Cromwell European REIT - 38-for-100 Rights Issue (Part 2)

This article is a follow-up to my previous short write-up about Cromwell European REIT here.

Cromwell European REIT's proposed rights issues has been approved by ways of the EGM on 15 November 2018 (link to announcement here). (I'm kind of late to the game for this write-up).

Summary
38-for-100 rights issue at 0.373 EUR per unit.
Acquisition is Yield-accreditive (expecting about +20% to distributable income), but not DPU-accreditive (expecting about -12% DPU).

Here is the indicative time-table for the rights issue:

Event	Date/Time
Last day of “cum-rights” trading for the Rights Issue	20 November 2018
First day of “ex-rights” trading for the Rights Issue	21 November 2018
Rights Issue Books Closure Date	23 November 2018 at 5.00 p.m.
Despatch of the Offer Information Statement (together with the Entitlement Letter) to Eligible Unitholders	28 November 2018
Commencement of trading of Rights Entitlements	28 November 2018 from 9.00 a.m.
Closing date
Last date and time of trading of Right Entitlements	6 December 2018 at 5.00 p.m.
Last date and time for acceptance of the Rights Entitlements and payment for Rights Units	12 December 2018 at 9.30 p.m.
Last date and time for application and payment for Excess Rights Units	12 December 2018 at 9.30 p.m.
Last date and time for acceptance of and payment by the renounce	12 December 2018 at 9.30 p.m.
Expected date of the issuance of the Rights Units	20 December 2018
Expected date for crediting of Rights Units	21 December 2018
Expected date for commencement of trading of Rights Units on the SGX-ST	21 December 2018 from 9.00 a.m.
Expected date for refund of unsuccessful applications	21 December 2018

Other things to note

• As of writing, EUR-to-SGD ratio is approximately 1.56. This translates to SGD 0.582 per unit for the rights issue.
• Counter is trading XR and has last traded at EUR 0.445 thus far.
• Fun fact: For an investor whose portfolio only included units from subscription to the IPO (about EUR 0.555 and EUR-to-SGD of about 1.609 at that time), he or she has to subscribe 153 rights units for every 100 to breakeven in capital based on current price (not for quick punt from my observation).
• This has yet to factor in any commission charge or forex gain/loss.
• This will cost more if the investor has decided to purchase more rights so as to guarantee  his rights subscription.

The author is vested (albeit in a small position) and intends to increase his position by means of the rights issue. This article is provided for info only and does not constitute the author's recommendation, solicitation or otherwise decision-making for any investors - DYOR/DYODD if you intend to purchase.

What to take note of when investing in REITs - Part 2

This is a continuation of sharing what to look out for when investing in REIT from my previous article which you can access here.

Readers of my blog will know that I am generally fond of REITs for their distribution payouts and preference for an income investing strategy, making them a popular component (and in some cases, predominantly so) of one's portfolio.

Previously I have discussed about the Property Sector, Gearing and Financing. In this article, I will talk about Weight Average Lease Expiry and Management.

Weighted Average Lease Expiry (WALE)
One of the key risk REITs face is vacancy of their properties. When properties remains vacant for too long, income and hence distribution gets cut as well. This is where WALE comes in as a metric to evaluate the REIT.

WALE is measured across all tenants’ remaining lease in years and is weighted with either:

• The tenant’s occupied area against the total combined area or;
• The tenant’s income or against the total income of the other tenants

For the purpose of this article - longer WALE will refer to those with  5+ years, while shorter WALE will be those of < 4 years.

Properties with long WALE face less risk of vacancy and major tenants (anchor tenants) in properties can greatly affect the WALE so they tend to get the best rental rates.. Take for example properties with WALE of 5 years - they usually have been commitment of leases from large organisation such as MNCs and hence offers stability in income and has an inherently defensive nature. This stability comes at the cost of opportunities to negotiate rent hikes in comparison to smaller tenants however.

