Summary of August 2019 Transactions

Today is the last day of the month of August 2019. As usual, I am stock taking my stock portfolio. When the stock market fell this month, I tried to find an opportunity to make a purchase but unfortunately, I didn’t find anything that was attractive.

Frasers Commercial Trust continue to held steady at the price range of S$1.58 to S$1.64. Given the risk of Microsoft vacating its premises which I wrote about recently, this is pretty quite a risk to jump in at this price and moment even though its Distribution Per Unit (DPU) head steady at 2.40 cents. (Read more: Frasers Commercial Trust Maintain DPU of 2.40 Cents)

I was fortunate that most of my major holdings did well (SPH REIT, Mapletree Commercial Trust, Frasers Logistics and Industrial Trust, ST Engineering, Parkway Life REIT, CapitaMall Trust) and those that didn’t do well (Kingsmen Creatives, OUE Hospitality Trust) are minority among my stock holdings.

The hospitality sector is expected to remain weak this year and I would have sold off OUE Hospitality Trust if not given its quality assets and its recent announced merger with OUE Commercial Trust which may or may not renewed its life.

As for my wife’s stock portfolio, Starhill Global REIT credit rating was downgraded yesterday to ‘BBB’ given the lack of prospects and weakened rental income for the next few years.

Last but not least, I have continued to add on to my Singapore Savings Bonds since I have no alternative place to park my month allocated money for investment. This is despite the super lousy interest rate that it offers in the latest issue. (Read more: September 2019 Singapore Savings Bonds is 1.95%) The sum that I have is too little to buy any Endowment Plans and honestly, I dislike the lock in period for 3 years. (Read more: NTUC Capital Plus Versus Singapore Savings Bonds Versus SPH REIT )

I will unlock my war chest once I find an opportunity!

Starhill Global REIT Downgraded To BBB

Three years ago, I wrote about Soilbuild Business Space REIT being given a Baa3 credit rating by Moody’s. (Read more: What is meant by Baa3?) Today, I receive an email notification that Starhill Global REIT has been downgraded from a credit rating of ‘BBB+’ to ‘BBB’ by Standard & Poors (S&P). This is an indication that something isn’t right even though it is not a recommendation to buy or sell.

My wife currently held 9% of Starhill Global REIT in her stock portfolio. In FY2019, Distribution Per Unit (DPU) declined 1.5% from 4.55 cents in FY18 to 4.48 cents in FY19.

Here are a few noteworthy points from the S&P report:

  • Starhill Global REIT is facing pressure in rent reversions in its key Singapore assets amid weakened economic conditions.
  • Funds from operations (FFO) to debt to decline to 7.6%-7.8% in fiscals 2020 and 2021.
  • Ngee Ann City’s master tenant’s rent review in June 2019 resulted in rents remaining flat (Read more: Starhill Global REIT Decides Not To Increase Toshin New Base Rent)
  • Contributions from Starhill Global REIT’s Australia assets were weighed down by the depreciation of the Australian dollar against the Singapore dollar.
  • Starhill Global REIT is performing AEI on Starhill Gallery Mall in Malaysia. The rental rebates agreed by Starhill Global REIT will weigh down rental performance at these assets.

The outlook doesn’t seem good which might place further pressure on the Distribution Per Unit (DPU).

NTUC Capital Plus Versus Singapore Savings Bonds Versus SPH REIT

You probably would have read about the latest Endowment Plan offered by NTUC Income. The latest tranche NTUC Capital Plus (CSN2) offers you 2.3% guaranteed yield per annum. The endowment is a 3 year single premium endowment plan which you can purchase via cash or using your Supplementary Retirement Scheme (SRS) fund. There is a minimum premium of S$20,000. When the policy matures 3 years later, you get a guaranteed maturity benefit. This means that if you place S$20,000, at the end of 3 years, the maturity value will be S$21,412 inclusive of your principal amount and thus a profit of 7.06%.

NTUC Capital Plus (CSN2) Versus Singapore Savings Bonds

How does this compare to latest issue of the Singapore Savings Bonds? Let say if you have purchased S$20,000 of the latest issue of Singapore Savings Bonds (September 2019 GX19090H), you will get a total return of S$990 if you redeem it in September 2022. NTUC Capital Plus (CSN2) wins!

NTUC Capital Plus (CSN2) Versus SPH REIT

How does NTUC Capital Plus (CSN2) fare against REITs? In my opinion, REITs are low risk investment instruments. For comparison, I will use SPH REIT which I felt that the share price has been relatively stable over the years. Based on a distribution of 5.54 cents in FY2018 and the current price of S$1.10 (as of 27 August 2019), this translates to a dividend yield of 5.04%.

If we have bought SPH REIT today, 3 years later, we should collect an estimated total dividends of 5.04% x S$20,000 x 3 years = S$3,024. SPH REIT wins! The risk here is that there is no guarantee you can get your principal amount of S$20,000 back 3 years later as this is subjected to the stock market conditions at that point in time.

Conclusion

NTUC Capital Plus (CSN2) Singapore Savings Bonds (GX19090H) SPH REIT
Total (S$) collected based on investment amount of S$20,000 for 3 years S$1,412 S$990 S$3,024

This is not a recommendation to buy or sell the above products but for illustration purposes only. If you can stomach the volatility of the stock market, then consider REITs for higher returns. Otherwise, NTUC Capital Plus may be a better choice if you have spare cash to lock down for 3 years. On the other hand, it does make sense to use your SRS to purchase NTUC Capital Plus (CSN2) for the higher yield since SRS can only be withdrawn after your retirement age. For those who foresee you need cash on hand in the near future, the Singapore Savings Bonds is almost risk free and safe haven.