Sunday 29 August 2021

SPH Media Spin Off EGM- Retail Investors Should Be More Pro-Active To Exercise Their Voting Rights

I thought that it is a no-brainer to agree to the transfer of Media business out of SPH and into the newly created CLG entity. Media is a loss making business. Existing shareholders need to bite the bullet and agree to pay the divorce fees to get rid of the Media segment. It is only with the media business out of SPH that we can move on to the next stage of a wider corporate action options being made available to sell of the property business of SPH to other interested 3rd parties. 

1. Media still making losses despite 2 rounds of staff cutting to save reduce labour cost.
Once the traditional media economic moat is being disrupted by Facebook, google etc, there is no point in trying to keep doing "headcount restructuring". SPH already went through 2 rounds. There is a limit that can be cut in order to preserve the quality of journalism and news being reported.

2. Naive to think that there is a chance to sell of Media segment to external overseas parties
While I seen on investment forum some shareholders who held on from S$4 per share many years back to the current disappointing S$1.92 per share lamenting that they are against the spin off of Media and hope to sell it to other parties, I think that they are not being rational and just being naive. The Singapore Government will never allow a media company to be controlled by 3rd parties or foreign MNCs. No sane government will allow that.

3. Retail investors must play their own part to exercise their EGM rights.
This is a common issue with retail investors. Many do not take part in shareholders' activism to protect their own rights and interests. How many times has a retail investor take part in AGM or EGM? How many bother to fill up the proxy form to appoint the chairman to vote on their behalf even if they do not have time to attend the AGM/EGM? The common reason given by individuals here is that our shareholdings are too small relative to the big boys (institutions).

If everyone thinks like that, then it is confirmed gone case. Look at Sabana REIT, their minority retail investors work hand in hand with some of the other shareholders to prevent the acceptance of a low ball offer. Hence rather than complaining, it is still better to take action. Your 0.001% vote may be the difference to get a normal resolution pass the 50% mark or the more than 75% mark for special resolution. 
Note that the last date and time for lodgment of the proxy form is on 7th September 2021.
Note that Resolution 2 will also need to be passed through for SPH to adopt a new constitution without the provision of the Newspaper Act in order to be eligible for the Keppel Corp buyout offer.

Final thoughts:
For shareholders holding their shares through custodian brokerage accounts, please do approach your brokerages on how to contact their admin department to help you submit your vote for the SPH EGM. Personally, I thought that the deal to transfer out the Media business will definitely go through as it just requires a more than 50% vote on 10 September 2021. However, the risk is in the 2nd resolution to overhaul the original constitution to take out the "Newspaper Act" which requires more than 75% votes. Once both resolutions go through, I reckon SPH share price will go up a bit more due the boost in certainty of being eligible for the Keppel Corp buyout. 

Saturday 21 August 2021

Crash in China Tech Stocks- Disaster In The Making Or Once In A Lifetime Opportunity

The heavy hand of China regulators has been making huge dents on many China technology stocks. Alibaba and Tencent have been beaten down to a pulp. The sea of red in China stocks reflected the pessimistic sentiment of most investors who are exiting rapidly. Is this a disaster in the making or once in a lifetime opportunity for retail investors? 

The "Once in a life-time Opportunity"?
As an income strategy focused investor, my main investment philosophy is on accumulating securities that pays decent yield dividends or interest income. My original resource allocation into a secondary approach focused on growth stocks is only expected to have not more than S$5K into any individual counter and also a small part of my overall combined portfolio. 

For Alibaba (on HKEX), initially at beginning of the year, I only target to have 100 shares even if a suitable entry point present itself.  However, since then, I have invested almost S$20K (600 shares) into Alibaba despite the ever decreasing price. Yes, I am in the "Pro" camp of Alibaba based on its recent financial results and also growth story such as rising demand for its cloud computing as well as its investment into data centers. I also plan to continue adding on to Alibaba based on its current price weakness. In addition, I am of the belief that China government will not destroy the best their companies.

The Predicament
Nevertheless, the past year has taught me invaluable lessons in stock market investment that some risk factors like government intervention, major lessee negating on contractual rental agreement and fraudulent acts by management of a company are uncontrollable factors that may lead to permanent loss of value or even total bankruptcy. 

Hence I plan to restrict my investment into China Tech to no more than 5% of my overall equity portfolio. Yes, some of the people around me is calling me idiotic in that but I think it is important to be able to sleep soundly at night based on one's own comfort level- no right or wrong in that. I still prefer reaping dividends at regular intervals annually rather than not sure waiting till 1 year or 3 years later to realise the full benefits of growth stock strategy. 

Parting thoughts
Who dare wins! May good luck and fortune follow all who took the plunge into China tech stocks recently. πŸ˜ƒπŸ’ͺπŸ’ͺ

Tuesday 17 August 2021

Is Muhyiddin Yassin Malaysia's shortest-serving Prime Minister? Will Mahathir Be Back?

