AMO Residence Over 98% Sold In A Day- Singapore Property Market Shining Bright In spite of Economic Downturn. Will You Pay S$6K To Service Your Mortgage in Outside Central Region?

AMO Residence located off Ang Mo Kio Avenue 1 ended the weekend of 23 July 2022 with 98.1% of its 372 units all sold out. The average price of units sold is at incredulous S$2,100psf. What a crazy price for Ang Mo Kio. UOL Group and its partners are now laughing all the way to the bank. I can still remember back in 2010 when Centro Residences debuted at Ang Mo Kio Centre- it was going for  an eye popping S$1,200 psf by Far East Organization during launch and many people were saying that is so exorbitant and a record price of over the psychological  barrier of up to S$1,000 psf for sub-urban area. Well, 12 years later, prices for new launch condo at Ang Mo Kio now apparently hit S$2,100 psf. This is paying close to S$2Mil for a compact 958 sqft 3 bedder unit.

Using a loan of S$1.5Mil spread over 30 years for a young couple along and assuming a 2.5% interest rate, this will mean a monthly payment of S$5.9K which means each husband and wife need to cough up around S$3K individually each month to service their mortgage. Total interest paid over 30 years will add up to S$634K.

2.5% borrowing rate simulation

If interest rate continues to increase to say 3.0%, it will mean a monthly servicing of S$6.3K per month. Total interest rate paid over 30 years will be S$777K- I think it is time to buy more shares of DBS, UOB and OCBC listed on SGX which seems to be a better investment. 

3.0% borrowing rate simulation

Well, such pricing is not for the faint hearted folks. Down payment and stamp duties will mean half a million upfront in cash and CPF and not to mention in the current climate of rising bank borrowing rates, it certainly takes great courage to sign the option to purchase. According to property agents, the success of AMO Residence shows that "the market is hungry for attractively priced homes in good locations". Property prices is still a good hedge against inflation according to many people. I am not sure on that. However, I do hope that job losses are kept to a minimum in the upcoming economic downturn and everyone gets to keep their bread and butter. Else it will be extremely painful to support a S$6K per month mortgage. 

Mapletree Commercial Trust Tragic Preferential Offering Still Higher Than Market Price.

The tragic Preferential Offering exercise for Mapletree Commercial Trust ("MCT") has commenced on 12 July 2022 and will close at 5.30pm on Wednesday, 20 July 2022. The offer basis will be 306 Preferential Offering Units for every 1,000 existing MCT Units held by eligible unit-holders at the issue price of S$2.0039 per unit. It is a tragedy as the current market traded price as at 18 July 2022 is S$ 1.790 per unit hence no one in the right frame of mind will be subscribing for this particular rights issue which is at a premium of +12% to the market traded price on SGX. Mapletree Investments Pte Ltd will be taking up all the unsubscribed rights and losing as much as S$200Mil immediately in unrealised losses.  

Time table for Preferential Offering

Offered price way higher than last market trading price

While I have previously sold off my entire Mapletree North Asia Commercial Trust ("MNACT"), I am still holding on to MCT and as a matter of fact, I have been adding more units into MCT with the recent dip in pricing. With the previous January sudden outbreak of Omicron variant of COVID in Hong Kong being brought under better control, much of the restrictions previously imposed has been relaxed and this bodes well for its key asset Festival Walk acquired from MNACT. The negative rental reversion for Festival Walk should turn-around eventually.

Last but not least, I am sure that the incumbent property manager will continue to maximise the potential of all the newly acquired assets given its good track record of growing its portfolio under the management of the Mapletree branding. In addition, Mapletree Investments Pte Ltd seems to be of the view that the newly merged entity is worth at least S$2.0039 per unit and willing to undertake all the rights issue at this exorbitant price. 

(Note: Since I am being heckled as well as being trolled online these days whenever my past few posting relating to REITs is put up on a Facebook group, I need to state here that having a liberal mind on discussion of 2 sides of a coin should never be perceived to be "filmsy" or "airy". It is also perfectly ok to disagree with my views but one should not be overly confrontational, in particularly, through harassing or trying to disconcert others with challenges or gibes.)

The TikTok Hack To Partially En-cash $100 NS55 Digital Credit Actually Works.

