Wednesday, August 21, 2019

The Power Of Compounding Dividends & A Mystery Counter Revealed

The Snowball Effect Over Last 5 Years
My overall portfolio value as well as dividend stream has grown considerably since 2014. Besides injecting fresh capital, consistently re-investing my dividends has started to make an impact. Compounding growing dividends over long periods of time has been the cornerstone of my investing strategy. I believe this strategy is probably one of the best 'wealth-creating machines' on earth, especially for the ordinary man on the street. Tried and tested. 

Time in market is better than timing the market

   Top 10 Core Holdings
Are you able to spot the mystery counter? :)

Thursday, August 15, 2019

Returns On University Education

Going through the public education system is a rite-of-passage for most Singaporean children. The Singapore education system is highly-regarded world-wide on most measures. School fees are heavily subsidised from kindergarten to Junior College levels. It is generally considered worthwhile for students and parents to 'invest' time, effort and money into this glorious 20-year 'paper chase'. However, the ROIC (Returns On Invested Capital) becomes trickier at the tertiary level. Is it still worthwhile pursuing that part-time degree at a private university like SIM?

Many years ago, one of my friends got a degree from SIM after spending close to S$30k on fees and 3 years of his life.  When I casually probed him about the motivations behind his pursuit of this degree, he gave me the expected answers. "I wanted to make my parents proud. I see many of my friends and relatives are graduates and I want to be like them. I wanted to show them I am smart too. Having a degree will help me get a better-paying job too." Sadly, he was wrong on all accounts. Sure, his parents were initially proud of him, smiling widely at the graduation ceremony. They probably have the old-fashion mindset of equating a degree to a lucrative job. Well, times have changed. Graduates of all kinds are flooding the job market now.

Secondly, getting a degree from SIM will not make you appear 'smart' to your friends, relatives or future employer. In fact, it has quite the opposite effect. That degree from SIM actually showed my friend's academic mediocrity when placed against other candidates from more prestigious universities like NUS/NTU/SMU.

He gave up searching for a proper, full-time job after 2 years. Don't worry, he did not end up driving for Grab or delivering food for FoodPanda. He spent the next 8 years dabbling in 'small' businesses which he claimed vehemently he was passionate in. His latest business venture is running a pomelo farm in Vietnam. So far, he has little returns to show for it and almost no CPF savings at all. The harsh reality is that in the end, the ROC of his university education was practically zero. 3 years of his life and S$30k in fees down the drain, forever, plus opportunity costs. He did not get the status, recognition and job security that he thought he would. 

To conclude, I guess my hard-truth message to those impressionable youngsters out there who are dealing with social/peer pressures is this - if you plan to get a sub-par degree from a sub-par university, you are better off not getting one.

Sunday, August 11, 2019

Dividend Warrior's Football 'Portfolio' Team (19/20 Season)

This post on my 'portfolio' soccer team was one of my most read posts last year. So, I decided to do another one :)

This season, I shall be using the 4-3-3 formation. This formation offers the best flexibility in the current low interest rate, slow growth macro environment. The pace and movement of the veteran attackers, support of the fullbacks, and offensive midfielders will combine to overload the opponent's defence with 'Power of CD'. I believe this formation can be a massive success if you have the right players to play to its strengths. You can sit back in a 4-5-1 formation when under pressure (market correction) and hit the opponent on the counter-attack (deploy cash warchest). Or the fullbacks can push forward and the defensive midfielder drops back between the two centre-backs to form a 3-4-3 formation (sit tight and collect CD). I have signed a new, top quality inside forward (UOB) on 14 May.

Substitutes bench: CMT, SATS, FLT, Propnex, APAC Realty, HRnet, F&N

Wednesday, August 7, 2019

Dividend Warrior's 3Q2019 S-REITs Performance And Passive Income Update

FCT acquired a one-third stake in Waterway Point Mall

FLT acquired 12 logistics properties in Australia and Germany

*Thanks for all the support over the years. My blog has finally surpassed 3 million views! ^__^

Sunday, June 30, 2019

Dividend Warrior 1H2019 Portfolio Update - Best Quarter Ever!

