental escalation, etc)
Remarks: Majority of lease is based on duration of visitors stay, which are extremely short-term. Lease of commercial tenants consist of only 20.6% of revenue, and can be considered negligible.
12) Occupancy level (in comparison to industry average)
Remarks: Hotel average occupancy for FY15 was 85.4%, in comparison to industry average of 85%.
Service Residence average occupancy for FY15 was 87%. Was unable to obtain the industry average occupancy for Service Residence but comparison made to FEHT's Service Residence average occupancy for FY14 shows a decline of 0.5%.
13) Type and duration of property lease.
Remarks: Average remaining lease tenures for all 8nos hotel are 68.125years.
Average remaining lease tenures for all 4nos Service Residence are 77years.
14) Is the market sector in which the Company is involved in, currently on a uptrend, stagnant or on a downtrend?
Remarks: Taking figures from Singapore Tourism Board (STB), number of hotel rooms are expected to increase by 4.43% from existing stock of 60,908 for 2016. Meanwhile, STB forecast visitors arrival to Singapore in 2016 to increase in the range of 3%.
Incoming hotel room supply over the next 2 years (2016 & 2017) is expected to put pressure on occupancy and Average Daily Rate (ADR) over the short term and hence, I believe this sector will be on the downtrend in the short term.
15) Are the economies of the countries in which the Company has operations in, currently on a uptrend, stagnant or on a downtrend?
Remarks: Government growth estimates for Singapore range from 1% - 3% while the private sectors estimates it to be around 1.9% (link: http://www.channelnewsasia.com/news/singapore/analysts-cut-2016-growth/2607108.html).
While not considered a downtrend, the growth estimates are not worth shouting about and can be considered to be stagnant.
With a score of 62.75, I personally feel that FEHT can be a counter to add to my portfolio by having a small nibble at it (perhaps 5%).
However, with limited warchest (feeling the financial agony of a wedding now!), I intend to stay on the sideline for now until my finances are in better order after September.
Why September?
Discussion on the bride dowry (θι) !
I really do not own a money printing machine you know:(
But oh well, if I have to sell everything to have Missus PassivePeon's hands, then I'll gladly do so (tacky!).
Hey Missus PassivePeon! If you are reading this, show some leniency and pity for my wallet alright? :p
Remarks: Based on 2015 Annual Report, Trade receivables is at $30,510,000 while Cashflow from Operations is at $110,621,000. Hence, receivables are only 27.58% of cashflow.
Receivables <11% of Cashflow from Operations
|
Receivables 11% to 20% of Cashflow from Operations
|
Receivables 21% to 30% of Cashflow from Operations
|
Receivables >30% of Cashflow from Operations
|
Score Awarded
|
|
Score
|
6
|
4
|
2
|
0
|
2
|
Fundamental Analysis
9) Quality of Management
9a) Any directors with political connection?
Remarks: Mr Koh Boon Hwee served on the board of Temasek Holdings from 1996 -2014. While not a political party, the opportunity to sit on the board of Temasek Holding would have provided invaluable insight on Singapore economy masterplan, such as for the hospitality sector.
Yes
|
No
|
Score Awarded
|
|
Score
|
2.5
|
0
|
2.5
|
9b) Any directors with banking background?
Remarks: Mr Koh Boon Hwee (DBS), Mr Wee Kheng Jin (Citibank), Mr Willie Cheng Jue Hiang (UOB)
Yes
|
No
|
Score Awarded
| |
Score
|
5
|
0
|
5
|
9c) Any directors with outstanding relevant experiences with respect to the industry in which the Company is involved in?
Remarks: Mr Koh Boon Hwee (SIA - Aviation), Mr Kyle Lee (CapitaLand Mall Trust), Mr Huang Cheng Eng (Singapore Tourism Board)
Yes
|
No
|
Score Awarded
| |
Score
|
5
|
0
|
5
|
9d) If the Company has operations overseas, does the Company have any directors well-acquainted with the oveaseas' culture?
Remarks: No overseas operation. Not applicable.
Yes
|
Not Applicable
|
No
|
Score Awarded
|
|
Score
|
2.5
|
2.5
|
0
|
2.5
|
10) Quality and diversity of tenants
Remarks: Bulk of FEHT revenue are derive from visitors. Commercial tenant consisting of only 20.6% of revenue.
Hence, there is not much of a tenant mix for hospitality sector as tenants consist of either independent visitors on leisure purpose, or corporate visitors; both of which will be immediately affected adversely in a climate of economical uncertainty or strengthening SGD.
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
2.5
|
1.25
|
0
|
0
|
11) Quality of lease (WALE, rental escalation, etc)
Remarks: Majority of lease is based on duration of visitors stay, which are extremely short-term. Lease of commercial tenants consist of only 20.6% of revenue, and can be considered negligible.
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
2.5
|
1.25
|
0
|
0
|
12) Occupancy level (in comparison to industry average)
Remarks: Hotel average occupancy for FY15 was 85.4%, in comparison to industry average of 85%.
Service Residence average occupancy for FY15 was 87%. Was unable to obtain the industry average occupancy for Service Residence but comparison made to FEHT's Service Residence average occupancy for FY14 shows a decline of 0.5%.
Uptrend
|
Stagnant
|
Downtrend
|
Score Awarded
| |
Score
|
5
|
2.5
|
0
|
0
|
13) Type and duration of property lease.
Remarks: Average remaining lease tenures for all 8nos hotel are 68.125years.
Average remaining lease tenures for all 4nos Service Residence are 77years.
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
5
|
2.5
|
0
|
5
|
14) Is the market sector in which the Company is involved in, currently on a uptrend, stagnant or on a downtrend?
Remarks: Taking figures from Singapore Tourism Board (STB), number of hotel rooms are expected to increase by 4.43% from existing stock of 60,908 for 2016. Meanwhile, STB forecast visitors arrival to Singapore in 2016 to increase in the range of 3%.
Incoming hotel room supply over the next 2 years (2016 & 2017) is expected to put pressure on occupancy and Average Daily Rate (ADR) over the short term and hence, I believe this sector will be on the downtrend in the short term.
Uptrend
|
Stagnant
|
Downtrend
|
Score Awarded
|
|
Score
|
2.5
|
1.25
|
0
|
0
|
15) Are the economies of the countries in which the Company has operations in, currently on a uptrend, stagnant or on a downtrend?
Remarks: Government growth estimates for Singapore range from 1% - 3% while the private sectors estimates it to be around 1.9% (link: http://www.channelnewsasia.com/news/singapore/analysts-cut-2016-growth/2607108.html).
While not considered a downtrend, the growth estimates are not worth shouting about and can be considered to be stagnant.
Uptrend
|
Stagnant
|
Downtrend
|
Score Awarded
|
|
Score
|
2.5
|
1.25
|
0
|
1.25
|
Total Score Awarded = 62.75 out of 100 Points
With a score of 62.75, I personally feel that FEHT can be a counter to add to my portfolio by having a small nibble at it (perhaps 5%).
However, with limited warchest (feeling the financial agony of a wedding now!), I intend to stay on the sideline for now until my finances are in better order after September.
Why September?
Discussion on the bride dowry (θι) !
I really do not own a money printing machine you know:(
But oh well, if I have to sell everything to have Missus PassivePeon's hands, then I'll gladly do so (tacky!).
Hey Missus PassivePeon! If you are reading this, show some leniency and pity for my wallet alright? :p
