PRIME REIT- US Companies Imposing Work From Office Measures Positive Developement

 Amazon at the corporate level has instructed its staff to return for at least 3 days in a week.

This to me signals the return of demand for office spaces for USA. It is likely the WFH culture will be reduced dramatically on the basis of improved productivity.

Effects on PRIME REIT

With Inflation still high and an expected increase in demand for office spaces due to US firms stipulating periods of time to work at the office, I expect further positive rental revisions for 2023. This means higher rentals. I am forecasting revenue increase of 6%. (US$163 mil --> US$172.8 mil)

With the increase in interest rates for the next full financial year, I forecast an increase of interest expense by 13% as compared to this year's. (US$21.6mil--> US$24.4mil)

In 2022, there was a deferred tax expense of US$13.9 million due to revaluation losses. I do not expect another of the same magnitude, however, with the rise in cap rate, I expect further losses and hence a positive deferred tax expense of US$2 million. Hence there will be a cash outflow of US$11 million in adjustments.

In summary, I expect a decrease in income avaliable for distribution from US$35 mil to US$31 mil. This means US Prime REIT will have to a DPU decrease by 11.4%. At current DPU, PRIME REIT is giving US 6 cents per share; factoring the decrease, this means a future DPU of US 5.3 cents per share.

Valuation

Currently PRIME REIT is at US$0.42, based on my estimation it is at 12.6% dividend yield. In my view, this is too cheap. A reasonable yield for US office REIT is in the region of 9-10% yield which is about US 55 cents.

Given this, I will be adding to my position in PRIME REIT in the next few market days.

<Currently Vested in PRIME REIT>

OCBC Fixed Deposit or 6 month T bills for CPF OA

This is probably on many Singaporeans minds now on what they want to do with their CPF OA above $20,000. Let's summarise the current offerings:

OCBC 8 months Fixed Deposit - 3.88% vs

Singapore T-Bills 6 months- 3.85-4.00% (Depends on competitive tranche results)

To be honest, there is not much to compare between them. T bills are only worth if the 6 months tranche results are 4% and above. If it is too difficult to think of a magic number, just sign up for the OCBC 8 months FD with your excess CPF OA. It's definitely better than being indecisive and leaving the money in CPF OA which is the lowest interest.

When to put in the Fixed Deposit with OCBC?

The answer is definitely the first week of the calendar month. This is because CPF counts the the lowest account balance clocked for that particular. So do it at the first week or two of the calendar month. This is so that when the money is returned to you by OCBC after 8 months, it will likely be returned on the latter part of the month, minimising CPF interest lost.

For now, just wait to see if the upcoming T bills for Feb 2023 is 4% and above. If not, just queue up for OCBC Fixed Deposits at the start of March. Dont leave your CPF OA in CPF, otherwise, your FIRE will be slower.

Tesla - A Definite Sell at $190 Price With Huge Downside

Given the recent uptrend and rebound optimism over Tesla, the value proposition of Tesla based on its fundamental of earnings has changed. At current prices of $190, the company is a definite sell with a large downside.

Recent Developments

Tesla Investors would be aware of the news that Tesla has slashed prices of its car models to gain market share. The question to many is what is the impact of margins to Tesla. Fortunately, I came across an article which shows the profit margins of EV makers.

Source: https://www.visualcapitalist.com/charted-teslas-unrivaled-profit-margins/

With the implmented $5,000 price cut by Tesla, the profit margins made by each car will be halved. Even adding the cost savings derived from producing more cars, I doubt, it will be able to cover the current profit margin earned from making a car (US $9,574). Ford too is engaging in the price war

Tesla Recent Earnings

Tesla's earning per shares for 2022 is US$3.70 per share. With 2023 signalling a price war among the EV makers, but orders for Tesla vehicles will increase, I expect Tesla to maintain its US$3.70 per share earnings.

However, earnings will not grow as fast as they are in the future. At current prices of $190, Tesla is priced at 50 times PE. If Tesla is able to almost double its earnings every year, yes 50 P/E is reasonable; however, Tesla's profit is now fairly large and are engaging in a price war with EV makers. This will slash the margins they earn from their cars and put a downwards pressure on net earnings.

A 50 times P/E for Tesla is downright expensive. With conventional automakers priced at single digit to 10 times P/E, the best Tesla can be valued is only at 20 times price earnings.

Downside of 50%

With that, the target price of Tesla is in the $90s range, I expect Tesla share prices to fall 50% over this year as reality over its earnings capabilities set in.

<Author is neither short nor invested in Tesla at the time of publication>