Portfolio Cost: S$457, 975
Portfolio Market Value: S$593, 943 (+39.2% year-on-year)
Portfolio Overall Unrealized Profit: S$135, 968 (+29.7%)
Portfolio YTD Unrealized Profit: S$68, 660 (+11.5%)
Portfolio XIRR (including dividends): 14.63%
Portfolio XIRR (2019): 48.71%
Dividends Collected (1H2019): S$13, 410 (+11.6% year-on-year)
Current Warchest: S$7, 800

Portfolio Actions in 2Q2019:
  • Initiated positions in APAC Realty, Propnex Group, HRnet Group, F&N and UOB
  • Took SCRIP dividends for OCBC
  • Took SCRIP dividends for Raffles Medical
  • Applied & allocated 1000 units for Frasers Centrepoint Trust's preferential offering

Singapore Market Becoming A Top Hub For REITs
Global markets had quite a roller-coaster ride from May to June, right? It had been a hectic quarter as I opened my warchest and deployed funds according to my preset investment plan. The escalating trade tensions between the US and China turned out to be a blessing in disguise, especially for my portfolio. A synchronized global slowdown would prompt the US Federal Reserve to be more dovish in the second half of 2019. And we all know REITs generally thrive in a dovish environment. First, prolonged low interest rates would reduce the burden of debt refinancing for REITs. Although the REITs I am currently holding have healthy gearing ratios (below 38%), I don't mind a 'helping hand' from a dovish Fed. Second, an extended period of low interest rates would lead to a world that is hungry for yield, thus boosting the demand for yield instruments such as REITs. Those glorious days of high fixed deposit interest rates are not coming back, ever. This is the new norm now. We have to face reality and make the best of it. 

Singapore's economy has become a capitalistic utopia/dystopia, depending on your perspective. It is a system of rental income extraction by entrenched giant landlords (REITs). Many developed countries with matured real estate markets do show similar signs. For example, collectively, the local retail market is dominated by CMT, FCT, MCT, Suntec REIT and Starhill Global. If one is invested in all these retail REITs, he/she would essentially gain exposure to almost all major shopping malls in Singapore. The Pioneer Generation did not have the opportunity to participate in this rental extraction bonanza. As the third generation Singaporeans, we should thank our lucky stars and try our best to extract as much financial benefits as possible out of this 'rental economy'. In my opinion, real estate is one of the very few business sectors left that is still resilient to disruption. For example, even a disruptive and fast-growing tech company like Grab has to lease office space for its employees. Grab will be leasing its new, state-of-the-art headquarters from Ascendas REIT at One-North business park. This new building will house Grab's largest R&D centre as well as around 3000 employees. Being a unitholder of AREIT, I stand to capture some of Grab's future growth indirectly.

Less Obsessed On Beating The Market
The grim reality is that most retail investors fail to beat the market over the long-term. Even professional active investment fund mangers struggled to outperform the market consistently over many years. All the fees and commissions erode long-term returns. The more actively you trade, the more harm you do to your portfolio. Our worst enemies in investing are often ourselves. So, how do we, as individual investors, beat the market? Well, we don't. Ignore the 'beat the market' hype that pervades the investing scene. 

We are not highly-paid fund managers who need to answer to demanding clients every quarter. No one to pressure me to take profits when the market appears 'frothy'. No need to chain ourselves rigidly to the STI performance benchmark. We are not competing against rival managers to attract more clients. We are in competition only with ourselves. I am alright that my portfolio performance does not beat the STI every year, as long as my dividend growth rate does. Don't get me wrong, I am not saying it is fine for my portfolio to be decimated more than 50% in a year. Nobody wants that! I'm just saying that I am no longer obsessed with a few percent gyrations in my overall portfolio. In any given year, under-performing the STI by 2%-5% is no big deal to me.  I stick to my dividend growth strategy.

Be Informed Consumers Of Media
News can be a good source of information if you are able to interpret and use it properly to your advantage. Avoid knee-jerk reactions to every headline. Most media outlets are profit-driven businesses. They want to turn a profit. They must turn a profit, or else they will go out of business. Their bread and butter is always selling advertising. To garner higher advertising revenues, they must attract eyeballs. The new views they get, the more the advertisers are willing to pay. As the saying goes 'If it bleeds, it leads'. News programmers know, if they lead the evening prime-time news with a heart-warming story of students performing a concert at a nursing home, no one will watch. They know they must lead with fire, mayhem, murder, robbery, riots, scandals and controversies. Bad news sells, especially Trump's tariff tweets. This is the media industry's way of maximizing profits. 

