Don't Act Too Smart And Be Silly Instead- How To Survive In Workplace Full Of Office Politics.

Too busy to blog these days. I was busy chasing an interesting Chinese TV drama "Sword Snow Stride (雪中悍刀行)".  I like the story line a lot which reminds me of our workplace back at office. The story goes like this: Xu Feng Nian ( 徐凤年) is the son of the Great Grand Marshal General Xu of the Northern Army numbering 300,000 strong horsemen. Even the ruling emperor fear the Xu family due to their sheer military might.  As such, the emperor is constantly plotting against the Northern Army in a bit to weaken their leadership by all means which include assassination. The main lead, Xu Feng Nian, thus pretended to be a good for nothing since he was young who went around stirring trouble and womanizing in order to fool the imperial family into thinking that he is of no threat despite him being a genius. 

Similar to many workplaces, most people when joined a new company, tried hard to impress the boss or immediate superior by demonstrating their brilliance and capability in order to secure their confirmation and promotion. But sooner or later, one will come to a stage whereby one will realise such constant demonstration will only invite trouble. A sword that is constantly unveil tends to attract envy or hostility by colleagues or dumping of extra work by the boss or immediate superior and only marginal returns in terms of future staff remuneration. There are times when one will need to appear silly instead of striving to be in the limelight all the time which is akin to inviting one's own demise at the workplace.

As the saying goes, do things in moderation. Chasing after money and status are important but family relations and health are even more vital. Live long enough to enjoy life and be happy. Thanks for reading and have a great week ahead!

The Merger Into Mapletree Pan Asia Commercial Trust- What Should Existing Mapletree Trusts Investors Do?

The talk of the town this week is the proposed merger between Mapletree Commercial Trust ("MCT") and Mapletree North Asia Commercial Trust ("MNACT") into a combined behemoth known as the Mapletree Pan Asia Commercial Trust with S$17.1 billion worth of assets under management. Through the proposed merger, MCT will gain ready access to footholds in key gateway cities across Asia, tapping on the established network, strong local expertise and on-the ground presence of both MNACT and their Sponsor, Mapletree Investment Group. Wider geographical exposure will also provide the combined entity a new trajectory for overseas growth. While the marketing materials make it seems everything is perfect, I will try to elaborate more on the elephant in the room for the upcoming merger: Yes- my thoughts are that this deal unfortunately does not bode well for certain group of unit-holders.

1. Existing downside risk for unit-holders of MNACT being transferred to MCT

(i) The biggest headache here is that the China and Hong Kong are still pursuing a zero COVID tolerance approach while many other countries have already started opening up and adopting a live with COVID strategy. Furthermore, Sinovac vaccines has been found in a recent Hong Kong study that it does not provide sufficient anti-bodies to neutralise the Omicron variant. It will be some time before things get back to normal before the pre-covid days. We can already see many negative rental reversion in the crown jewel Festival Walk of MNACT. Most Hong Kong retailers have remained conservative and cautious on committing to long-term leases.

There were 35 leases at Festival Walk in 1st half of 2021 that were renewed at an average -30% rental rate

Gateway Plaza at Beijing also have 13 office leases being renewed at an average negative rental reversion of -24% during the most recent results announcement.

Beijing office also performed badly with -24% rental reversion

(ii) Let me explain further here on another blip on the radar. Eventually, China and Hong Kong will have to open up their borders fully. This will lead to a stage whereby their healthcare system will be initially overloaded with many COVID cases and death rate will go up. This is similar to European countries and Singapore which have already went through this initial stage. Hence, there will be enhanced control measures in place which is obviously bad for business. I expect the opening up to be somewhere end of 2022 or even in 2023 which means that MCT will be picking up the tab for this issue while paying NAV price for MNACT. 

2. MNACT properties are not in the same league as MCT's Vivocity and Mapletree Business Parks

Compare Festival Walk, the China and Japan commercial office properties to Vivocity and Mapletree Business City- I don't think we need to discuss this further to know that existing MCT unit-holders will be getting the shorter end of the stick here. 