In spite of the consensus that longer WALE = better, shorter WALE may not be all bad. Properties with shorter WALE usually has smaller businesses, which usually does not commit to longer lease term in comparison to the larger businesses such as MNCs. Although there is higher vacancy risk and possibly processing/advertising fees involved in properties with shorter WALE, this offers opportunities for rent hikes and hence avenue for growth in income.

Even among properties with shorter WALE, however, there may be scenarios where WALE is questionably short. Properties with WALE which is too short may be a concern to investors - see my post regarding the planned acquisition of properties by Cromwell European REIT here. Some of the properties to be acquired has WALE of < 1 year.

Management
Management most definitely plays a vital role in the REIT in that the quality of decisions they make can either create or erode value, such as:

• What value are they acquiring new properties or divesting existing properties, its benefit or reason, and whether that aligns to the management's vision.
• What strategy does the management have to drive growth in its portfolio / distributable income. For example, Fraser Logistic and Industrial Trust intends to achieve organic growth through increase in properties rental and inorganic growth through expanding its portfolio.
• In a softer market, what strategy does the management have to ensure resilience in the REIT's performance. For example, Cache Logistic Trust has divested Jinshan Chemical Warehouse as part of their portfolio rebalancing strategy (which has been ongoing since the acquisition of Australian properties).
• How is the management fee in comparison to the other REITs. It's also desirable to find REITs which has the management fee tied to how well it has performed as compared to a fixed management fee.

While the saying "past records are not indicative of future performances" will always need to be kept in mind, they do offer an area which one can evaluate the quality of management.

Thanks for reading!

What to take note of when investing in REITs - Part 1

This is part 1 of a series that shares about what to look out for when investing in REITs.

Readers of my blog will know that I am generally fond of REITs for their distribution payouts and preference for an income investing strategy, making them a popular component (and in some cases, predominantly so) of one's portfolio. Here are some areas to look into when studying REITs to invest in.

Property Portfolio / Sector
REITs holds properties that could be industrial, logistic, hospitality, commercial and/or retail in nature. Some of the sector could be defensive in nature (Retail). Some of these sector could be cyclical in nature, affecting the performance of the share, both in distribution and in capital gain. And among the properties in the portfolio, they vary in their performance; some of the properties in the portfolio could generate more value than others and the REIT will monitor these and make changes from time to time (as we do for stock portfolio reviews).

Debt Financing
Part of how REITs finance their operation are done by loan facilities. This leads to the need to pay attention to Interest Coverage Ratio and the debt maturity profile. Examples from Cache Logistic Trust is shown just below:

Source: Cache Logistic Trust

With the interest rate hikes, investors who are looking at REIT will want to take note how the interest may be hedged (how much of the financing is on fixed rate) or how much change is there in the interest rate during refinancing. Here is also an example from Cache Logistic Trust which shows the projected change in Pro Forma DPU after refinancing.

Source: Cache Logistic Trust

Gearing Ratio
SGX-listed REITs can only have gearing ratio up to 45%. Past this, financing by debt is no longer an option; the REIT will have to look into other means of fundraising such as divesting assets, issuance of new shares (rights issue, placements, etc), causing dilution (usually).

Having said that, high gearing may not be a bad thing so long as that is able to create value to their shareholders and shareholders should evaluate if this matches their risk profile.

Part 2 of the series will be coming soon!

HDB Chronicles - Short Sharing Session - Financing and Expenditure for the Renovation, Furniture and Furnishings

This article is part of a series that shares my journey to becoming a homeowner for the first time and will be among the final posting of the series.

If you regularly follow up on HDB renovation articles on Facebook and other websites, you wmay come across the costing as well. It is known that the overall cost of just renovations and furnishings less furniture and appliances could easily hit SGD 50,000 or more (even more if you are going to hack walls and do more exotic work!).

Readers of my blog may know through my posts that I bought and live in a resale flat. We were very fortunate to come across a unit that is kept in good condition. This saved us a lot on cost as it meant no hacking work and no spending on tiles. Additionally, my wife and I opted to keep the home simple and cosy. While ultimately your home is yours to do what you wish to, I advocate minimising spending in favour of investing. Haha.