I was initially skeptical when I read online that a TikTok user has discovered a "hack" to partially encash the NS55 $100 credit using Sheng Siong's $TM cash dispenser machine. While going grocery shopping with my wife over the last weekend, I decided to give it a try while my wife was queuing for payment at the cashier. The $TM cash dispenser at Sheng Siong gave me a heart attack for a few seconds as after the credit has been deducted, no cash came out and I instantaneously regretted not spending the money at F&B outlets directly. But to my surprise, cash was indeed eventually dispensed out of the machine after the lead time for processing and validation. So how does this work?  

Quick Background

Our Singapore government has decided to give S$100 to every current and ex-national servicemen S$100 credit to commemorate the 55th year of National Service and to recognize the contributions made by Singaporeans and permanent residents who had served the country. From July 2022 onwards, all eligible national servicemen will receive S$100 worth of NS55 credits which can be used at various merchants outlets in Singapore. 

1. First download the LifeSG App onto your mobile phone

After downloading, log in using your SingPass. Scroll down to "Benefits and support" section which is also where you can check your credit balances for SkillsFuture Credit. Go to NS55 credits (SAF) and click on "view details". There you will find the "Scan QR code to pay" button at the bottom of the screen for use later on the Sheng Siong's $TM.

2. Go to your nearest Sheng Siong outlet and locate their $ATM machine

Once you are at the machine, point towards the "PayNow" option for cash withdrawal. According to TikTok, you should only key in $90 (I am not sure whether it can go up higher but I think it is possible as long as you reserve a convenience fees of 20 cents which will be charged by Sheng Siong) The QR code will pop up. On your mobile phone LifeSG app as aforesaid mentioned in Point 1 above, tap on the "Scan QR code to pay". Then wait for the machine to dispense the cash after that. 

Parting thoughts

I thought it is rather interesting that we can en-cash the credit instead of having to spend it at retail or F&B outlets. Cash is the most practical as you choose to save it or spend it at non-participating merchants. Channel NewsAsia also reported that MINDEF has commented that "servicemen (NSmen) are free to decide how they want to use their S$100 of NS55 digital credits" and hence this approach seems legit. Let me know whether anyone of you are successful in drawing out the full $100 credit as the Tiktok video uses only S$90. :)   

Data Centre REITs Crashing Into The Abyss- Should You Continue Holding On To Them Or Dump Them? Is the Worst Over For Keppel DC REIT and Digital Core REIT?

My investments into Keppel DC REIT have been a horrendous experience thus far. I am currently looking at an unrealised loss of <12.79%> after the recent deep dive in market valuation. The other pure Data Centre REIT- Digital Core REIT ("DCREIT")- fares no better at its current poignant valuation of US$0.76 per unit as at 4 July 2022 and depending on your timing of purchase, one could be starring at as much as a whopping <36.7%> plunge in valuation if you have purchased it on 17 Jan 2022 at US$1.20 per unit. If you have subscribed for DCREIT during its maiden IPO and is successful in your allotment at US$0.88 per unit, then you will still be staring at a loss of <13.6%>. Given the terrible performance and worsening market sentiment, is it the time to throw in the towel and dispose of one's holdings rather than holding on to them? What exactly happen to have caused such a terrible crash in market prices for data centres?

Quick Recap

Since the beginning of Jan 2022, Keppel DC REIT has been plummeting non-stop from S$2.47 per unit to as low as S$1.90 per unit in 16th June 2022 which is a jaw dropping decline of <23%>. The main reason that everyone is aware of is the rising borrowing rates by the US Federal Reserve in its fight against inflation. However, during this same time frame, DCREIT remained in superman mode and performed a gravity defying stance that hovers above the US$1 mark per unit for the bulk of this period. There are actually another 2 developments that crop up recently which leads to the demystifying of the invincibility and relatively safe protection offered by data centre REITs. Suddenly, data centre REITs are no longer as safe as investors thought it to be. Let me further elaborate on the below:

1.  Bankruptcy of major tenant of DCREIT

Despite all the hoo-ha on the extremely long WALE of data centre REITs relative to other REIT sectors, the fact of the day is that fundamental and quality of one's tenant is of paramount importance. Even if the WALE is for 5-6 years, if any tenant goes bankrupt, the REIT will not get paid eventually. The shocking bankruptcy of DCREIT's 5th major tenant is a good example. Data Centre REITs are definitely not the same as government bonds as being asserted by some retail investors. 