Vivocity

3. Should Unit-holders of MNACT sell off their units upon resumption of trading?

Well, this is the fun part which needs some form of mental acrobatics given that once the trading halt is lifted, the market price will fluctuate. Due to point 1 and point 2 as aforesaid mentioned, there is a very high probability that MCT will dip below S$2 as MCT unit-holders will most likely be frowning at being given the shorter end of the stick. As such, MNACT trading price will be below S$1.19 along with the fact that this deal is not done yet.

In short, we can expect MNACT to be trading in the range between S$1.11 per unit (the last traded price) to S$1.19 per unit. My guess is that it will hover around S$1.15 per unit for now. Of course, if the price of MCT suddenly shot up instead to more than S$2.0039 per unit (the offered consideration to MNACT), then one can consider keeping it.

To sell or not for existing MNACT unit-holders will ultimately depend on your own entry price, concentration of your own portfolio and other investment criteria.  For me personally, I maybe looking at exiting my MNACT current holdings as my entry price was around S$1.00 per unit for an immediate realization of my profits and re-deploy them to other undervalued commercial REITs. 

    

4. Should Unit-holders of MCT sell off their units upon resumption of trading?

As alluded to the above points, there are some short term downside risks being transferred over to MCT from MNACT. This has no doubt some short term repercussion. But current medical advancements against COVID is picking up pace. The long term picture still bodes well for unit-holders of MCT in terms of assets and geographical diversification. 

I plan to carry on holding my units in MCT to maintain sufficient portfolio diversification in my margin investment account portfolio. 

Mapletree Business City

Parting thoughts:

There will certainly be some unhappy unit-holders who would have preferred their own plain vanilla REIT focusing entirely on either overseas or Singapore. Another point that I want to bring up to everyone is that from long term perspective, I believe that the merged entity of Mapletree Pan Asia Commercial Trust will have economies of scale and more diversity of assets. Last but not least and most importantly, the sponsor is Mapletree and behind it is the financial might of Temasek supporting it- this is a premium factor in itself.  

P.S: I am currently an unit-holder of both MCT and MNACT units.

Investment Portfolios Updates- S$643k (31 Dec'21)- Upcoming Merger Between Mapletree Office And Retail Trusts

It is certainly great news that the SGX ended the last week of December 2021 with a little bang which brings much needed reprieve from the Omicron variant shock just over a month ago. The performance of Singapore REITs has so far been extremely disappointing.  It has been a lagger in 2021 compared to other sectors and if 2022 is good, hopefully, we can see at least 10% increase in capital appreciation which will bring my overall investment gross portfolio to over the S$1Mil mark. Saying that, as an income focused investor, I am happy to see my projected dividend growing gradually rather than the wild fluctuation up and down in stock prices throughout the year. Mapletree has also announced the proposed merger of 2 of its REITs into a $17 billion asset new entity known as the Mapletree Pan Asia Commercial Trust.

1. Portfolio 1- Stocks held in SGX Central Depository

During the past month, I have been accumulating units in Capitaland Integrated Commercial Trust ("CICT"). Its unit has dropped significantly since an all time high of S$2.35 per unit earlier this year to around S$2 per unit recently and I bought an additional 5,000 units in mid-December period.

On 27th December 2021 (Monday), I certainly regretted not buying more units of Mapletree North Asia Commercial Trust ("MNAC").  At that juncture, I was planning to add on another S$10K of investment into either MNAC or CICT. Since the price of MNAC surge suddenly (on hindsight, this seems most likely due to leakage of the upcoming corporate action), I decided to invest the additional funds into CICT instead. There is also an upcoming downside risk holding MNAC which I will probably elaborate more in another blog posting. Basically, this downside risk will also materialise in the proposed new entity but in a somewhat subdued form with the new geographical diversified property portfolio. Nevertheless, there will still be some adverse impact.

2. Portfolio 2- Margin purchased securities

I did not make any additional investments in the month of December 2021 into this portfolio. The only thing I did was to continue using my dividends received to pay down the borrowings from the margin facility. 

3. Portfolio 3 (with Tiger Brokers)- Venture into higher risk as well as capital growth stocks here

No change here for the month. 

Alibaba continued its downward slide. In short, terrible share price performance so far. 

Dasin Retail Trust is having problem getting the bankers to continue lending it money and was on the verge of syndicated bank loans default. A trading halt was called and an announcement was made that the loan renewal is still in discussion stage due to last minute new requests by some of the lenders. However, the bankers extended the loans by another 3 months to give it some much needed breathing space.