Wow! Muhyiddin has stepped down as Prime Minister of Malaysia in just 17 months (resigned on 16th August 2021). If not for COVID and parliament being suspended, I reckon he would have "up lorry" even earlier. Will the Malaysian King choose Mahathir, the veteran elderly statesman, to come back and become Prime Minister again? From the bottom of my heart, I certainly hope that it is not Mahathir. There will be no end to trouble and Singapore bashing by Mahathir. Best time to distract the people from the immense suffering under COVID is to shift attention and focus by bashing Singapore.

Sunday 15 August 2021

United Hamsphire US REIT- High Distribution Yield of 8.1% And Points To Note If Investing In It.

United Hampshire US REIT ("UHREIT") is actually a very resilient SGX listed REIT that is very much misunderstood. It has even been paying out stable distributions during the worst of the COVID induced global recession period in 2020. The recent announcement of its 1st half results with 3.05 cents interim distribution means an annualized high distribution yield of +8.13% based on unit price of US$0.75 as at 12 August 2021. The high distribution yield is one of the highest in SGX listed REITs out there. As with all high yield REIT, there are certain risk that one needs to take note which I will explain towards the end of this post. 

1. Why UHREIT is resilient? UHREIT tenants are mostly in US Essential Services (94.8% occupancy) and long WALE of 8 years
As seen from above screenshot, UHREIT tenants are mostly in grocery, convenience stores and hardware & home improvement stores such as Walmart, Giant and Home Depot. These are excellent defensive tenants with strong financial background hence earnings from leasing of properties are resilient hence the distributions were relatively unaffected during the pandemic induced economic crisis in 2020. 
To sum it up, grocery and other necessity made up 94.8% of committed occupancy. In addition, UHREIT has extremely long WALE of 8 years.  

2. Key dates to take note to be eligible for the interim distribution
For investors who are interested to get the half year cash distribution, the units must be purchased by 18 August 2021 (Wednesday) given that 19 August 2021 is the Ex-Date. Distribution payment date will fall on 28 September 2021. Nevertheless, note that the current unit price of UHREIT before the Ex-Date actually already imputed this expected dividend payout hence after the Ex-Date, the price of UHREIT will drop. But whether drop is more or less than the dividends per unit being declared will still depend on the latest market expectation. 

3. Risk of holding on to UHREIT- Change in US tax rules on withholding tax may remove tax shield on dividends from US
We need to be careful of US tax authority IRS changes in tax rules. Currently, the US REITs listed on SGX are using special vehicles in US and sending back dividends to Singapore via a capital distribution model in order to get past the withholding tax requirement (tax shield). Note that US authorities may pass legislation to change this and having withholding tax being levied will reduce a substantial part of the dividends derived from US properties. For those interested on the technicality of the US tax shield employed by US REITs listed on SGX, I have previously done up a short write-up on the background and origin of "capital distribution" of US REITs in my Manulife US REIT posting here.

4. Risk of holding on to UHREIT- Denominated in USD and subject to forex fluctuation.
For most investors, the functional currency will be SGD while UHREIT is denominated in USD. Hence there will be adverse forex exposure if USD were to weaken further. This is rather obvious. So I will not elaborate further. 

5. Unknown financial strength of one of the sponsors, The Hamsphire Companies LLC, and unfamiliarity with the assets held in UHREIT
Since 2008, UOB Global Capital LLC and The Hampshire Companies, LLC have jointly formed three funds with combined AUM of approximately US$1.1 billion (as at 31 December 2020) to focus on investment opportunities in income producing real estate assets in the U.S.

UOB Global Capital LLC locals in Singapore will know of it as it is linked to UOB group. However, the other sponsor, The Hamsphire Companies LLC, is lesser known in Singapore. Also, since the physical assets are all located in the USA, many investors (including myself) do not feel comfortable as they cannot see & feel them. The properties in the form of neighbourhood and community strip centres are also an asset class that is unique on SGX listed REIT thus many investors are unfamiliar with them.  

It does not help that some of the brokers like Maybank Kim Eng classified UHREIT as a "B" class marginable securities relative to other REITs which enjoyed a "A" grade rating.

Parting thoughts
UHREIT IPO price was US$0.80 per unit in March 2020. After its debut, its price dropped immediately to US$0.72 per unit and at the lowest point in 2020, it even went down below US$0.50. However, it has proved its earnings resiliency through the baptism of fire in the pandemic induced recession of 2020. Personally, I think that a fairer price should be US$0.85 to US$0.90 per unit given its defensive blue chip tenants in the USA as mentioned in point 1 above (I will accept a lower yield of 6.5% to 7%). However, it may take a very long time for investors to get familiar and comfortable with UHREIT as alluded to the key risks mentioned in Pt 3, 4 and 5 (if unfavorable events were to occur).    

