Friday, 16 April 2021

The Sabana REIT Showdown Between Sponsor And Unit-Holders

I used to be a unit-holder of Sabana REIT back in 2011. I recalled its unit price dropped after IPO (@ S$1.05 per unit) and then I started accumulating units for investment. Anyway, I held onto Sabana REIT for a short time due to its high dividend yield after the decline in price post IPO. But once I observed that the previous management seems to be having trouble getting new tenants and a potential cut-back in dividends, I got extremely worried and exited towards the end of 2012. But if one has been holding on to Sabana REIT since IPO, the total returns if inclusive of dividends is actually just a loss of less than 10% albeit the unit price dropping by more than half- so still not too bad. Since the end of March'21, I have started taking up a small investment stake into Sabana REIT despite the current ongoing spat ("War" maybe a better word) between the sponsor and the rest of the unit-holders.  

New Tech Park before the Asset Enhancement Exercise by Sabana REIT

1."Refresh Strategy" under new CEO is actually working well
Donald Han joined Sabana REIT as the new CEO in January 2018. He is a real estate veteran with over 30 years of experiences including working as the Managing Director Asia Pacific of Cushman & Wakefield and also the Managing Director of Chesterton Singapore. Donald had introduced and also implemented the "Refresh Strategy" which involves (i) disposing underperforming assets and matured assets, (ii) undertaking asset enhancement initiatives and (iii) acquisition of yield accretive assets locally or overseas. He is thus instrumental to the New Tech Park revamp- please see point 2 below. 

2. New Tech Park under "Refresh Strategy" beautifully executed as alluded to pt 1 now has a new retail F&B podium and also foodcourt at level 2 to be operationally ready by Q2 of 2021.
New Tech Park has already secured many new tenants for its retail F&B podium as well as got an operator for its 2nd level foodcourt. Good quality tenants include Collins, Wine Connection, Dutch Colony Coffee and Signature (a full range supermarket specializing in international produce).

I did a rough projection of the expect upsides to Sabana REIT unit holders for post execution of New Tech Park. This is going to increase the distribution per unit by 16.7% for FY2021 and 22.0% for FY2022 relative to FY2020 (reason being FY2021 only has around 8mths positive impact from opening of the new retail mall and foodcourt). If the market price is at S$0.40 per unit, the distribution yield is expected to be 7.17%. for FY2021 and expected to go up to 7.51% for FY2022.

Projected distribution yield after AEI at New Tech Park

Extracted from Commercial Guru for benchmarking

I estimated the rental per shop is at S$15,840 using a listing for New Tech Park new retail shop at Commercial Guru (S$19,800 per mth) and then applying a discount of 20% on S$19,800 per mth to be conservative in the projection. 25 retail units available per the news articles will thus mean S$396K additional contribution per month and S$3.168Mil for remaining 8 mths in FY2021.

Another point to note is that I have seen some people projected the yield to be up to 8%. This is not true. For FY2020 2nd half distribution, there are excess distributions due to previously withheld dividends from the 1st half as well as additional distributions in respect of prior years. Hence once you normalise the numbers, it should be only 6.15% for FY2021 at S$0.40 per unit market price. But if you included in the AEI done, this will go up to 7.05% in FY2021 and 7.51% in FY2022.

3. Potential acquisition of Sabana REIT by ESR REIT and possible 20% capital appreciation
Based on the full year results of 31 Dec 2020 released, the net asset value is worth S$0.57 per unit. This seems to be a vast improvement from the S$0.51 per unit as at 30 June 2020. Since Sabana REIT is adopting fair valuation of its investment properties, the net asset value will approximate the fair value. I reckon that there is a 20% to 40% upside if ESR REIT make a higher bid for Sabana REIT based on my entry price of S$0.39 per unit to S$0.40 per unit. 

4. Key risks holding on to Sabana REIT - The not so good parts
There are a few unstable risk factors underlying Sabana REIT despite the potential returns from distributions and capital appreciation. 