The more your money works for you, the less you have to work for money
Dividend Warrior

Thursday, June 20, 2019

Common Mistake 1 - Obsessed Over Market-Timing

Many investors believe that timing the market gives better returns and reduces risk. I am afraid that's not the case.
If you are in your thirties, you can expect to live through roughly 10 more bear markets, big and small, at least. Are you really going to freak out, panic and go fully into cash every time? It makes no sense. Market timing doesn't work over the long run. It just... doesn't! Financial advisors and investment managers would try to convince you they don't do market-timing, but they actually do. They 'packaged' their sales pitch in a different way, using fanciful investing jargon such as 'downside protection', 'asset-class rotation', 'tactical allocation', 'style-rotation' and 'sector-rotation'. All these strategies imply that they are able to predict when to move from one part of the market to another, which honestly they don't. Nobody does!

Lots of investors miscalculate/underestimate the risk of bad market timing. They assume that they possess great 'predictive powers' that allow them to sell at the top now and re-enter the market at even lower valuations in the future. Sell high, buy low, right? Safety first, right? Unfortunately, the risk of being out of the market is far greater than the risk of being in.

Alice and Jane received their annual bonuses of $10k each. Alice decided to invest all at once. Jane decided to wait in cash. 3 possible scenarios will always play out.

In the end, over the long run, being on the sidelines often results in permanently missing the upside. For example, REITs have rallied ferociously from their Nov/Dec 2018 lows over the first half of 2019. Yes, their prices might go back down, but will it go back to their previous lows? Maybe not. If prices don't go back down to that level, investors who avoided REITs will never be able to capture that returns again. A potential 10% capital appreciation and a 6% DPU yield in a year is a rather huge opportunity cost. 

The masses get it wrong, the media gets it wrong, the economists get it wrong, investment managers get it wrong and so does just about everyone else. Corrections are going to happen. Bear markets are going to happen. Bad things happen all the time around the world. You will do more harm to your portfolio than good by trying to 'predict' your way through them.

"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves....." 
~ Peter Lynch

Saturday, June 15, 2019

Learn From Mistakes Of Others

"By three methods may we learn wisdom. First, by reflection, which is noblest; Second, by imitation, which is easiest; and third, by experience, which is the most bitter" 
~ Confucius

All investors are hard-wired with human emotions. When we experience failure in our investments, usually it's self-inflicted, which makes dealing with it objectively a daunting task. One of the best ways of speeding up our learning process is to examine and understand the blunders committed by others. This way, we increase our probability of avoiding similar setbacks. For example, one of my golden rules is to avoid S-Chips. After witnessing countless scandals/frauds associated with S-Chips over the past decade, they simply not worth the risks in my opinion. The latest corporate drama surrounding Best World and Midas Holdings reinforced this golden rule. There are two ways you can learn from others' experiences.
  1. Strive to replicate success. Kobe Bryant studied Michael Jordan. Paul Tudor Jones studied Jesse Livermore. Warren Buffett learned from Benjamin Graham.
  2. A different approach is to analyse stories of failures. Try to avoid whatever it is that tripped that person or company up. As Charlie Munger once said "Tell me where I'm going to die so I never go there."
These are my 6 Golden Rules after learning from the mistakes of others over the last decade.
  1. No airlines (Highly-competitive industry, capex intensive)
  2. No S-Chips (Higher-than-usual rate of corporate scandals/frauds
  3. No penny stocks (Usually not market leaders, earnings tend to be volatile)
  4. No O&G stocks (Highly cyclical, dependent on oil price, 2015-2016 oil crisis)
  5. No shipping stocks (Dependent on global trade, over-capacity)
  6. No utilities/infrastructure (Look at Hyflux's fall from grace. Huge initial costs to build up the infrastructure, followed by recurring high costs to operate and maintain the power plant or desalination facility. Lastly, lack pricing power in the market. Basically similar to the difficulties facing SMRT and SBS Transit years ago, before the LTA restructured the public transport business model into asset-light.)

Ego Getting In The Way
Our inability to process information that challenges our ego is one of the biggest reasons why many investors fail to capture good returns. There is a name for this natural mental malfunction. It's called cognitive dissonance. This type of behaviour is not limited to the Average Joe investor. In fact, the more experienced you are, the more confident you are, and the less likely you are to accept you're wrong, even when evidence goes against your belief. For example, some people have been bearish on S-REITs since 2017, citing the Fed rate hikes as a potential reason for a crash. Now, in 2019, the 'crash' did not materialize, even amidst a raging trade war. Despite 3 years of DPU and NAV growth while maintaining healthy gearing levels and WALE, this minority group of naysayers are still adamant of a 'REIT crash'. Admitting that they are wrong would be too painful, maybe even embarrassing, because it means they missed out on the substantial cash distributions as well as capital gains over the years.

