Cory Diary : Review Mapletree Industrial Reit

MIT Report 2Q & 1HFY24/25 just came out. It has been with me since Year 2018. My expectation is around flat performance. It is one of the REITs which I just need to do a quick glance through and then go away after in 5 or 10 mins. That's for me, so please DYODD.

MIT is one of the largest REIT positions I have and one of the few I continue to add this year. I blogged that most REITs are in a monitoring or re-balancing situation till next year due to rising loan costs despite rate cuts. This has to do with the lagging contract renewals while higher loan rates are still in the process of catching up relative to previous agreements years ago.

Picture 1 :DPU Checks

One of the most obvious things to check is DPU. YoY (or for MIT's current report presented HOH) and QoQ. Looks well so far. Do note QoQ is lower by -1.7%, which is not in the highlight. So it kind of fits into my expectation.

The second thing to check is the DPU trend. When I invest in REITs, the key is sustainability of DPU and being able to sleep well. This means the REIT's operation is safe or stable, as this forms our cash flow needs. We can see how high rates have affected MIT in recent years; however, overall it is still relatively good. There aren't fundamental changes in their business.

Picture 2 : DPU Trend

The third thing to look at is loan management in Picture 3. This is one of the cores of REIT management. Screw this up, and we can be in a lot of trouble. Stats look good and have stabilized somewhat. We still have to continue to monitor future reports; however, chances are the impact will be small from Picture 4. Do note that even though rate cuts have started, the latest loan cost renewal could be higher than their previous contract.

Picture 3 : Loan Management

Picture 4 : Loan Impact

The fourth aspect is REIT-specific. MIT has large USD exposure, and they have lots of DCs, not just industrial properties. This is something to be aware of when you invest in this REIT. The recent move on Japan acquisition seems good to bring loan costs down.

Lastly, I checked the rental revision. Usually, this is in stages since only a portion of the REIT is up for contract renewal. In this case, the Hi-Tech segment seems to have quite a large drop in rental rates for new leases. Last Q presents quite a different picture between renewal and new leases. It doesn't give the full picture, but it does help to be aware of possible situations to watch in future reporting. (update is probably due to exception situation)

Summary

Overall, the REIT looks well-managed and stable. There are only a few REITs that can do that well in today's environment that fits into the dividend investment concept with reasonable levels of capital protection.

The focus on rental retention could also mean less confidence in the marketplace. So whatever I have now, which I am pleased to ride with this good report, will hold for the long term but not more additions due to portfolio-level views and coming personal allocation.

Cory Diary

2024-10-31

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Disclaimer: The articles presented in this blog reflect personal opinions and are intended for informational and sharing purposes only. Not responsible of errors. Readers are advised to seek professional guidance when making financial decisions and should take full responsibility for their choices.

Cory Diary : Year 2025 Strategy

With just three months left in the year, it's an exciting time to watch how our portfolio might perform as we approach the final stretch. It's also a good time to reflect and consider adjustments to our investments for the new year.

Earlier, I mentioned shifting part of our allocation towards the U.S. market. Increasing that exposure significantly will depend on higher returns from the U.S. market, which could provide the buffers we need after careful consideration. If those returns don’t materialize, this roughly 10% allocation may remains through 2025, as the plan is to rely mainly on internal growth.

Allocation of U.S. equities will be somewhat like a "peanut butter spread" across strong businesses, with varying weightings on a few. It's quite hard to predict which will perform best, but over time, the earning power of each should drive them forward. Minimum expectation is that these investments earning should outperform local banks. The risk lies in macroeconomic factors where the entire market could be driven down.

REITs and banks will continue to dominate the portfolio. Depending on market conditions, fresh funding may either stay invested or be redirected toward fixed-income instruments like T-bills. Another alternative could be reducing loan exposure.