(i) Too few properties and small size 
The main key risk of holding on to Sabana REIT is that its portfolio only has 18 properties worth around S$1 billion. Any asset enhancement initiatives which needs to shut down any 1 property for such enhancement will mean down time which translates into loss of rental income generation for 1-2 years. This can be substantial in terms of the temporary losses in distribution of a single property relative to bigger REITS such as ESR with a bigger portfolio and many properties.

(ii) Sponsor ESR REIT not as prominent as some of the local REITs 
Another risk is that the sponsor is not as strong as Mapletree or Capitaland which are backed by the Singapore government. Weak sponsors will not be able to have the financial muscles to rescue them during times of financial crisis. Look at what had happened to Eagle Hospitality Trust and First REIT.  

(iii) Current minority unit-holders lead by Quartz Capital and Black Crane are very aggressive towards management of Sabana REIT.
Although I salute the efforts and leadership of the 2 fund managers in preventing low ball offers by the sponsor ESR to buyover Sabana REIT, I find their aggressive stance very troubling. Recently, they have been calling for the REIT manager to bear the cost of the failed EGM as well as asking independent directors that they do not like to resign. This constant infighting and stirring up of negative feelings of other retail unit-holders internally means management is spending more time fighting off its own unit-holders than concentrating fully to run the business. I do hope both fund managers can soften their aggressive stance and adopt a more diplomatic engagement approach to resolve the current impasse. 

(iv) REIT Manager- I think need to perform better and with more independence
My own view on this is simple. The claim that if ESR is not appointing any directors to the REIT manager means that the REIT manager is independent is nonsense to me. This is just playing with words. If you are getting your remuneration from the sponsor as a director of the REIT manager, then obviously there will be conflict of interest. The REIT manager needs to wake up and be more pro-active to doing the best for Sabana REIT. For example, during the last offer by ESR REIT, the offer values Sabana REIT at only S$0.362 per unit. This is almost a 30% discount off the 30 June 2020 Net Asset Value.

The REIT manager should have just rejected the deal or call in other bidders. I found their argument that any offer needs to be determined by unit-holders in an EGM illogical. For example, if a crazy bidder puts in a lowly bid of S$0.10 per unit pricing, does the REIT Manager still went on to call for an EGM for unit-holders to consider the low ball bid?
(v) Risk of ESR not offering acquisition anymore or fund managers selling off stakes leaving retail investors in a lurch
Sabana REIT as a standalone does not have much economies of scale which is a trend these days to enjoy a distinct competitive edge. At such high risk premiums due to so many unstable underlying factors as mentioned above, it will be hard for Sabana REIT to find yield accretive good properties. For many years, Sabana REIT has been languishing. The usual virtuous cycle of asset injection of yield accretive properties and then good capital appreciation of unit price which will lower its current yield for more future acquisition breaks down when we are talking about Sabana REIT. There is no better illustration than referring to its IPO price relative to current market price.

I do hope that the boxing matches between the sponsor ESR and the minority unitholders of Sabana REIT blow over soon. Both should actually give and take to resolve the current impasse which is a hindrance to the future growth of Sabana REIT. 

Tuesday, 13 April 2021

Property Investments Seminars Advertisements On YouTube Driving Me Nuts

Not exactly sure what is Marko (and/or something) property investment programme but I was quite disturbed to see frequent Youtube advertisment of it popping out telling me the story from this crying woman. Basically, a woman broke down into tears saying that thanks to Marko (and/or something), she finally managed to move out of her public HDB flat and got to stay in a private condominium as well as to escape the "rat race". Is living in a HDB flat so horrible for her that she broke down into tears just recapping it? Or was it tears of joy from earning lots of money from this property investment programme and now finally flushed with money to buy a private condominium? 