"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." ~ Mark Twain

One of Warren Buffett's strengths is his willingness in acknowledging his mistakes. We need to recognize that mistakes are part of the investing journey. My way of guarding against overconfidence is to list down all potential risks/threats that a company might face before investing in it. I take constructive criticisms of my portfolio seriously. Criticism is information that will help improve my investing strategy.

Wednesday, June 5, 2019

Dividend Warrior's 2nd Pot Of Gold Series - BTO Flat Downpayment

Yesterday, I attended an appointment at Toa Payoh HDB Hub and settled the downpayment for my HDB BTO flat using my CPF OA savings. I also paid the 'Buyer's Stamp Duty' as well as conveyancing fees. This is another step closer to owning my first residential property on this lovely tropical island. My second pot of gold! 

  • The entire process took roughly 15 to 20 minutes. Not much verification of documents involved. The important thing is to remember your HDB Portal and CPF log-in passwords and bring along your smartphone/OneKey token. You are required to log into the HDB Portal on-the-spot to complete the transaction. 
  • The HDB staff informed me that the key collection date should be in March/April 2023 tentatively. Could be earlier depending on the construction progress of the main contractor.
  • The HDB staff also provided guidance on the home financing matters. She advised me to pay for my flat in full when I collect the keys 4 years later. Right now, after settling the downpayment, there is around $126k left in my CPF OA. Over the next 4 years, my CPF OA savings would continue to earn 2.5% interest annually and I would keep contributing to my CPF OA through my full-time job. All these add up. By 2023, my CPF OA savings should exceed $150k, so I do not need a housing loan. Buying a new flat, but staying debt-free. How awesome is that! To all my foreign readers out there, the public housing system in Singapore is pretty sweet right?  (>_<)
  • The $500 option fee which I paid during my flat-booking appointment back in April would be reimbursed to my bank account. 
  • After settling the downpayment, I was told to visit the SP Group counter/booth to find out more about the 'Centralised Cooling System'. This is a pilot project. The SP Group representative explained that chiller units would be built on the roof-tops of each HDB block, and the chilled air would then be piped into our flats. There is no need to do maintenance on individual condenser units because there aren't any. This is the main selling point for me. My parents had to change the faulty condenser unit in their old flat numerous times over the last 20 years. That was rather costly and troublesome. In terms of pricing, the representative candidly stated that it should be cheaper than conventional air-con, 'otherwise nobody will sign up' (his own words).

Tuesday, May 28, 2019

The Global Economy Will Adjust To The New US-China Economic Hostilities

The period of relative calm in the markets was rattled by an endless stream of provocative tweets from US president Trump as the US government ratcheted up the trade war and tech war against China. Oh boy! Did the global media have a field day on this latest development. Some of the headlines were more fear-inducing than horror movies. Droves of analysts, experts, economists, fund managers, talk-show hosts are talking about an impending recession in 2020. Or was it 2021? Sorry, these people keep changing their minds. Everything seemed rosy and bright between January and April, remember?

Look, don't get me wrong. I'm not saying that the trade tech war is a non-event. You should be concerned if you have huge positions in shipping and tech/semi-con stocks. However, there are lots of other industries not even remotely affected by this. It's business as usual for these sectors. Life goes on. You won't hear Marvel fans saying "Hey honey, let's not watch Avengers: Endgame at the cinema because some intelligent people said a recession might be coming."

Many investors still do not understand that stock prices fluctuate all the time. Sometimes, they fluctuate more. This is not the first trade war the world has experienced. The US waged  a trade war against Japan and a Cold War against the USSR back in the 1980s. Strong, capable management will adjust and work out solutions over time. They always do. Kerry Logistics, a Hong Kong firm, has said that trade tensions are actually boosting activities in Southeast Asia. Which S-REIT has lots of warehouses in the SEA region? Yup, you've guessed it! Mapletree Logistics Trust. It's unit price has been rather stable ever since the trade war erupted, closing at $1.48 on 10 May before the avalanche of Trump tweets and closed at $1.49 today.