Please see "Dasin Retail Trust On The Verge Of Bankruptcy Declaration? Will It Be Suspended From Trading on SGX?-14 Dec 2021".

Parting thoughts

The venture into my portfolio 3 for capital growth using higher risk stocks seems to be doing badly. Good thing here is that I have restricted the funds being deployed here to keep it small. The rest of the portfolio following the income investing approach is still holding up well.  My StocksCafe is showing me a total of S$43K of dividends received this year (2021). Not too bad, considering the impact of COVID on low distributions declared from late 2020 to 1st half of 2021. 

Trading Halt For Both Mapletree Commercial Trust and Mapletree North Asia Commercial Trust

Trading halt was called since this morning for both Mapletree Commercial Trust ("MCT") and Mapletree North Asia Commercial Trust ("MNACT"). Looks like a possible merger and acquisition involving the two REITs to build up its size for greater synergy? Yesterday, I was trying to buy additional Mapletree North Asia Trust due to its high distribution yield of around 6.5% but was very surprised to see the price keep shooting upwards and have to give up. SGX  regulators ought to do better in preventing leakage of important information from leaking out before major announcements. In the end, I decided to invest the extra cash into Capitaland Integrated Commercial Trust (this is another story that I will share on another day). Let's keep our fingers crossed that Mapletree will come up with some value adding initiative in their upcoming announcement for all investors.

(Note: I am currently vested in both MCT and MNACT).

Dasin Retail Trust On The Verge Of Bankruptcy Declaration? Will It Be Suspended From Trading on SGX?

This is a follow up on my previous post on Dasin Retail Trust ("Dasin") on 18th September 2021 with regard to its debt crisis of S$500Mil since the syndicated bankers were willing to only grant a short term extension of 5 months from July 2021. The day of reckoning for Dasin approaches this week with the bank loan officially being in default on 19th December 2021 if it is unable to secure support from the syndicated bankers. Up till today, there is still no news being released by Dasin's new Trust Manager, Sino Ocean on SGX. Dasin's senior management has been silent since the last announcement made to the public on 7th November 2021 on the change in new Trust Manager. Unit prices for Dasin also dropped sharply and is now near its all time low at S$0.375 per unit in stark contrast to S$0.785 per unit during its peak this year. The silence for so many weeks in the face of imminent loan default is deafening. Are we witnessing the calm before the storm?

1. Taking calculated risk

I am still holding on to my small stake in Dasin Retail Trust as my investment thesis is that since the new Trust Manager, Sino Ocean which took over is a listed company on the Hong Kong Stock Exchange and well-known, the bankers will be willing to grant a long term extension of the due bank loan instead of rolling into a default and proceeding with creditor winding up process. Forced sales of investment properties is not going to be good for all stakeholders. Its current dividend yield is close to +14.2% based on its last unit price of S$0.375 per unit as at 14 December 2021.

2. Liquidation stress testing of realisable assets to repay bank loans and Unitholders

I have written in to the Customer Relation Officer on their website but till now have not received any reply on the status of its bank loan negotiation. In the worst case scenario, we have to assume that the fair value of the investment properties in Dasin's books have been severely inflated. If distressed selling price is at a discount of <-47.3%> of its last disclosed numbers, then this will mean a total loss for current investors-pls see below screenshot for illustrative simulation model. Not impossible given the case of Eagle Hospitality Trust. Also, given that China property debt crisis from Evergrande- if not managed well- may lead to a case of economic meltdown in the entire China market across all sectors. However, I am keeping my fingers crossed that the discounted selling price is at most only 40% off the last valuation in order to recoup back some of the investment costs. 

Parting thoughts

I have no idea how my tiny foray into Dasin will turn out. My investment thesis may turn out to be totally wrong. If so, this will be the 2nd SGX listed Trust (within this 2 years) that collapsed with investors losing all of their investments. The only good thing about Dasin is that the results will be known quickly by next Monday (20th Dec 2021) latest. It will either increase by maybe 50% from good news on renewal of bank loan or be suspended indefinitely due to default of bank loan when the announcement is released.

