Why I Would NOT Invest in Keppel REIT and Stick to US Office REIT

 Keppel REIT has announced its full year results

There are a few danger signs shown in the REIT's latest full year financials and in addition, its share price I feel is at a high. Hence I feel it is not worth owning Keppel Office REIT and I do feel REITs outside of Singapore such as Elite UK and Prime US are of a better deal (coincidentally, Keppel has a stake in PRIME US REIT)

Summary of Keppel REIT Financial Results

Before I delve deeper, below are the results/summary of Keppel Singapore Results:

• Dividend of 5.6 cents (decrease of 3.4%), yield is 6.3%, 
• Dividend funded by SG$20 million from anniversary distribution (capital gains), 100% payout ratio
• NAV of $1.24
• Leverage grew to 41.2%
• All in interest cost of 3.4%

All in all, while Net Property Income has grown, the higher interest cost has ate into K Reit's distributable income. DPU has decreased and my main worry is how its high dividend are been sustained by growth in borrowings.......

High Yield But Its by The Ad Hoc Anniversary Declaration

As seen in slide 6, 9.3% of K REITS dividend is outside of its 100% payout ratio. It is funded by a 20 mil Anniversary Distribution. This means the REIT has been borrowing more in order to fund its dividend. This is not sustainable

If anyone remembers history, it is similar to what happened to Keppel Pacific/PRIME US/Manulife US, these REITs were paying 100% in payout ratio and doing CAPEX by increasing its leverage. Keppel REIT is doing the same now, ironically 2 out of these 3 REITs were part of the Keppel family group.

To add icing to the cake, it is growing its leverage by paying more than 100% payout to finance its 5.6 cents dividend. This is not right. Its real sustainable dividend is only 5 cents.

Cap Rate Used by Keppel's Valuer Are Too Optimistic

Stop of saying fraud, I notice Keppel's valuer are using cap rates of 3.15% to 3.55% for its Singapore Office Properties. That is too close a margin to cut. Any mishaps in the Singapore Office property space and cap rates will have to be adjusted upwards. It leads to the cascading effects of lower valuations and in turn the risk of breaching MAS's leverage limit. 

Why US Office REITs in SGX

Simple, the US Office REITs of KORE and PRIME have lived through a storm and are still alive with re financing. In terms of capital returns + dividend, should US Office SGX REITs resume their dividend payout, they are likely to best Keppel Singapore REIT in capital + dividend gains.

I am willing to bet on it. Given the risk reward ratio, overseas office REITs are going to be a better investment vehicle than Singapore's office REITs. 

Positive on US Office SGX Listed REIT; Dividend Should Resume in 2026 and 2 REITs May become 10% Dividend Yielders

Interestingly, Straits Time has released an article on the positivity of the US Office REIT space.

Similar to them, I had been positive for a while. This was mainly due to the successful refinancing of all 3 SGX US Office REIT of their debt. This removes one key re-financing risk. Of course, Manulife US (MUST) refinancing as part of the proposal, has to start selling US office buildings from a position of weakness amid vacating tenants in both Penn and Diablo Buildings. 

Positive- Refinancing Done, 10% Dividend Resume 2026

Despite the high leverage of the US Office REITs (due to high cap rates used), refinancing of their debts were confirmed in 2024. My main investment, PRIME US, has refinanced albeit at a higher margin + SOFR.

With cashflow secured, my view is in 2025 both KORE and PRIME US will continue to use their rental cashflow to pay down debt. As what the REIT managers have guided, 2026 will be when dividends are restored. Personally, KORE and PRIME will declare 2.0-2.5 US cents in annual dividend. This will make them 10% dividend yielders.

Unitholders in current situation are likely to be sitting on a dividend windfall if the REIT managers execute to the plan.

It is possible for these REITs to sustain such high rates because their in-built cap rates are of a blended average of 6-7% for their office buildings; as opposed to Singapore office buildings which uses cap rate of 3.2%-3.8%. Due to the higher cap rate used by US Office buildings, the yield obtained by these REITs are higher and explains why they can become 10% dividend yielders in 2026.

A stronger balance sheet, resumption of payout and thus we should see 10% dividend for KORE and PRIME US unitholders if bought at current prices. KORE's leverage is below 45% and has the higher chance to resume payout in 2026. PRIME US is stil delevering and should still resume in 2026; though I truly hope there is no EFR on the pretext of delevering and buying an office building.

Next Positive- Growth of Occupancy Rate

US's work from home culture had resulted in occupancy rate for PRIME and MUST to fall to below 80% on a whole of portfoilo basis. For PRIME US REIT, I am confident occupancy rate will grow from 80% (3Q2024) to at least 85% (4Q2025).

This is mainly due to the return to office orders that is happening across USA now. Aided by the demolition of older and Grade B office buildings, a higher occupancy rate means higher revenue, this trickles to higher NPI and distributable income.