From the advertisement, there is another 22 years old man that says thanks to this programme, he managed to own 2 properties "at such a young age". I think it is better to be modest than to boost about owning multiple properties. I seriously do not think this young man can own 2 properties at such a young age (unless he is really born with a silver spoon in one's mouth). Simple common sense indicates that he must have borrowed tons of money from a bank to finance his properties. Whether the 22 years old man owns 2 properties or the bank is the de facto owners of the properties is only a figure of speech. If the marco-economic conditions meltdown totally and banker came to seize his property for a forced auction at the worst possible time, this young man will be in financial ruin and working as a rat (as aforesaid mentioned by the crying woman) in the rat race for the rest of his life paying off millions in bank loans.

Who dare wins?
I reckon that this Marko (and/or something) investment programme is something similar to the well known iQuadrant teaching people to use leverage to purchase multiple industrial properties. The eventual realised return can go up to 30%-40% per annum if everything goes smoothly in finding undervalued industrial properties for rental out and letting tenants help you pay for the properties while awaiting capital appreciation. Well, high risk high return. Obviously, there are people who have made tons of money from employing such strategies taught by the gurus from these properties investment programmes

Parting Thoughts:
Who dare wins is what I believed in. However, I do disagree with the downplaying of leverage to such an extensive extent on industrial properties to portray them as manageable low risk. 

Wednesday, 31 March 2021

Singapore Press Holdings Potential Corporate Restructuring- Possible Scenarios And Outcomes.

Singapore Press Holdings Limited (“SPH”) announces on 30 March 2021 that it is undergoing a strategic review to consider options for its various businesses as it believes firmly that it is undervalued by the market. Credit Suisse (Singapore) Limited had been appointed as its financial advisor for this purpose. This is coming straight on the heel of Capitaland. 

Scenario 1: SPH execute a same manoeuvre as Capitaland?
So will SPH also do a segregation of its property development business in Woodleigh Residences and shopping mall from its property management business of REITs and Student Accommodation, just like CapitaLand (please see my previous post)? I think not likely as the property development is a relatively small division out of the entire businesses of SPH. In addition, personally, I think shareholders will most likely laugh at the management team for being a copycat. 

Scenario 2: SPH privatize its loss making media segment and list property businesses out of altruism to shareholders
I think the best way with the highest probability of certainty in unlocking value straight away is to privatize the media business and just spin off the property arm into a new listed company call "Singapore Property Holdings". In this way, they can still retain the use of the acronym SPH. Also, for the media segment, they can choose to either (i) get government funding (since this is as good as a public good which the Singapore government will not allow shutdown despite long running mounting losses and it simply defies commercial logic) or (ii) learn from Australia and implement laws to force Facebook and Google to pay for the news from the old SPH. 

Scenario 3: Spinning off Seletar Mall into SPH REIT to unlock value in SPH
Anyway, I think the most likely outcome of the strategic review will not be something as big and drastic as what I had mentioned above. SPH will also not be able to do a public listing of its student accommodation business into a REIT as it just started some new acquisition here and needs to build up its stability. I think the most likely outcome is at most the spinning off of its suburban Seletar shopping mall into the portfolio of SPH REIT. A better bet would be to acquire more SPH REIT. Seletar shopping mall is coming off a bad year due to COVID's impact and its valuation would be lowered in the event SPH choose to sell off Seletar Mall. SPH on the other hand is still hanging on to its loss making media segment which is obviously its Achilles' heel dragging down its market pricing.

Parting thoughts:
SPH REIT share prices has been on an uptrend recently. I reckon many other investors have also foresee the possibility of the overdue spinning off of a mature asset of Seletar Mall to unlock value in SPH. Interesting move by SPH Senior Management team. I actually pray for something bigger than the selling off of Seletar Mall such as privatizing the loss making media segment and just listing the property businesses which is the real essence of the current SPH. Let's call a spade a spade.

