ARA AGM Notes & Thoughts - The Future Blackrock of Asia

Disclaimer: all info in this post are base on my written notes and thoughts, it may not be accurate at all. Readers are most wise to do their own homework and due diligence.

ARA AGM at Suntec City Convention - 10 am

Was happy to receive a door gift of $20 voucher (10+5+5), ARA is currently my biggest position at 60,000 shares so my following post may be strongly biased.

CEO started off by explaining the 3 core components of ARA.... REIT management, Private funds and Property Management.

The REIT management segment provides the bulk of recurring income,  the earnings are stable and AUM in this area grows constantly. In the current environment, its difficult to list new reits.. however on the upside with the low interest rates its easier for the existing ones to gear up cheaply to make acquisitions. (thus increasing AUM)

In the coming years, a big portion of growth will come from the Private funds. As there's a change of liquidity trend.... with worries of currency devaluation and a need to investing outside of their home countries... hot money is pouring from sovereign wealth funds in China/Japan/Korea. Example ARA's new office in Korea is already managing 1 billion AUM from their local SWF, the equivalent of our Temasek/GIC. The figure is likely to explode upwards.

The earnings from Private funds however can sometimes be very volatile due to the lumpy fee structure. Performance fees are only received at the end of the fund life cycle, some which are set at 10 years, resulting in big one time gains.

Out of the 30 billion in AUM managed by ARA, only 1.4% comes from its pockets as seed capital. This percentage is much lower as compared to other asset management companies which on average put up 4%. This is because of ARA's backing from partners such as CK group and STC, which holds significant stakes in their respective reits. Example for Suntec reit ARA holds 4% while STC holds 6% for a combined 10%. Whereas for Private funds, ARA typically puts down 5-20% as seed capital which is more demanding.

This resulted in the 150 mil raised from the recent rights issue, which main goal is to grow AUM. The returns on this new capital is expected to be very high, as they are mostly used as seed capital for their new Private funds. Example if the PF investor makes around 15% returns, the fund manager (ARA) could make likes 25% returns due to the extra management and performance fees.

ROE% for 2015 looks pretty low mainly due to the accounting of seed capital. The gains made in the private funds seed capital are not reflected yearly in the profit and loss statement, these gains are only realized at the end when the fund is divested. So ARA is actually more profitable than what it seems.

In practice ARA does not sell any of their Cache & Suntec Reit shares, these are kept for long term. Whereas management fees paid in units by other reits are all sold to get cash, the cash inflow is decent and no more fund raising is expected in the next few years to come.

Short term wise, ARA should comfortably grow 2-3 billion in AUM each year.
In the mid term the target it to get to 40-50 bil AUM to be considered world class.
The long term goal would be a 100 bil AUM to be in the league of giants such as KKR and Blackrock.

ARA currently has a market cap of around 1.2 billion, in my view if it can triple AUM ARA could eventually reach a blue chips status on the STI.

Bonus pic, $9.90 Aston lunch using the free vouchers ^_^

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CCT AGM Notes - Commercial Property Bear Coming?

CCT AGM 2pm at The Star Gallery - Bouna Vista

This year $20 voucher was given instead of buffet ^_^

Disclaimer: all info in this post is base on my written notes and memory, it may be inaccurate. Please do you own due diligence.

Office rents had peaked in 2Q15 and has since been in a down thread. The down trend is likely to continue as massive amount of office supply would be released in 2016, however pass the road bum.. 2017-2020 supplies would be less worrying.

If we take a long term view, office demand is about 1mil square feet per year and in the coming 4 years the average supply would be around 1.1 mil square feet... so its only a bit extra, not that scary as what most people's imagined.

Current tenant rents are still below current market rates, upon renewal we are likely to see positive rental revisions. 

For CCT, its properties are revalued every 6 months. DPU for 2016 is likely to be the same or higher as Capital Green will bring in more income. In an event of lower DPU, there is 0.45 cents of reserve that can be used to support payout, its from their Malaysia side investment gains.

Management had planned in ahead of the major office supply coming in 2016.
For 2016, 1/3 of the leases were already renewed in advance, leaving only 10%+ on each years 2016-2017-2018. This will minimize impact from the 2016 supply flood.
Majority of the leases (60%+) to be renewed are in 2019 onward, these should be less impacted.

CCT current owns 40% of Capital Green and will eventually own 100%, its only a matter of time. The option will only be exercised if its DPU accretive. Gearing will not go pass 40% (currently at 29.5%).