Altogether I think I spent about SGD 30,000 - 33,000. Where possible, my purchases were funded using credit cards (OCBC Cashflo where installment is otherwise not possible or not worthwhile as retaining balance in the bank is crucial). Otherwise, it came from cash from my wife's savings, my savings as well as liquidated positions in my holdings previously.

Tips on Saving Cost

• Some of my LED lights and long fluorescent lights are sourced from shops in industrial areas. This can save you up to 50% compared to other brick-and-mortar lighting shops.
• It is possible to negotiate prices in certain cases to try and get a better bargain.
• Audio-house has fantastic pricing (including if you paid for electrical appliances although the selection is a tad limited. 
• Racks.sg also sells storeroom racks at good price.

Lobang

• Restroom / Water-works related - Shophouse at Blk 574 Ang Mo Kio Avenue 10 (Cash Only)
• Racks.sg
• Electrical Appliances - Audio-house (There's a store at Bendemeer area)

Cromwell European REIT - Recent Price performance and 38-for-100 Rights Issue

Introduction
Cromwell European REIT (SGX: CNNU) is a SGX-listed REIT that holds a portfolio of largely Office Properties based in Europe. It had successfully IPO-ed on its second attempt to list towards end of after adjusting the portfolio and the offering. Its sponsor is Australia-listed Cromwell Property Group. It trades in EUR dollars (for people investing with CPF-OA, you can't buy with CPF unless it's priced in SGD). The trust issues distribution semi-annually and intends to issue 100% of distributable income till FY2019.

Distribution
Its maiden distribution for period of 30 November 2017 to 30 June 2018 (7 months instead of 6 months) was paid out at EUR 0.0253 (SGD 0.04031) per unit. If we convert this to a semi-annual payment, it translates to EUR 0.02168 (SGD 0.03455) per unit. Based on its last traded price of EUR 0.545 as at 2nd November 2018, this translates to an annualised distribution yield of ~7.92%.

Share Price Movement
Looking at YTD Chart, price has been on the decline since its peak of SGD 0.635 on 17 May 2018. This is in line with Straits Time Index as well, which has been on a decline since its peak of 3615.28 on 02 May 2018.

Source: SGInvestor.io

Source: Yahoo! Finance

Interestingly, there has been some increased short selling going on (link to price movement on SGInvestor.io here) - looks like some traders are taking advantage of pessimism from the rights issue. The rights issue will cause weakness on its price for a while on top of interest rate hike, probably continuing to present headwind to the share price as with a lot of REITs out there.

The past few trading sessions have started to turn positive so after once it hits support and if the positive momentum of the market is sustained, that could mean the stock will find support not too far off that may allow slight rebound in price.

Rights Issue
On 30th October 2018, the trust had announced acquisition of 3 portfolios totalling 23 properties and intend to fund the acquisition partially via raising approximately EUR 224.1m by means of a 38-for-100 rights issue (remainder via debt financing). Altogether there will be 600,834,459 units at EUR 0.373 per unit up for offer in this rights issue. (link here). The acquisition and rights issue is subject to shareholders' approval during the EGM to be held on 15 November 2018 (Thursday) at PARKROYAL at Pickering.

Source: Cromwell European REIT

• Undertaking for Cromwell Singapore Holdings Pte Ltd and its related corporations to subscribe 35.31% for the rights issue. This is significant to me as they will maintain no drop in % of ownership of the share and hence can be interpreted as a vote of confidence.
• As of present, total share base is 1,581.14m. Post-rights issue, the total share base will be increased to 2,181.98m (enlarged by 38%).
• Theoretical ex-rights price (TERP) of EUR 0.498 assuming full and proportionate subscription by all shareholders means averaging down from current price by 9% (hardly the case though...).
• Based on theoretical forecast of distribution, total distributable income is expected to increase by ~22%.
• Taking into account the enlarged share base, this could translate to a theoretical reduction in DPU by 12%.
• CEREIT's current gearing is 36.8%. Since the acquisition will also be funded by debt financing, gearing will go up.
• A quick glance through the rights offering presentation slides reveals some properties have a short Weighted Asset Lease Expiry (WALE) (some are even only a month away from expiry!), so that may be a concern to some investors.