Please also see my previous posts on Dasin:

1. Will Dasin Retail Trust Go Bankrupt And Be Put On Fire Sales? Annualised Distribution Yield at 12.9% - 18 September 2021

2. Dasin Retail Trust Bounced Back To Life with 22% Valuation Improvement- Will It Survive the Debt Crisis With Sino-Ocean Capital Taking Over As New Trust Manager?- 13 October 2021

Investment Portfolios Updates- S$619k (3 Dec'21)- Equity Portfolios Facing Challenge of Omicron COVID Variant

The stock markets tanked recently due to the Omicron variant. I have sold off 42,000 units of my SPH REITs under my Portfolios to raise cash level at the start of the week. Subsequently, prices of local bank stocks and REITs dropped further and I took the opportunity to buy into more OCBC and Mapletree Industrial Trust while retaining some cash. My investment approach is still primarily an income focused strategy using cash account (Portfolio 1) supplemented by my Portfolio 2 opened with Maybank Kim Eng and leveraging on their Margin facilities-current projected dividend income is +S$44.6K per annum. For me, no point in timing the market by selling a major part of the portfolio as it is better to stay invested in order to continue to receive dividends and not missed out on opportunities such as new M&A announcements.  

1. Portfolio 1- Stocks held in SGX Central Depository

Not much action here except for selling off of SPH REITs to buy into 1,000 OCBC shares while retaining cash of around S$10K here from the sales.

2. Portfolio 2- Margin purchased securities

(i) The past 2 months has been rather interesting. I took a calculated risk with my margin account by buying into SPH shares after the announcement of Keppel Corp proposed acquisition at S$2.01, figuring that the market pricing then at around S$1.90-S$1.93 range, offers the most probable upsides with S$2K in profits expected with the successful completion of the offer. Next, Cuscaden Peak came into the picture to start the bidding war and I closed off my margin position in SPH shares recently to walk away with +S$6K profits (S$2.34 per share exit) as I do not think there will be another 3rd party offer.

(ii) I have reduced my holdings in retails REITs such as Lendlease REIT and SPH REIT. Anti-COVID measures will hit retail badly if the Omicron strain spreads widely.  

(iii) I have also increased my holdings in Mapletree Industrial Trust. I figured that it is prudent risk management to have the backing of strong sponsor like Temasek in the event that the COVID crisis worsen and there is a need for sponsor's cash injection should the property value plummet like in 2008. 

3. Portfolio 3 (with Tiger Brokers)- Venture into higher risk as well as capital growth stocks here

However, my venture into China Alibaba continues spiraling downward non-stop with concern over forced delisting by China regulator from NYSE and I am taking a huge hit of unrealised loss of almost <S$9k> from it. I will probably do a short write-up on Alibaba in my next post. 

Basically, I think the fundamentals of Alibaba are still intact despite the crackdowns by China regulatory and the lower growth rate. Just this week, I have invested another 100 shares of Alibaba at a price of HKD121.6 per share. But I think this is the last batch of Alibaba shares that I am buying to mitigate the risk of holding excessive Alibaba stocks.

Parting thoughts

I am looking forward to receiving further dividends in December 2021 for further re-investments. Let's see how the market reacts next week and whether there is further blood-bath due to the Omicron variant. However, personally, I do not think Omicron will be a repeat of the 2020 March crash as current vaccine surely still must have some effects (despite reduced efficacy) on the new COVID strain and chances of world-wide lockdown again is slim. I will continue buying in piecemeal to exploit the current market decline.     

Digital Core REIT IPO- Exercise Some Caution If One is Venturing into This New Data Centre REIT Crusade.

Coming off the heels of the first REIT IPO (Daiwa House Logistics Trust) on the Singapore Stock Exchange is Digital Core REIT. From the many glorious reviews by many bloggers and cornerstone shareholders such as DBS lining up, we can foretell that Digital Core REIT seems to be on its way to a very smooth and successful listing.  Nevertheless, I am not really excited by it and will not be taking part in its IPO- the reasons I will explain towards the end of this post. Let me start by putting a summary background about this second 100% pure Data Centre REIT that will soon be listed on the SGX followed by some quick highlights of its positive traits. Last but not least, prospective investors should take some caution for this data centre investments instead of thinking that US data centres are one of the safest investments out there- I will elaborate more on this point towards the end of this post.  