Sunday, 28 March 2021

Capitaland Restructuring- Pattern More Than Badminton

The talk of the week everywhere has been on the Capitaland restructuring plan. I am not sure why everyone is so excited by it but the fact that the Net Asset Value Per Share is around S$4.88 (if you exclude the one off fair valuation revaluation losses and impairment of S$2.49 billion due to COVID) while the offer is worth only S$4.01 says a lot about this deal which is not too fantastic in my personal opinion since there is still 20% off the intrinsic value mark once the economy recovers further. The additional risks here is also whether the deal will be approved by shareholders and whether the new Capitaland real estate investment management division is really worth its S$1 Net Asset Value, are the other main unknown factors. I have always been amazed by how those very clever corporate folks delist companies and then relist it in another form to so called "un-lock" market value.

Perennial China Retail Trust morphed into Perennial Real Estate Holdings
Another good example is back in 2014, Perennial China Retail Trust ("PCRT") also did a corporate restructuring. Back then, unitholders who choose to accept the buyout offer of S$0.70 per unit will receive 0.52423 shares in Perennial Real Estate Holdings Limited ("PREHL") via a backdoor reverse takeover of St James Holdings. This deal is from a pure China Retail Trust holding shopping malls into a real estate company which includes property development. The virtues of such a move at that time as marketed by the very clever corporate professionals is on the "diversification" into different growth businesses such as China integrated railway hub development and cost savings synergy from "economies of scale". Then even more recently last year, the storyline on Perennial is that they have been privatized but I am sure that Perennial will one day come back for another SGX listing again albeit in another form. 

Aztech privatisation and relisting on SGX
More recently, Aztech also came back for a SGX listing of its Internet of Things ("IoT") & Data Communication products,  LED lighting products and Kitchen appliances electronic manufacturing business. Back in 2016, Aztech was previously listed on the SGX before getting privatized in a not too fantastic deal on. Aztech's share price had fallen drastically from S$1 per share in May 2015 to S$0.32 per share on 16 September 2016. The Aztech Group was then subsequently taken private with the co-founder and CEO offering a S$0.42 per share but now they relisted their new business for S$1.28 per share. 

Parting thoughts- Pattern more than badminton?
Personally, I see a pattern in these sort of corporate actions. I will not be too surprised that in another few years down the road, Capitaland may announce a re-merger of its property development business and then calling it the forming of a "combined power house into a dominant global real estate player". I will prefer to stick to my pure vanilla of Capitaland Integrated Commercial Trust, Ascendas REIT and Capitaland China Trust.

Thursday, 18 March 2021

Ascendas REIT Acquisition of 11 European Data Centres- Disappointing Distribution Yield

I am deeply troubled by the recent announcement (released on 18 March 2021) by Ascendas REIT with regard to the acquisition of 11 European data centres at a cost of S$960Mil. Make no mistake, the venture into acquiring more data centres here is definitely good news for Ascendas REIT and also something that I have always been looking forward. For clarity here, I am referring to the non-user friendly disclosure by both Ascendas REIT as well as SGX which leaves me feeling extremely frustrated as an investor.

1. Confusing financials and distribution yield
Being an investor, the confusing part sets in when I try to do a quick forecast of the new distribution yield. The SGX dividend page for REITs is a real nightmare because it only depicts dividends and does  not account for capital distribution. Now, capital distribution for most REITs is actually not a one-off payout item and for most part, are actually recurring and sustainable- please see my write-up for Manulife US REIT (basically, these are actually a form of tax planning for most cases to minimise withholding tax).
Extracted from SGX Ascendas "Dividends"

You will end up with only a distribution yield of 3.5% which is totally wrong as the capital component should also be included. I have sent out an email to SGX Customer Service to state that for REITs, the essence is actually total distribution to unit-holders and not just "dividends" in view that a number of REITs are using capital return in their setup structure to remit earnings back to Singapore unit-holders in order to minimize withholding tax leakage. However, SGX simply just brushed this off as saying this is already present in the announcement and investors should go manually extract out themselves- they will not be publishing a one page summary tab for this set of information. 

The frustration is not solely from SGX. You will see that brokerage firm such as Maybank Kim Eng and their platforms are also misleading when it comes to sharing distribution yield information for REITs. You will end up with a distorted view similar to the above. The only consolation is that StocksCafe seems to be accurate in its current yield projection feature. Anyway, enough of my ranting. For the projected new distribution yield for Ascendas REIT, please see below:
Self computation of distribution yield before and after

Took some mental acrobatics to read and interpret Ascendas REIT's  release and was wondering whether the 0.189cents is it increment or referring to total distributions.