Monday, May 20, 2019

Hidden Danger Of Early FIRE

Time horizon is a critical factor in retirement planning. It is the duration you need your assets to work for you, usually spanning 20 to 30 years. Over that few decades of retirement, a person's purchasing power can be seriously eroded by the inflation monster. Nobody wants to get to 80 and discover the money has run out. That's not fun. Aged poverty is cruel, especially in Singapore where the costs of living is high and the medical fees even higher.

One of the potential big mistakes early FIRE wannabes make is underestimating the effect of inflation. Sure, the numbers look rosy right now. Mr. X is able to enjoy his carefree life, playing computer games at home, playing Magic The Gathering with his friends and cultivating bonsai at his balcony. However, his lack of a stable monthly salary affects his ability to grow his portfolio, not to mention the lack of contributions to his CPF account. Most of the dividends he received would be spent on living expenses, leaving little for re-investment. If he delays his retirement by just another decade, things would be so much better. 45 is still a pretty early retirement age. All the salaries & bonuses he received in that extra decade of full-time work would enable him to grow his portfolio to a point where the returns can compensate for inflation. Furthermore, all the contributions to his CPF savings in that decade would allow him to enjoy a larger CPF Life payout at 65 years old. 

When you are young, invest in yourself. Upgrade your work skills and knowledge because your career is the engine of your wealth.

Achieving Sustainable FIRE
My advice to all those early FIRE otakus is to take inflation into consideration. If you are relying on your portfolio providing the cash flow to cover all your living expenses, you likely need some growth, just to increase the odds of your portfolio cashflow keeping pace with inflation. With this in mind, I would suggest:
  1. Delay your retirement, even if the figures show that you can retire comfortably right now in your 30s or 40s. Take my situation for example. I have a $550k portfolio generating annual dividends of $28k. I still intend to keep working.
  2. Keep your mind active and your body mobile by engaging in part-time work that you enjoy. That extra income can help you keep pace with inflation.

Friday, May 17, 2019

Get Your Fair Share Of The Economic Pie. Start Now!

Investing is really all about laying out cash now to get more back later. The earlier you start investing and the more you invest, the greater your money will compound over time. I do enjoy allocating my dividend cashflow. In fact, I have been rather active in deploying my funds in the current volatile market. It's no secret that global wealth is concentrated in the hands of the elites, the top 1%. It's time we claw some of that wealth back.

In recent years, there has been a stark contrast between 2 segments of the local population - the wealthy, educated cosmopolitans and the poor families trapped/entrenched in the poverty cycle. Social mobility has stagnated, maybe even decreased over the years. This wealth disparity is worsened by technological disruption, which has affected jobs and wage growth. 

When I first started dividend investing, my main objective was to achieve financial independence by building a steady passive income stream. Another motivating factor was my desire to benefit as much as possible from economic growth. In our capitalistic system where wealth is distributed ever more unevenly, how do I get my fair share of the 'economic pie'? One of the best ways is to invest, to own wonderful businesses, especially those with low capex requirements, asset-light and highly cash-generative. Find companies that gush cash and require little capital re-investment. Buy a 'cash machine' and hold it forever.

Do what works and keep doing it
Dividend Warrior

Tuesday, April 30, 2019

Dividend Warrior's 2Q2019 S-REITs Performance And Passive Income Update

*An increase of 26% compared to 2Q2018 passive income

No Need For Panic Over MLT
MLT was aware of the financial difficulties facing CWT's parent before they acquired the properties, so 6-month rental security deposits have been collected. CWT has not defaulted on its rental payments to MLT so far. It is still business as usual for CWT Pte Ltd (CWTPL)Due to the high-quality and well-located properties, coupled with Mapletree's connections & wide network in the regional logistics industry, MLT should be able to find replacement tenants within half a year. About 30% of the leases to CWT are sub-let to third-party end-users under sub-lease agreements. If CWT goes bust, MLT will take over these sub-leases directly. For the remaining 70% of leases, MLT can refer the end-users to other third-party logistics (3PL) providers, which could take over the leases. In fact, MLT has received queries from other 3PL providers expressing an interest to take over CWTPL’s operations if available. 

Long-Term Tailwind For MCT
Back in March, URA launched its Draft Master Plan 2019 for the Greater Southern Waterfront (GSW). MCT owns two properties in the vicinity, VivoCity mall and Mapletree Business City I (MBC I). These two 'crown jewel' properties should enjoy an uplift in valuations over the long run. 

Some of the redevelopments along the GSW area are likely to start within the next 5 to 10 years. The increase in commercial activities with a larger catchment population in Pasir Panjang could drive future rental growth at VivoCity and MBC I. If MCT ever launch a rights issue to fund a DPU-accretive acquisition of MBC II, I would be more than happy to subscribe for excess.