While others would tell me to bet on all horses, I have done my research and am betting on only 01 horse. In my view, it is likely the one who will benefit the most is PRIME with the youngest office portfolio. For now, I will hold on to my 470,000 shares in PRIME US REIT and be monitoring when "business as usual" dividend can be restored. 

KORE is a close second for me to buy but at 22.5 cents, KORE expected yield is only 11%; if KORE is down to below 20 US Cents, I would be an investor. PRIME on the other hand is likely to be a 12-13% yielder at current price, hence why i feel PRIME is a better buy. However both KORE and PRIME US looks like very good purchases for 2025. While readers would point to them as REITs which are weak, it is possible when cap rates fall, their leverage ratio will be the same or lower than their Singapore peers and yet give high dividends. This will be when a re-rating occurs.

Portfolio for Jan 2025

Jan 2025 saw a few changes. I have sold a few of Asian Pay TV Trust shares upon news of its refinancing and purchased Nanofilm and Alibaba shares.

In addition, I have re-bought shares in Yanlord Land. Yanlord is a special play because it is holding valuable Singapore properties. Its share price has taken a beating over the fear of a potential China Vanke collapse. My view is that if Yanlord is able to survive the current China Real Estate Downturn (90% of its business is in Real Estate China), it should experience a re-rating upwards from its current 0.2 times book value. This too may involve partial monetisation of its Singapore assets which will be a plus point.

Dividend Update

As none of the company in the portfolio have reported end of year results, no dividend is received. More company coverage will happen in February as and when they report results. Expected yield is about 5% for 2025.

Composition

Due to the slight increase in share price of Yangzijiang Financial and PRIME US REIT, the rest of the stocks has reduced in percentage. As usual my exposure to China is relatively high at about 55% of the portfolio.

The portfolio has a value of about $691,500.

Why Most Overseas Listed SGX REITs will Make you More Money than Local REITs

While investors are hunting for yield, what many do not realise is that our local REITs are not strong choices to earn income, what's more many of these Singapore properties are valued at very high and optimistic rates that if something bad occurs, many of these REITs will breach MAS regulations and are unable to borrow further.

Let's use an example of Suntec REIT to explain.

Concept of Capitilisation Rates ("Cap Rate")

Cap Rate is an important concept when it comes to understanding a REIT. It is used as the discount rate to present value the expected future income received of a building to today. Roughly Building A which is valued at 4% as cap rate will be double the value of building B which is valued at 8% cap rate, even though both Buildings A and B have the same amount of rental income earned.

Hence, the higher the cap rate, the lower the value of the building. It is similar to the idea of dividend yield. If investors expect a certain company to give a high dividend yield, its share price will be pushed very low until the expected high dividend yield is achieved. 

Suntec Example

Suntec owns office buildings in Singapore, Australia and UK. And from its latest report (see slide 59 and 60), the cap rate for the office buildings in the 3 countries are 3.4%, 6%, 5.5% respectively. 

As to why Suntec has been able to give high dividends relative to other Singapore office REITs; besides due to leverage, the main reason is because it has bought overseas office buildings with a high yield (high cap rate). While people would point that cap rate is determined by the location of a building, it is worth noting all Suntec's office properties in the respective countries are in the heart of major cities. Location wise, all these properties are Prime real estate. What differs is the cap rate used in each country.

The other reason is that Singapore, relative to other developed countries, uses a very low risk free rate because our interest rates are suppressed. But this explains why Singapore investors should not park our money in Singapore but move it overseas because we will get better returns as Singaporeans.

Overseas SGX-listed REITs

This brings me back to the overseas SGX-listed REITs. Due to their nature of business being not in Singapore, they have to use cap rates which are much higher than what Singapore buildings use. Hence while their property seems low in value, in fact they may be yielding more rental income than their Singapore counterparts. 

As REITs are required to pay at least 90% of income to gain tax benefits, in time to come, overseas REITs in the SGX will give a large amount of dividend to unitholders. Granted, in some countries like  the US office space, these REITs are now in a crisis of confidence phase beacuse high cap rates used means their building are lowly valued which in turn makes these REITs highly geared; however, once the crisis has come to pass and these REITs resume giving dividends. Due to the high cap rate used by their valuers now, future dividend will be high.

A few REITs like United Hampshire US and Elite UK have continued to give dividends and they have been giving relatively higher yields to Singapore Unitholders.

I have noticed this and instead of investing in Singapore REITs, I am now buying SGX-listed overseas REITs. 

As said, I will be recording the dividends, so investors will start to see via my quarterly logging, how much these overseas REIT are declaring as dividend relative to the local SG REITs. 

I believe the difference in amount will be staggering. Of course, using my limited knowledge, I have chosen to pick the supposedly stronger few who will survive the overseas property crisis now.

<Vested in UnitedHampshire and PRIME US REIT>

Why Former Sabana Director Chan Wai Kheong Is Making Things Hard For Sabana REIT Unitholders, And Not Proposing Constructive Motions for All to Benefit

Last Friday on 17 January 2025, there is another turn of event in the Sabana "saga". Former Sabana Director Chan Wai Kheong has rallied support of at least 10% (suspicion is supported by the Hong Kong company of "ESR Group") of shares owned to request for an EGM to do a price discovery process with view to achieve the sale of all or majority of Sabana Assets.