The disappointing thing here is that the distribution yield only improves by a mere 1.3% post acquisition from 4.82% to 4.88% assuming a closing price of S$3.050. This is actually only a tiny amount despite the deployment of S$612.5Mil of the proceeds from the rights issue on 9 Dec 2020 (remaining S$347.5Mil will be funded by debt) which was previously unproductive capital. Saying that, if we normalise for one-off COVID rental rebates granted to tenants, I reckon that the overall distribution yield will approach 5% which is excellent for a REIT with such a well diversified portfolio as well as having a strong sponsor in Ascendas which is a member of Capitaland.   

2. Target Price for Ascendas REIT
Well, I can only say that this is quite a circus. Analysts prediction range from S$3.30 per unit to S$4.00 per unit- kind of ridiculous projection akin to guess work in my personal opinion. This is mostly irrelevant to me as my approach is still mainly a dividend focused strategy and I intend to hold Ascendas REIT for the long term, so long as there is no major deterioration in its business fundamentals. 

Newly acquired Data Centre in Amsterdam- The Netherlands

Parting Thoughts
The acquisition of the data centres barely make an impact to Ascenda REIT due to the colossal size of the overall properties under its portfolio. However, this is definitely a right step forward and I hope that Ascendas REIT will keep adding on data centres such that it holds at least 30% of its portfolio in this resilient business.

Tuesday, 16 March 2021

Equity Portfolio Updates (15 Mar 21)

1. Write off remaining estimated residual value for Eagle Hospitality Trust ("EHT")- S$20K
I have done a full write off of S$20K of my remaining investment in EHT. Latest update from DBS Trustee is selling off of most of the hotel properties (15 out of 18 properties) via a "stalking horse" bid. The stalking horse bid is a technique use to reserve a minimum floor price during upcoming auction.  The opening bid is way below even the recent market valuation and stapled securities owners will not get anything back after paying off bankers and creditors at such a low price. Good news is that the 3 remaining hotels do not need to be sold off immediately under duress pricing as apparently, they can still be operational and not under chapter 11. 

Clearly, the only viable option was to appoint a REIT manager during the last EGM to re-start hotel operations but this was voted down by unitholders and unable to gather the required 75% in Dec 2020 (only 55% obtained). Frustrated and irrational voting by unitholders during EGM thus lead to Chapter 11 bankruptcy protection and restructuring with the US courts which is as good as a forced liquidation at one of the worst possible time. 

Anyway, this is water under the bridge. Stay away from weak sponsor. Personally, I think there are a few conflict of interest operational decisions being made by 2 of the directors as well as multiple counts of breaches of the Securities and Future Act. Even the Monetary Authority of Singapore stepped in to sack the previous REIT manager. 

2. Purchase of United Hampshire REIT
I started accumulating units in United Hampshire US REIT. Its main tenants are blue chip companies dealing with grocery and seems resilient enough to withstand any recession and downturn. IPO price was US$0.80 per unit but current unit price is at only US$0.65 per unit.

Results so far so good but trading liquidity for this REIT is poor. Good point on United Hampshire US REIT is that if it continued to report good results going forward, the dividend yield will be close to 9% per annum along with potential room for capital appreciation.

3.Accumulation of Ascendas REIT and Mapletree Industrial Trust ("MIT")
I have taken advantage of a momentary weakness (due to concerns over steepening US yield curve) in recent market pricing to accumulate units in Ascendas and MIT in both my cash and margin portfolio respectively. Ascendas and MIT provides good exposure into data centre businesses. Looking forward to the additional M&A by Ascendas as well as MIT acquiring remaining 50% stake in their data centres. 