Staying Vested In Frasers Logistics & Industrial Trust (FLT)
Despite a slight dip in its quarterly DPU, the fundamentals of FLT did not weaken. The weaker DPU is mainly attributed to the fluctuations of foreign exchange rate between the $AUD and $SGD. Currency risk is one of the expected risks when I decided to invest in FLT and my entry price near its NAV allows me to continue holding it for a yield above 7%. There is no overwhelmingly better alternative being offered in the markets right now. Besides, I am already vested in AREIT, MLT & MINT. In my opinion, there are no better substitutes out there. 

Secondly, the majority of the assets in FLT's portfolio have freehold land tenures. This is an advantage which most Singapore's industrial properties lack. Freehold land tenures is important for long-term real estate investing. Let me explain. FLT owns properties in major cities of Australia, Germany and Holland. The governments are making it tougher every year to build new properties. The building codes/regulations are getting tougher, the zoning is getting more restrictive, and the construction costs are increasing at all levels. Vacant land is limited in cities like Brisbane, Sydney, Melbourne, Amsterdam, Dortmund, Hamburg and Munich. As a result, the value of freehold land in these major growing cities tend to appreciate over the long run. It is actually the value of the land that helps real estate perform favourably over time. Older warehouses are eventually torn down to build newer, better, higher-yielding ones.

Saturday, April 27, 2019

Notes from DBS AGM on 25 April 2019 - Achieved Broad-Based Growth in 2018

2018 Annual report of DBS & the electronic voting device

Growth Drivers:
  • The wealth management business grew 5 times and the cash management business expanded 8 times over the last decade. Both formed around one-third of the bank's total income. Their growth rate is encouraging/important because they are considered 'high-returns' businesses, which are less capital-intensive.

  • Achieved significant income growth from the Hong Kong & China markets. This shows that the acquisition of Dao Heng Bank years ago, has paid off. Prosperity of HK is closely tied to the fortunes of China. The CEPA between China & HK would benefit DBS in the long run 
  • The ASEAN-HK FTA signed in 2017 has started to take effect on the real economy as the trade infrastructure & business networks ramp up progressively. It should continue to drive economic growth in the region. This is advantageous to DBS as the bank has significant presence in SEA countries like Vietnam & Indonesia.

  • The consumer/wealth management segment achieved 21% income growth. Attributed largely to the acquisition of ANZ's wealth management & retail banking businesses in 2017. DBS was able to extract value out of this acquisition with a focus on maximising profits while keeping costs under control. This is reflected in the bank's cost-income ratio since 2015. The cost-income ratio has come down and remained steady. 
  • Launched a wholly-owned subsidiary in India, which already started in March 2019. Looking to open more branches in India.

  • DBS is not only acquiring more digital customers but also better-quality customers. The ROE from digital customer base is better than traditional customers.
  • DBS has formed plenty of partnerships with a wide range of digital platforms such as GoJek. The number of digitally-acquired individuals and SMEs have been rising steadily. This shows that the bank is making good progress in transitioning to digital acquisition of customers. This is important for future growth because this is a low-cost, manpower-light method.

Risk-Management & Challenges Ahead:
  • One shareholder is concerned about the sustainability of the current generous dividend payout in the event of an economic slowdown. The CEO replied that the bank focuses on stable, sustainable dividends in terms of the 'absolute amount' paid out. Current payout ratio is considered 'comfortable'. Confident of maintaining the current $1.20 per share annual dividends. The payout ratio might fluctuate a little from year to year, but the bank is confident that its current operations is able to support the 'absolute amount of dividends'.