While I am not a unitholder of Sabana REIT, the proposal put forth by this former director of a REIT shows the director himself has very little knowledge of the happenings in the REIT industry or just trying to make things difficult for the new internal manager without the aim of monetising the assets as per what he claims which will benefit all unitholders in his letter.

Case History of Manulife US REIT- Instead of a Price Discovery Process, Requisite for a Dispostion Mandate Anchored on the Independent Valuers Valuation

Last year, Manulife US REIT voted for a Disposition Mandate, it was a straightforward process where the REIT manager is allowed to sell any property if it was at least 85% of the valued price calculated by the independent valuers. This was to allow for the quick monetisation of assets to protect unitholders' interest.

Therefore, what Chan Wai Kheong could have requested in order for Sabana Unitholders to  benefit are:

(i) Request for a disposition mandate, 

(ii) Set a timeline for the sales of properties, 

(iii) Mandate a TnC that each sale should not deviate no less than X%, e.g. 10% less than the Independent Valuers valuation of each Sabana's property.

A disposition mandate will result in a faster sales process because prospective buyers are anchored to a valuation report done by an independent Singapore valuer and this report is updated annually as per Singapore's law. It is much faster than a price discovery process put forth under Chan Wai Kheong's.

What Assumption Was Made

In my above thoughts, I had presumed the valuers of Savills and C&W of Singapore had done their valuation with independence and professionalism. Therefore Savills and C&Ws' year end report can be relied on as reference and is not fraudulent.

If Chan Wai Kheong is disputing this fact and hence is opting for a price discovery, he should come out and say in his professional view Savills and C&W of Singapore are committing flawed calculations in their reports and report this to the Singapore Institute of Surveyors and Valuers. This is something he as a former director of the REIT should know. Otherwise based on his past experience, he would be aware that the independent year end reports can be trusted, relied on and therefore proceed for a faster disposal process via a disposition mandate.

This will quickly help unitholders to realise the value of Sabana assets and protect their wealth. Alternatively as i have said in my second paragraph, he is just making things hard with no intent of helping unitholders and plans to add more roadblocks to lengthen the internatlisation process which has gone on for 1+ year. This internalisation process had been hit by roadblock one after another such as by a stubborn trustee of a Hong Kong Bank's (HSBC) subsidary who had to be overruled by the Singapore Court for a simple matter. 

All these have been resulting in undue loss in value for unitholders.

Credit Card Spending Strategy for 2025- Using Maybank Family and Friend Credit Card

As someone who loves to stretch my dollar, my spending has revolved around using 3 credit cards to chase both air miles and cashback, it was a good strategy which enabled me to get free air flights on premium seats on SIA for the past 2 years after COVID. This was how my spending revolved:

Nerfing of Many Credit Card Benefits

If 2024 is anything to remember, it is that many banks have Nerf'd their credit card benefits. HSBC revolution was the worst where 2024 started with the removal of paywave earning 4 miles per dollar (which forced me to rotate my UOB's lady card each quarter by quarter to plan how I would spend/eat). 

Standard Chartered Bank has now too moved to kill off the generous 6% cashback (with no minimum spend) I was obtaining for my EZ Link and Ya Kun Coffee buys; while I could still earn a generous 8% cashback for EZ link and Ya Kun if i spent $800 per month, it is unlikely I will be drinking myself silly on Ya Kun Coffee per month

New Main Card- Maybank Family and Friend Credit Card

The benefits of Maybank Family and Friend has been around for a few years. It's 8% cashback for chosen categories with $800 minimum spend per month is generous and has always been a close contender for me to go full cashback. However, I have not consolidated my spending to this card, because I had struggled to charge $800 spend per month on credit cards. So why have I decided to move to Maybank Credit Card for 2025?

Singapore Inflation is High that I Can Meet The Target

To qualify for the 8% cashback, Maybank requires users to spend $800 per month. By a stroke of luck, the constant inflation in Singapore has increased my cost of living that it now hits Maybank's minimum spend!

My grocery expenditure forms the largest part of spending because I would buy items and cook my own meals for work. While doing my usual shopping in recent months, I have noticed the bill has increased quite a bit while the purchased items has remained unchanged; hence due to inflation, my expenditure has increased quite a bit. Furthermore with the public transport hike, 2025 spending now moves close to the $800 mark

My plan now is that some front loading to purchase NTUC Vouchers has to be done to hit the $800 minimum spend per month. And for a month or two, I would not charge grocery to the card but instead charge for my flight expenses (since I am now going to full cashback, I will not have the miles to fly for free).

With a consolidated spending on primarily one credit card, I am able to track my spending with greater accuracy, let's see if I am able to utilise Maybank's Cashback reward effectively to maximise my daily spends.