4. Building up position in Singtel of my margin portfolio
I have raised my stakes in Singtel in view of the turnaround in India Bharti Airtel and also the winning of the digital banking license. With COVID vaccine being rolled out worldwide, I expect the further opening of the world economy as well as gradual lifting of travelling restrictions by end of the year. Singtel will thus logically perform well again. With the Singapore government as the main stakeholder in Singtel, this adds further resilience and diversity to the margin portfolio. 

5. Opening of trading account with Tiger Brokers and new Portfolio
I have created a new portfolio to invest in riskier assets such as FSL Trust or overseas market using Tiger Brokers. Basically, I will be tweaking my current investment allocation and diverting a small portion of my future funds into buying overseas stocks for capital growth and diversification as well as those riskier investments here. However, the main focus of my investment approach will still be a dividend focused one.

Looking forward to receiving my dividends of around S$10K (derived mainly from Lendlease, United Hamsphire REIT, Manulife US REIT & Prime US REIT) by end of March'21 for additional deployment. 

Monday, 8 March 2021

Aztech Global IPO- 5 Reasons Why I Am Giving It A MISS!

Aztech is back again with a new IPO of its "Internet of Things ("IoT") & Data Communication products,  LED lighting products and Kitchen appliances electronic manufacturing business this time. Why did I use "back again"? Well, Aztech was previously listed on the SGX before getting privatized in a not too fantastic deal on 20 September 2016. Aztech's share price had fallen drastically from S$1 per share in May 2015 to S$0.32 per share on 16 September 2016. The Aztech Group was then subsequently taken private with the co-founder and CEO offering a S$0.42 per share. I have a personal bad feel about management buying out retail investors at a low price and then repackaging a few years later to come back with an IPO at S$1.20 per share. What if the same tragedy happens again?

I will just do a quick sum up of my personal thoughts on why I am avoiding Aztech Global Ltd:

1. Aztech Global has disclosed the key business risk that its manufacturing facility in Dongguan do not have the necessary certification in right of use which may lead to disruption in supply and also potential breach of contract for late delivery due to the potential disruption.
Wow, this is an extremely risky event and a bad omen to kick off the IPO with no better certainty. Shouldn't Aztech Global delay the IPO till this issue has been settled? They seemed desperate to launch the IPO to raise funds. 

2. Risk of Illiquid Shares- Deja Vu of what happened in the previous Aztech Group version. 
There is a possibility that even if one wanted to sell the stocks, there will not be sufficient buyers just like the good old days a few years back in another listed company called Aztech Group before it was privatized cheaply. 

3.  Strange low NTA of S$0.2598 per share post IPO share capital of 773,720,000 shares relative to IPO asking price of S$1.20 per share.
This is the weird part. Aztech Global's NTA per share is only S$0.2598 relative to IPO price of S$1.28 per share. In the case of immediate liquidation, it's a huge drop in recoverable amount. I am unable to ascertain whether this was due to investment property at historical issue and not marked up to fair market valuation.

4. Customer concentration risk and unknown customers to assess quality of clients and potential bad debt
The customers here are very secretive. While this is fine due to commercial and operational rationale, it does not appear transparent or informative for assessment on credit risk especially when these 3 top customers made up such a huge chunk of Aztech Global's revenue generation. 

5. Kay Lee Roast Meat acquisition did not workout in 2014- From Targeted 10 Kay Lee Restaurants to only 1 outlet
Aztech used to venture into F&B businesses. It made headlines in 2014 when it bought over the secret recipe of their roast meat and premises from Ha Wai Kay and Betty Kong for a whopping S$4Mil. The biggest Kay Lee restaurant opened in Suntec City which could seat 100 diners anytime. However, all Kay Lee Restaurants had since folded with only the original one at Upper Paya Lebar Road.

Now you may ask what has roast meat got to do with this IPO being good or not? Well, my personal thoughts are that it does matter. It depicted the track record of building up a new business by the Aztech management team.

Parting Thoughts:
The Aztech Global new IPO will cut off by 12pm, 10 March 2021. Based on the above, I will be staying far far away from this IPO.