One George Street and Wikie Edge property are getting offers, but management seems to be waiting for more attractive prices.

Goldshoe car park has the opportunity to be redeveloped into a second capital green, however this process is long as it involves many parties for negotiation.

CCT's management fees are the lowest already at 0.10% base fee, as compared to some others at 0.50% base fee.

Bonus pic of my cat~ miss her so much

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M1 AGM Review - Will M1 Continue to Thrive?

Disclaimer: all details in this post are base on my notes, memory and thoughts from attending the AGM, as such it may not be accurate at all. Readers are best to take this only as a rough reference and would be wise to do their own independent research/analysis.

Had a busy morning clearing up all outstanding stuff before rushing out for the AGM. After a quick $12 hair cut at QB house, I donked ten bucks on the new MacDonald meal before heading down to raffles place for M1's AGM at The Fullerton Hotel 2.30pm.

The turn out was huge as the ballroom was more than full, the chairman started off with a summary of M1's 2015 performance and that they would continue to grow not only from retail segment but also from opportunities in corporate & government segment such as the Smart Nation program, data analytic and M2M (machine to machine).

In regards to the smart nation program, M1's trial in the Jurong lake area is progressing well . Although in the early stage, its already contributing millions in revenue (maybe low single digit million).

Around 2% of M1's yearly annual revenue is used to invest in tech startups which compliments M1's core business. M1 usually do not have a controlling stake but rather lead towards co-investing and partnership.

On M1's debt level growing rapidly, the management's response was that M1's is much less geared as compared to Starhub. Purely looking at gearing %, M1 consider it to be at a low level as compared to the telco industry and have plans to continue leverage up in the near future for growth.

What had the CEO to say about her continuous selling of her stake in M1? She responded that it was a regular part of re-balancing of portfolio and that her stake today is still higher than of previous year (0.28%), investors need not worry. On the other hand, the Chairman bought more M1 shares from the open market as he was confident in the management team and its long term fundamentals. Do note that M1's Chairman was previously the CEO of Keppel Corp and currently already in retirement age, thus his purchase was a very strong positive signal.

In regards to 4th telco raising 250mil(MR) & 1bil(OMG) for bidding of spectrum and building of new infrastructure to compete against m1, do take note that M1 has to date spent 2 billion dollars on capex(capital expenditure) since listing. As such it would really take plenty of time and massive investments for the new telco to even come close.

M1 would vigorously defend its market share in the mobile/fiber segment and does not see itself entering the Singapore Pay TV market as its too small and saturated. Management view is that the Pay TV segment would not be relevant in the future as more and more consumers stream their contents off the web directly.

Why was total dividends down in 2015 as compared to 2014? This was mainly because M1 wanted to save up cash for the coming spectrum bidding in the 3rd quarter.

Free cash flow per share fell sharply in 2014 to 10 cents from 19.1 cents in 2013, FCF was also low in 2015. This was mainly due to M1's huge investment commitments towards the 4G network and spectrum bidding.

The 2 previous bidding of spectrum frequencies cost 40 mil and 64 mil. The coming spectrum bidding would cost around 90 mil. On average M1 spends 120-130 mil per year as recurring capital expenditure. These spectrum license only give M1 the rights to operate that particular frequency range for 15 years.

There were suggestions for M1 to invest overseas, however the capital needed would be huge and to do so a massive rights issue would be needed. An unlikely path to be taken.

The current telco landscape could be compared with what happened in europe as they opened up to 4 telcos, each telco ended up bidding too aggressively and thus overpaying for spectrum. The end result was low/poor service levels across the board. In frustration the european government had to consolidate the telco industry from 4 players to 3 players. Unfortunately, Singapore may not be in the right direction by going from 3 to 4.

Unlike Singtel or Starhub which are able to bundle together mobile/broadband/pay tv.
M1's unique strength is towards Innovation and Service, they and the coming 4th telco are also not burdened by high cost related to Legacy Assets (example cable tv hard assets, older generation network which will become redundant, leading to write downs)

In regards to the rumors of Keppel corp selling its M1 stake. (KC 19%, Axiata 21%, SPH 13%)
Axiata is also a telco so it naturally considers M1 as a core position.
Whereas KC and SPH logically considers their M1 stake as an investment, so if the offer price is high enough or too attractive (say $5) they would surely divest M1.

After near 2 hours of engagement, shareholders retreated quickly to enjoy the free bento set.
The seafood salad was amazing~

Overall I am quite please with the management and would continue to hold my 12,000 shares of M1 to see if management could deliver their promise to deliver value to shareholders.