Disclaimer: The above (especially my own observations) should not be used as a decision to solicit buy/sell activity. Use all information at your own discretion and DYODD.

How to rent your HDB Flat Bedrooms out

In a place where cost of living is going up especially when you have your own place and start your own family, it is always a good thing to gain increase in income to cope, and to make any future plans (retirement, family planning etc). Renting out your HDB Bedroom is one way to gain passive income.

Steps to rent out your HDB Bedroom
1) Put up your ad or look for tenants who is looking for a place. You will want to advertise the good things your place has got to offer, and of course your asking rates. There are a number of Facebook groups and websites which gives you a channel to do this.

2) Get an agreement between you and the tenant(s). You probably want to draft a contract with Terms and Conditions for the tenant to agree upon and for both you and your tenant's retention.

3) Help him/her/them to apply online via HDB website either before they move in, or within 7 days after they move in.

You need to get the following details from your tenants:
- Full Name
- NRIC/FIN No.
- Date of birth
- Their work sector (e.g. Construction)

Online Application Steps

• Log in into HDB Website using your SingPass

• Navigate to Application for Renting Out a Bedroom
• Click on the bedroom you intend to rent out (Unfortunately I'm not able to show the screenshot as my bedrooms are already rented out)
• Key in the required details (e.g. Tenant's Full Name, NRIC/FIN No., Nationality, Pass type, Tenancy period, Work Sector etc.)

And there! You're done!

But what about first-time non-citizen?
For a person who is going to work in Singapore for the first time, you will still need to get his or her FIN No. to do the application. To do that, your tenant will probably need to liaise with MOM and the employer based on his In-Principle Approval. Note only the employees themselves can request for the FIN No.

Rental Period

• Minimum 6 mths. 
• Max 18 mths if the particular room being rented out involves any non-Malaysian non-citizen tenants
• Max 36 mths for Malaysians/Singaporeans

Verification
There are a few ways to let the tenants verify they are registered:

• You can go to HDB's Renting Out (Link here). This requires SingPass.

• After clicking the link, click on the appropriate option. For my post I will only be looking at renting out bedrooms.

• Click on "Enquiry on Rental Records" and then click "Continue"

• Clicking on the links at "Start Date" will lead you to the details of the tenant and tenancy.

• You can go to HDB's Enquiry on Authorised Tenants (link here), fill up the details accordingly, and show them the enquiry result or the screenshot of it.
• Fill up Enquirer (in this case, yourself) Name and FIN/NRIC No.
• Fill up Tenant's detail
• Click on Enquire and you're set!

Rates
From what I know, HDB Common Room Market Rate goes $500 for single, no air-con to $750 for couple, air-con. This is subject to the amenities, the location and probably other perks you as a landlord can offer. A Master room would probably be $800-$900? Condominium would command an even higher rate.

Keep in mind:
- Each application to rent out bedroom costs $10.
- You cannot rent whole flat out if you own the place for below 5 years
- If you are going for vacation, need to apply something from HDB
- If your tenants-to-be has vehicles, note that Non-Singapore vehicles cannot apply for season parking
- You can only rent 1 room out for a 3 room and up to 2 rooms out for a 4 room or bigger.
- Only up to 6 people can stay in 4 room or 5 room.

Links:

• https://www.hdb.gov.sg/cs/infoweb/residential/renting-out-a-flat-room
• https://www.hdb.gov.sg/cs/infoweb/residential/renting-out-a-flat/-bedroom/renting-out-your-bedroom/regulations-for-renting-out-bedrooms