2. Industry outlook for data centres severely affected recently by shock revelations of skeptics that "hyperscalers" (Google Cloud, Microsoft Azure and Amazon Web Services) are building up their own data centres to their own design rather than moving into existing ones.

Investment advisor and financier Jim Chanos has taken large short positions against data centres REITs and betting that the trio hyperscalers cloud providers (Google Cloud, Microsoft Azure and Amazon Web Services) will takeover their businesses. Ever since Jim's remarks on 29th June 2022, DCREIT price has crashed below US$0.80 per unit. Hence I think that many institutional and retail investors are now extremely worried about the future of their investments into data centre focused REITs and wondering whether the historical compressed yield of 4%-5% is viable in view of the risk profile changes in recent industrial development. 

Cloud computing is definitely growing but much of the value accruing is to the current 3 big boys of Alphabet, Microsoft and Amazon. Hence, the dynamic trio are actually not the data centre REITs biggest customers but more of their biggest competitors. The deep pocket of the trio make them  vicious rivals in the data centre business as they embark on aggressive building up of their own data centre infrastructure. The role of 3rd party data centres is more of to support the growth of the trio hyperscalers when they could not build fast enough and then turn to data centres firms to develop sites or to lease wholesale space. 

Chanos further argued that as the trio hyperscalers grow more powerful, the margins they offer will grow even lower. REITs thus suffered from technical obsolescence and will soon be in a period of declining revenue and growth. 

Parting thoughts

It seems that the domination of data centre REITs like Digital Realty, Equinix and Keppel DC REIT is coming to an end in the mid to long term. Who could have anticipated the possibility of such a development 2-3 years ago when data centres are all the rage then? Despite the significant decline in market pricing for DCREIT, I do not plan to acquire any units in DCREIT (unless it drops to below US$0.70 per unit for a 6% distribution yield to compensate for sufficient margin of safety) and will be keeping my investments in data centres to Keppel DC REIT, Ascendas REIT and Mapletree Industrial Trust backed by their well-heeled ultimate sponsor in Temasek Holdings.  

(Note: There is also a problem with some retail investors who are over-confident in their views that  one must always decide whether something is black or white/ Yes or No. The hard truth is that no one knows exactly when a spanner will be thrown into the works like the above latest development. Hence having a liberal mind on discussion of 2 sides of a coin should never be perceived to be "filmsy" or "airy". Neither should one be overly confrontational with aggressive "challenges" on others who writes about possibilities of different perspectives and things going either way.) 

Investment Portfolios Updates- S$630k (1 July'22)- Uncertainty in US Office REITs Occupancy and Mounting Losses from Keppel DC REIT

The last 2 months has been a blood bath for my investment portfolios in banking stocks and REITs. The net assets for investment thus went down to S$630k from the S$640K during my last review at the end of April'22. The good thing about being an income focused investor is that I am not too worried about the fluctuations in valuation due to market volatility as well as unrealised losses. My only concern is whether the stream of passive income from dividends/distributions from investee companies will be drastically impacted if there are fundamental changes to the business. Expected dividends per annum now approximates S$60K at gross level and S$51.2K at the net level after accounting for financing charges from utilization of my margin facility with Maybank.

The COVID downturn that happened 2 years back was another creature altogether with devastating economic lockdowns leading to an almost immediate more than 50% cut in dividends & distributions. I believe that the upcoming recession will not lead to such drastic cut in dividends & distributions and that my current portfolio can ride out any incoming headwinds.  

1. Portfolio 1- Stocks held in SGX Central Depository 

(Note: This portfolio is designed to provide immediate dividends for use (if required) as it is under my own CDP account and the dividends credited goes directly to my bank account.)

The only adjustment I made here was to acquire additional units of the undervalued United Hampshire US REIT which focuses on grocery retail tenants that has proven itself to be resilient even during the COVID crisis. On 9 June 2022, it was announced that the REIT will be acquiring Upland Square Shopping Center in Montgomery, Pennsylvania for US$85.7Mil. This DPU accretive deal will push up future annual distribution yield to 10.38% based on previous closing price of US$0.610 per unit. Please see "United Hampshire US REIT Acquired New Grocery Anchored Shopping Center- Improved Forward Distribution Yield Of 10.38% Per Annum".