  • One shareholder is worried that NPLs from China's clients might spike up if the US-China trade war drags on this year. The CEO replied that DBS has always focused on working with big, stronger companies in China. Their domestic financing needs can be met by the major Chinese banks. But when they want to expand into overseas markets, they require the services of a reputable foreign bank like DBS to help them with international trade finance. DBS is very selective when doing business with mainland China clients. The bank performs lots of stress-testing before committing to loans. Even if the clients are forced to shift their production & supply chains out of China, they are going to countries like Thailand & Vietnam where DBS also operates in. So, it is possible that DBS can still participate in their growth. The bank has a specific committee that looks closely and assess credit risks on their loan portfolio. They are very conservative/careful in this aspect.
  • One shareholder voiced his concerns about potential disruption from Fintech. The CEO replied that re-positioning DBS into a digital bank is how it guards against disruption. He believes that banks which can disrupt themselves and adapt quickly enough, will survive.
  • One shareholder was worried that a dovish US Fed & a flat yield curve would affect DBS's NIM profits this year. The CEO replied that global GDP growth has indeed slowed down. This is likely the start of a synchronized slowdown. Even though there is some co-relation between the rates in Asia and the US Fed rates, the effect is not immediate. There is a lag and the co-relation is not exactly 1:1. Due to this 'delay' effect, he still expects to see healthy NIM this year despite the Fed rate hike pause.
  • A shareholder voiced his concerns about DBS's role in the Hyflux perpetual bond default. He is wondering if DBS's analysts lack the 'foresight' on Hyflux's financial problems. The CEO assured the shareholders that DBS has done all the required due diligence and followed all the rules & regulations set by MAS. Although what happened to Hyflux is unfortunate, the analysts could only make their best educated 'judgement call' based on the data provided by Hyflux at that specific period of time. Nobody expects things to deteriorate so badly at Hyflux.
Post-AGM refreshments provided. Received a $20 voucher :)

Wednesday, April 17, 2019

Notes from Keppel DC REIT AGM on 16 April - Steady Hands On The Wheel

Future Growth Catalysts:

  • The development of the new Intellicentre 3 East data centre (IC3 East DC) in Sydney, Australia is expected to be DPU-accretive. Upon completion by 2020, Macquarie Telecom will sign a new 20-year triple-net master lease with Keppel DC REIT (KDC) for both Intellicentre 2 and Intellicentre 3 East. The lease includes built-in annual rental escalations with renewal options. This expansion aims to meet the needs of hyper-scale cloud providers, enterprise and government customers. After witnessing the successful execution of the mainCubes DC in Germany, I am confident that IC3 East would be similarly rewarding for unitholders in 2020.
IC3 DC East Sydney is a Tier III data centre built on the vacant land next to the existing IC2 DC

  • Growth strategy remains the same. KDC has enough debt headroom to pursue inorganic growth through acquisitions. The focus will be on Asia-Pacific region. The management had looked at the US DC market, but the cap rates are lower and the taxes are higher. So, the US market is not as attractive.
  • Besides Australia and Europe, Singapore remains a key market for KDC. The rapid growth of cloud services and digital enterprises are driving demand for hyper-scale DC capacity. Singapore is a strategic DC hub in the region due to its list of considerable advantages compared to other neighbouring cities:
  1. Economic & political stability
  2. Stable energy supply from the power grid.
  3. Sufficient internet bandwidth
  4. No natural disasters
  5. Rich connectivity to Asia, the US and Europe
  6. Ease of setting up business

Risk Management:
  • KDC performs natural hedging of foreign currencies to ensure stable distribution to unitholders. They hedge the distributable income 2 years in advance.More than 80% of debts is on fixed rates, which will offer some protection against future Fed rate hikes.
  • One unitholder asked if KDC would consider building its own DC instead of acquiring them. The CEO replied that although it is cheaper to build instead of acquire , it would alter the fundamental risk profile of KDC from a REIT to a developer. There would be higher operational & development risks involved, especially at the initial stage. There are lots of testing to be done and other technical regulations to be met before a new DC can run smoothly. There is no need to take on these risks as a REIT because KDC already has a sponsor in Keppel T&T who is a reputable DC developer. It would be safer to wait for Keppel T&T or Alpha DC Fund to develop the DC and stabilise it before injecting the asset into KDC.

  • Hyper-scale cloud providers form the largest tenant base of KDC's portfolio, they house their 'mission-critical' operations in the DC. Their top concern is the physical on-site security. Their risk appetite in this aspect is zero. So, the property manager's track record in providing top-quality security/safeguards is critical when it comes to attracting and retaining big-name tenants.Due to the solid operational track record of KDC's sponsor, Keppel T&T, the tenant retention rate is in the high 90%. The CEO also mentioned that some new DC players struggle to lease out their new DC even after a year due to a lack of track record.
  • Setting up the infrastructure of a DC is extremely costly and time-consuming. It takes a lot of capex and time to ramp up the operations. Similarly, it is a huge hassle to 'power down' operations in one DC and make a complete shift to another DC. Too much hassle and wastage. Unlike your home desktop PC, the DC cannot be 'turned off' with a flick of a switch. Besides, these hyper-scale cloud providers require their services to run 24/7. They cannot tolerate any downtime. As a result, the DC business is 'highly sticky'. As long as the on-site physical security is up to standards, tenants would not consider moving out, ever.
  • One unitholder asked a pretty common question. Since DC is such a good business, why don't these hyper-scale cloud firms save on rental costs by building their own DC? The CEO replied that contrary to popular belief, rental costs actually take up only a small portion of operating a DC. More importantly, these cloud service firms (your Amazons, Microsofts, Googles, Facebooks and such) want to grow really fast. Some of them aim to deploy up to 15 DC in a month around the world! Nobody can build so fast. Therefore, they still need to lease from DC landlords like KDC.