For local portfolio adjustments, the focus will be on gradually weeding out underperforming companies, regardless of whether they are currently profitable. This will happen as opportunities arise. Releasing capital from these positions will allow reallocation to higher-yielding stocks, aiming to boost dividends, which are expected to remain flat for 2024 unless we take action. We have to be careful not to increase holdings just for the sake of it. Considerations include whether the price is running ahead of itself, yield returns, future expectations, and cash flow situations.

Here is a snapshot of current equity portfolio. The return of Microsoft (MSFT) to support the peanut butter strategy plan.

New Funding

Our goal remains to optimize and grow the dividend stream, even with a significant portion of funds tied up in T-bills, Singapore Savings Bonds (SSBs), and multiplier accounts that we try not to touch. The big catalyst is the boost of funding from retirement payments. There are a few options to consider, and the final plan may be a combination of these:

Pay Off Housing Loan: This can be reserved in case re-pricing does not work out. Ideally, we would continue to extend the loan so that we can use the money for investments with higher returns. For this reserve to work in the future, we probably need to park the funds in capital-protected instruments until utilized. The downside of this plan is potentially losing the key funds that can help generate significant income.

U.S. Equity Boost: U.S. market valuations seem relatively rich. There is reluctance to further increase exposure, as the "peanut butter strategy" has been completed. I would prefer to invest after a market correction for a margin of safety if we are to tap into these funds. Another concern is the lack of dividend play in this segment while we wait. The only situation where I would consider adding is if there is a rebalancing of the existing portfolio allocation towards weaker stocks.

Increase REITs Allocation: Earnings-wise, REITs are still not able to match the banks. While there is a lowering of Net Interest Margins (NIM) for the banks, there will be a lag in the implementation of lower loan costs for the REITs. Most of them won't see significant cost reductions, if any at all. The timing is not right for this yet, and there is a warchest of funding if needed.

Increase Banks Allocation: Currently, the portfolio has significant exposure to banks already. The appetite to further increase this segment may not be good as interest rates have started lowering. There is a limit to how much we can increase, and it may not work for the fund. If there is a major correction, it may be helpful to tap some of the funds, but this also means existing profitability will be impacted.

Fixed Returns: Current fixed returns are coming down; however, they are still relatively high. This option can also be considered an expanded warchest—a safer option with sufficient income. It's a good reserve to support major emergencies, such as paying down the home loan if forced to. There is a time factor in this for the housing loan. It appears that a large segment will probably be allocated here for opportunities or needs.

No Chinese stocks yet. Sleep well.

Cory Diary

2024-10-10

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Disclaimer: The articles presented in this blog reflect personal opinions and are intended for informational and sharing purposes only. Not responsible of errors. Readers are advised to seek professional guidance when making financial decisions and should take full responsibility for their choices.

Cory Diary : Asset Allocation 2024

Asset Allocation Evolution

Asset allocation is a deeply personal process, shaped by changing circumstances and needs. It often reflects a combination of factors that influence the way we structure our finances. My current setup is no exception, and as time goes on, I anticipate shifting towards a more streamlined approach that better aligns with my evolving goals.

Idle Cash

Currently, idle cash makes up 2% of my portfolio, spread across multiple accounts. Managing these funds has become increasingly complex, and while I could reduce the number of accounts without impacting my overall strategy, I’m mindful not to add more, as it requires more time and effort to manage.

I primarily use two accounts: one for salary and daily expenses, and another to consolidate investments, insurance, and loan payments.

Simplification

As I age, simplifying my asset allocation is a priority. For example, I’ve been considering releasing the 4% allocation I currently have in life and savings insurance. This doesn’t mean I’ll go without insurance. One of the policies is linked to a rarely used savings account, which I’m also considering cutting.

With my recent retirement, my pension allocation will be dissolved and redistributed. However, I’m still contemplating how best to reallocate those funds.

Cory Diary

2024-10-05

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Disclaimer: The articles presented in this blog reflect personal opinions and are intended for informational and sharing purposes only. Not responsible of errors. Readers are advised to seek professional guidance when making financial decisions and should take full responsibility for their choices.