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Portfolio Update - Reduced SCI/M1 & Added DBS

SCI has gone up by close to 50% from its lows of 2.16, mostly due to the rally in Oil prices... which also gained close to 50% from its low of $27 to around $40. Petrobas reported a huge full year loss along with Brazil heading into a second year of recession, the situation with Sete Brasil still drags on with a cloud of uncertainty. As such I have began to take profits on my SCI position at a much accelerated pace than what I planned before. I intend to reduce my full SCI position by half.... while waiting for further updates on Sete Brasil. In short I still like SCI's overseas's Utilities business which seems to have strong growth but on the downside its Marine and Local utilities business is likely to be weak for 2016.

M1 spiked up like 4% on Thurs, I still believe that M1 is able to maintain earnings for 2016/17 however the long term fundamentals will only get worse once the 4th telco wages war 2018 onward. I took this as an opportunity to reduce my exposure and would likely reduce further if M1 trends higher.

Part of the sale proceeds were used to purchase a fresh position in DBS which is trading at one times book value, a lower PB ratio as compared to UOB and OCBC which are trading at 5-10% premium to book now. The balance sale proceeds was added to my warchest, which I intend to bring back up to 10% if the STI recovers back to around 3300 levels.

I feel confident in DBS due to its CEO's recent 2.8 mil purchase from the open market, putting his money where his mouth is and also because valuations seems attractive for long term. Going forward I expect DBS to continue growing earnings at around 10% per year, however on the downside I worry that they may be too aggressive in their expansion that may lead to more acquisitions.

Banks are still at the lower end of their valuations, at PE 8.9 to 9.6 along with a decent yield of 3.8 to 4%.. I strongly believe that at current prices banks should likely provide its shareholders with long term returns of 10% or better.

Currently I have 8 stocks in my portfolio and I do hope to limit my portfolio to a maximum of 8 positions as I do not wish to over diversify and end up with index-like returns. Before I can take on any new position, I have to be sure that its prospects are way better than my current one to warrant a switch.... but on the flip side I sometimes lack the discipline and may eventually open up to 10 positions instead.

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STI Completes V-Shape Recovery - Full Portfolio Revealed!!!

In 2015 the STI finished the year down 15% with a close of 2883. 2016 started with a sharp bear attack that sent the index down 12% straight to a low of 2533 within the first month.

Everything looked gloom and doom as investors worried about everything from the feds raising rates, an oil crisis to a China crash! Plenty of these investors panic, sold and when to cash... only to see a rebound in late February that saw the index rocket from a low of 2528 to the current 2906, forming a true V-Shape Recovery!

The big lesson learnt is that its really hard or near impossible to time the market, those that sold and wanted to buy stocks cheaper failed to board the boat again. Often its better to stay calm, focus on earnings/dividends, stay vested and lastly summon the courage to pick up more shares of companies with great fundamentals.

Be greedy when others are fearful! Never forget that.

At the climax of this recent crash my portfolio hit a low of around 230k value and have since recovered to near a 280k level. Most of my current holdings are either near break even or in the green except for M1 which is sitting on a paper loss of around 10%.

M1 was a really horrible purchase on my part as I underestimated the impact of the 4th telco and over estimated its ability to maintain dividend payout, which I shall learn and pay dearly from this mistake.

Going forward if the STI continues its uptrend, I intend to slowly re-balance my portfolio.
If the STI hits 3000 level, I want to be around 5 to 10% in cash.
If the STI goes to 3300, I want to be around 10 to 15% cash.
Anything higher than 3600, I want to be around 20% in cash.

Looking at my current portfolio, I am likely to gradually take profits on SCI. Slowly cashing out my profit if it goes higher. Staring from 2000 at 3.20, and selling another 2000 at every 20 cents increment till it hits $4.00 I would have fully exited SCI.

When SCI(11%) is fully divested, I would likely to still hold on to my 3 core positions/segments
Property - ARA/CCT(39%)
Banks - OCBC/UOB(31%)
Telcos - M1/SH(20%)

“The rising tide lifts all the boats.”

― John F. Kennedy

NameCurrent Price AllocationPEYield
CapitaCommercial Trust1.4713%17.15.9%
Sembcorp Industries3.1711%10.93.5%

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Disclaimer: All posts made on this blog are purely based on my own views, they do not serve as buy/sell recommendations.

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