Portfolio Update - Divestment of FCOT & SSB Allotment

It had been sometime since anything have happened to my equities portfolio.

Having that said, it's truly a pity that I have to write this today. In my first portfolio update of 2018, instead of the regular 'buy', it had turned into my first 'sell' transaction. I've divested 300 shares of FCOT at 1.46 today after it went into XD. 

Taking into the account of all the transaction fees, this divestment at 1.46 translates to a P/L of 8.29% or S$33.10 (without dividends) and 15.66% or S$62.53 (with dividends). This big increase you see here is due to the relatively small amount that I've placed into the investment. Nonetheless, this also serves as a good lesson learnt along the way.

FCOT announced it's 1Q18 results and had declared a 2.40 cents distribution for the period. Shares of FCOT had since went XD. With it's recent run, and at today's price of 1.46, the current price  translates to 94% of FCOT's book value at 1.55. Surely, it is still trading a small discount to it's NAV, however the sightings of several signs in the financial report had got me shaking my head.

FCOT's 1Q18 Financial Highlights

There have been a lower occupancy rates at ATP given the departure of HP and along with the weaker AUD, it had resulted in a 11% down in gross revenue year on year. NPI had also decreased significantly by 15% due to the given factors and DPU had shrink by 4%.

Fortunately enough that FCOT's management fees are paid in units rather than cash. Should FCOT's management decide to receive cash instead of units, the DPU will be badly bruised. With 2.40 cents in mind, this translates to an annualized dividend of 6.5% based on the latest price of 1.46, which is no longer attractive.

However, if it is based on my entry price at 1.295 earlier last year, the DPU is neither too attractive either at 7.4%. Considering if the DPU continues to fall, or the management deciding to take cash as management fees, the yield will be far less attractive. Revenues should be able to well recover when more areas in ATP are leased out.

With HPS leases expiring, and should they leave ATP, this event will vacated roughly 16.7% of ATP's NLA. With that in mind, the distribution will once again be impacted negatively.

On a side note, they have also went into the acquisition of 50% in Farnborough Business Park, UK. This deal is set at £175 million. A rough calculation based on the latest exchange rates (1-1.84) will mean that FCOT is acquiring this FBP at S$161.22 million.

Page 9 of 1Q18 Financial Statement

A quick look into their financial statement at the end of 31 December 2017, it shows that FCOT does not seem to have sufficient cash for the purchase which is said to be completed by end-January. This makes me wonder on how this acquisition will goes about. 

With a decent gearing at 34.8%, FCOT is able to take up loans easily for the acquisition. However with that in mind, the gearing will no longer be attractive anymore. Or perhaps, a rights issue might be coming?

Today, FCOT continues to have a relatively decent gearing at 34.8% while prices today, despite FCOT trading at a 5% discount to NAV, tells me that FCOT is no longer undervalued. With the uncertainties ahead and considerations, I decided to divest my shares of FCOT.

Assuming that HPS vacates from the premises, based on a simple envelope-back calculation of HP's total GRI of 11%. Stripping that off will impact it's DPU to shrink to 8.54 cents, which translates to a DPU yield of 5.85% based on today's price of 1.46.
This yield today at 5.85% is no longer attractive for FCOT considering the uncertainties ahead such as increased gearing, rights issue or even the vacating of other tenants and is also unable to compensate the risk for this investment.

As I've divested on XD, I will still be receiving $7.39 of dividends from FCOT on 1 March. As to the 8 balance script shares that I've subscribed previously, I guess, that shall be considered my 'legacy' positions in FCOT? Haha! Nonetheless, FCOT will be officially removed in my coming portfolio update.

FCOT's results presentation here.
FCOT's financial statement here.

On a side note, I've been successfully allocated with S$500 worth on SSB from the previous SSB exercise. (GX18020A). The SSB had been oversubscribed by S$172 million. Applicants who applied for $41,500 or higher would receive $41,000 or $41,500 based on the latest news from MAS.

Guess, for small birdies like me, nothing much. However, as mentioned earlier in my previous post, the purchase of SSB serves as a form of diversification as well as personally, I view that SSB is a really attractive and good platform for me to park my money in.

News on SSB oversubscribed can be found here.

Read: Singapore Saving Bonds (SSB) - 1.55%