 

1.Background:

The initial public offering (IPO) portfolio will comprise 10 freehold data centres in the US and Canada with a total net lettable area (NLA) of 1.2 million square feet (sq ft).

Four of the data centres are located in the Silicon Valley, with another 3 in Northern Virginia, 2 in Los Angeles and 1 in Toronto.

Portfolio occupancy is at 100 per cent with a tenant base comprising blue-chip companies including global cloud providers, global colocation and interconnection providers, social media platforms and IT solutions providers.

Weighted average lease expiry of the portfolio stood at 6.2 years based on base rental income for the month of June or 7.7 years by NLA as at end-June. Its distribution yield is expected to be 4.75% for 1st year and increase to 5.26% by second year.

2. Positive traits for Digital Core REIT IPO

The following are the good points I like about Digital Core REIT IPO:

(i). Sponsor is listed on the New York Stock Exchange and well known.

The sponsor Digital Realty is listed on the NYSE and is well known for its development and operation of data centres. Digital Realty was even involved with the sales of its data centres to Mapletree Industrial Trust in early January 2020. So in a way, we can see the footprints of Digital Realty in Mapletree Industrial Trust.

(ii). Alignment of Sponsor's interest with Digital Core REIT

Post-IPO, Digital Core REIT will have right of first refusal (ROFR) to a potential pipeline of over US$15 billion of data centres - both existing and under construction. Similar to the initial portfolio, the sponsor intends to co-invest in 10 per cent of each of Digital Core Reit's future acquisitions.

(iii). Significant debt headroom of US$596Mil for future acquisition

Digital Core REIT is expected to have an aggregate leverage of 27 per cent as at the listing date -significantly lower than its peers - giving it a debt headroom of up to US$596 million. This means room for taking on cheaper financing from bank borrowings to get a higher return for unit-holders. 

3. Points to exercise caution before diving into this IPO

Despite the positive traits as aforementioned, I do have some serious reservation about jumping into this IPO:

(a) Withholding tax regulatory risk-30% downside risk to distribution yield

The problem with holding SGX listed REITs with US properties portfolio is the ever present significant risk that the US favorable tax rules for overseas REIT may be changed overnight and withholding tax may be applied which will reduce distribution by a hefty 30%. Many years ago in 2018 (if I recalled correctly), there was a big hoo-ha with Keppel-KBS US REIT as well as Manulife US REIT where their unit price crashed overnight due to uncertainties over the tax holding structure while pending clarifications from the US IRS. I reckon that the current high yield factors in the risk premium from changes in regulatory tax risk.

Anyway, the current approved tax planning always structure a shareholder loan extended to the US entity holding on to the properties and then charging an interest as a form of tax shield. The main way to repatriate profits will thus be via capital distribution via the return of the loan. 

For those interested to understand more about the current tax structure to mitigate US withholding tax for US properties, please refer to my previous post on "Are The Distributions From Manulife US REIT (MUST) Sustainable? Clarifications from MUST's Investor Relation Team".

So, imagine if Digital Core REIT is caught in any such changes to tax regulation, its already low distribution yield of 4.75% will plunge to a miserable 3.33%. The low yield does not seemed worthwhile to undertake the risk especially with such a significant concentration of properties in the USA only.

(b) Worst market timing to choose for IPO- Pure bad luck to be caught with COVID Omicron variant

With stock markets dropping for the past 2 days in particularly with Moderna CEO scaring everyone with his comments that current vaccines will most likely be much less effective against Omicron variant, this is one of the worst possible time for Digital Core REIT to IPO. There are a lot of other alternative investments out there to exploit the sharp drop in stock prices. You can buy into banks or if you are into data centres can snap up Keppel DC REIT or Mapletree Industrial Trust to diversify away the over concentration risk with excessive properties holdings in the USA. 

Parting thoughts:

I have decided to give the Digital Core REIT IPO a miss given that I am really not comfortable with the US regulatory tax risk vs the low distribution yield on offer of only 4.75%. My personal preference would be to take advantage of the numerous opportunities that arises during the current stock markets sell-off. For those subscribing for the IPO of Digital Core REIT, please note that the public offer will end at 12pm on 2nd December 2021 (Thursday) and publicly commence trading at 2pm on 6th December 2021 (Monday).