2. Portfolio 2- Margin purchased securities

(Note: My margin purchased securities has grown to a sufficient scale to sustain itself and also to repay annual financing charges as well as to gradually pay down the margin loan through dividends generated.) 

My data centre REITs and US office REITs performed horrendously. UOB and OCBC stock price also took a beating during this dark period. I have sold off a substantial portion of my UOB and OCBC stocks to take profits and also to reduce my leverage by S$10k. I have also bought additional S$10K worth of Keppel DC REIT when its price plummeted to below S$2 per unit (at S$1.94 per unit in June'22). 

For US Office REITs, a number of analysts have high targeted prices for Prime US REIT, Keppel Pacific Oak REIT and Manulife US REIT. However, I am not as optimistic at all as I am seeing trends of decreasing occupancy in some of their quarterly operations reporting. The post COVID economy has escalated the remote working culture that sees possibility of a permanent decrease in required office space by companies.  As such, I have not made additional investments into the US Office REITS albeit the crazy low prices- one could end up catching a falling knife.  Please see "Manulife US REIT High Distribution Yield of 8.67%- Rosy Future Or Just A Value Trap?".

3. Portfolio 3 (with Tiger Brokers)- Venture into higher risk as well as capital growth stocks here

(i) Added 400 more shares of Alibaba (HKEX 9988) at an average cost of HKD83 per share.  

(ii) Added Q&M Medical Group. Please see "Investment Into Q&M Medical Group- Further Diversification Away From REITs Centric Portfolios"

(iii) Dasin Retail Trust has good news recently on 20 June 2022. Its bankers has allowed it a 6 months syndicated loan extension (instead of the previous 3 mths) while it explores sales of its 2 biggest shopping malls to pare down debt. Investors thus get to see another distribution from Dasin for the 6mths ending 30 June 2022.

In addition, it was reported that on 22 June 2022, 50 million units of Dasin Retail Trust representing 6.3% of total units, changed hands at a premium of S$0.345 per unit relative to the average of S$0.30 market transactions per unit. On 3rd June 2022, Harvest Private Wealth Thematic Fund has also increased its stake in Dasin to 8.45%. Current distribution yield hovers around 16% with NAV of S$1.41 per unit.

Summary:

I look forward to the upcoming dividends and distributions in Q3 2022. For now, I think that I will be adopting a wait and see stance and will be building up my cash reserves on hand and also paring down my margin loan to prepare for the worsening economic downturn due to the relentless increasing of borrowing rates by the US Federal Reserve in their fight against inflation..

Singapore Saving Bonds Yield Offers Attractive Current Yield of 2.7% For Risk Adverse Investors.

For years, I have been nagging at my wife to put her money into the Singapore Savings Bonds ("SSB") as she is only willing to invest a very tiny part of her overall excess funds into stocks while preferring to hoard the bulk of her cash savings in the bank which make her feels "secure and safe". I was astounded to see that the SSB yield rising to 2.7% for the recent July 2022 tranche. The August tranche which just opened today (1st July 2022) for application is expected to give an even better yield due to rising interest rate environment. What I like about the SSB is that any individuals can redeem it in any month without any financial penalty should one need the cash urgently. Decent risk free yield coupled with high liquidity makes the SSB a wonderful investment particularly for risk adverse investors. 

The main difficulty for my wife is that she tried many times to try to subscribe but gave up as she finds it bothersome to find out on how to apply and asserted that this cannot be done online. I decided to help her apply this time round. Basically, the SSB is available on ATMs and also conveniently on internet banking of the major local banks (DBS/POSB, UOB & OCBC). For DBS/POSB users, please see illustrative below on where to apply for the SSB. It should be almost the same for the other bank portals. 

For DBS account, go to "Invest" and then click on "Singapore Government Securities".

Then click on I want to apply for "Singapore Savings Bonds".

Parting Thoughts

The individual limit for SSB has been raised to S$200,000 (from S$100K) from 1st February 2019 by the Monetary Authority of Singapore. The interest will be paid to you every six months after issuance and acts a little similar to dividend investing. Overall, the SSB is good for risk adverse investors. This is definitely better than leaving huge sums of cash in saving deposits and letting inflation erodes its value.