In conclusion, the CEO and the chairman gave me the impression that they have a good grasp of the DC business. I am happy to stay vested. Looking forward to the completion of IC3 DC East in Sydney! :)

Friday, April 12, 2019

Dividend Warrior's 2nd Pot Of Gold Series - BTO Flat Booking Day!

Recently, URA released its Draft Master Plan 2019  and new expansion plans for the two Integrated Resorts in Singapore, making me more confident that Singapore's GDP growth will remain steady over the long-term. Generally speaking, there is a high correlation between a nation's GDP growth & property values, especially in a tiny city-state such as Singapore. That's why owning a tangible piece of physical asset on this glorious sunny island has often been touted as a 'sure-win' long-term investment. 

How would increased real-estate construction boost a country's GDP per capita? In simple terms, a robust real-estate sector helps to lift the finance and insurance service sectors as property loans are likely to trend up. More infrastructure developments would also lead to increased earnings for major construction companies and their smaller sub-contractors. The economic 'trickle-down' effect is potentially huge.

3D Model of BTO Launch Site at HDB Hub ground level

The URA Draft Master Plan 2019 came out before my appointment for BTO flat booking. Talk about perfect timing! Back in February, I decided to put my CPF OA to good use. So, join me on my journey to buy the single, largest financial asset of my life! :)

Preparation Work:
  1. Received a SMS and email from HDB one month before the booking appointment, informing me to download & print the application form and other documents from the HDB portal. Through the portal, I was able to look at the BTO site map, interior floor plans and the units available for booking. 
  2. Applied for my Home Loan Eligibility letter (HLE) 2 weeks in advance.
  3. Prepared my Notice Of Assessment (NOA) & tax e-filing Form B, CPF yearly statement, CPF contribution statement over 12 months.
  4. I applied for the grants (AHG & SHG) on the appointment day itself, but you can submit your application earlier if you wish to.
  5. Did my sums to ensure I can afford the units I am eyeing. The higher the unit, the more expensive it is. I also observed that the few blocks closer to the future MRT station have slightly higher-priced units.
  6. A day before the appointment, I narrowed down my list to 3 choices. Some of my earlier picks have been booked by people who were ahead of me in the queue.

Appointment Day:
  1. Brought along all the prepared documents.
  2. Brought along my ATM card to pay the booking fee through NETS. 
  3. Arrived at the HDB Hub 15 minutes earlier to look at the materials that HDB is using for the Optional Component Scheme (OCS). These materials are displayed just next to the waiting area on the ground floor. I opted for the OCS. 
  4. Got my queue number at the kiosk. Plenty of seats at the waiting area. My number was called within 10 minutes. Approached a friendly HDB sales officer in a rather spacious cubicle setting.
  5. After going through the documents, the sales officer told me that they need my CPF statement for 2017. To my relief, there was a laptop on the desk for such situations. I logged into my CPF account and printed the statement.
  6. Told the sales officer my choice of unit and she entered the booking into the system. My 1st choice unit, which is near the future Tengah Park MRT station is available. YES!
  7. Signed the 'Option To Purchase' and paid the option fee.
  8. The sales officer explained the home financing calculations to me. She told me to note that this was just a preliminary estimate because my financial situation might change 4 years later when I collect the keys. As long as I stay employed and keep contributing to my CPF ordinary account, I should be fine. 
  9. I would be notified to come down to HDB Hub again to exercise my option to purchase within 4 months. By then, I would also know whether my grants have been approved or not.

The entire booking process was smooth-sailing and not as nerve-wrecking as I expected. The sales officer was polite and helpful. Shook her hand firmly as I thanked her and walked out of the HDB HUB with a bright orange plastic file ^__^ 

Owning a home is a keystone of wealth
Dividend Warrior


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