Sunday 8 August 2021

The Keppel Corp and SPH Deal That You Need to Be Careful On- NOT Done Deal Yet.

The lightning speed of the announcement this week by Keppel Corp on the acquisition of Singapore Press Holdings Group ("SPH") caught many folks by surprise. Although I have mentioned on my 25 July 2021 post that corporate actions for SPH should eventually come as "it is an inevitable eventuality given the benefits of economies of scale", the sudden materialization of corporate action still have me reeling in surprise and my jaw dropping. Are we finally bidding a last farewell to SPH which was incorporated on 4th August 1984? Is the offer of S$2.2 billion enough to convince existing Keppel Corp and SPH shareholders to say "yes" to the deal?

1. S$2.2 billion offer by Keppel Corp is a very good deal?
Unfortunately, the answer to this is a big "No No" as evident in the current market pricing of SPH which nowhere cross the S$2.099 mark as well as the drop in the price of Keppel Corp, Keppel office REIT and SPH retail REIT. The offer sucks in a big way as it is not wholly cash being offered. Instead close to two-third of the offer is being offered via a distribution in specie with units of Keppel REIT and SPH REIT to buyout existing SPH shareholders. This is in some way similar to the current Capitaland restructuring deal.
Screenshot 1: Market Valuation of SPH Deal
Hence the extremely bad point of the deal is that the Keppel buyout is dependent on the market price of Keppel REIT and SPH REIT and if both REIT dropped in valuation, the SPH deal will be valued less. For instance, in an extreme scenario that if there is a new mutant Echo Variant COVID-19 that renders vaccine totally useless and forced another circuit breaker, Keppel REIT and in particularly, SPH REIT, might plummet in market value. 

As per screenshot 1, the current market valuation on offer has dropped to S$2.041 per share from the original announced package of S$2.099 per share as at 6th August 2021. Also it is interesting to note that SPH market price is trading at S$1.90 per share as at 6th August 2021 and 7.44% away from the new valuation of S$2.041 per share

2. Why is there a material deviation of 7.44% between the market valuation of S$2.041 and the last traded price of S$1.90 per share?
The reason for this is simple as the Keppel offer still has much grave uncertainties. There are 3 main hurdles to clear before the deal is concluded:
Screenshot 2: Timeline of Completion of Keppel Offer
(a) More than 50% approval of SPH shareholders need to be obtained for restructuring of Media business segment into the newly formed CLG (Company Limited by Guarantee) in September 2021 EGM. The T&C of the Keppel offer lies in that the transfer of Media assets out of SPH is first approved by the shareholders of SPH;

(b) More than 75% special resolution approval by Keppel Corp shareholders to buyout SPH shareholders at S$2.099 per share in November 2021 EGM and

(c) More than 75% special resolution approval by SPH shareholders of the S$2.099 per share offered by Keppel Corp in November 2021 AGM.  

3. How likely is the deal to go through?
Well, there are some very angry retail investors out there clamoring for blood and will oppose the deal. This is especially for those long term retail investors holding from S$4 per share era and another group which feels that this is grave undervaluation for SPH net assets- pls see below screenshots from forums.
Personally, for me, my thoughts are that the first part of the scheme requirement, that is, the media business must get transferred out of SPH will definitely go through as it only needs more than 50% of the votes of shareholders. It makes perfect sense to get rid of the loss making business unit from a commercial perspective. After that is done, I thought that there maybe a real possibility of another private equity fund coming to make an offer for the remaining SPH properties to compete with Keppel Corp. The current scheme offered by Keppel Corp contains a breaking fees levied on SPH should another party came along with a better offer. 
Screenshot 3: Break fees in event another party made a better offer

Even if there is no other offer and left with only the Keppel deal, probability of this deal going through will still be very high. Most retail owners who hold small number of shares in SPH and Keppel Corp will probably sit out any voting at EGM due to indifference to corporate governance. Only those few who felt strongly opposed to the scheme will want to come out to vote against it. The buying of shares via custodian accounts held from Saxo, Interactive Broker,  Tiger Brokers, DBS Vickers etc also makes it difficult in terms of administrative procedures for retail shareholders to try to attend AGM/EGM. As for the big boys, I have no doubt that these institutions will be voting for a "Yes" as there is much synergy to be gained from an M&A between Keppel Corp and SPH-pls see screenshot 4 below. 
Screenshot 4: Restructured Keppel Corp with SPH Integrated

Parting Thoughts:
I think that most shareholders will vote for this deal as the downside in not selling will mean that SPH will continue to be run by its current CEO Mr Umbrage. Personally, I would have preferred a SPH CEO with many years of experiences in property development or property management background instead of one with only extensive experiences from the Singapore Armed Forces only (please do not tell me that the current CEO also has much commercial NOL experience-this is irrelevant). Keppel Corp should have many of such talents in its group who can better run SPH. There is thus also much synergy in terms of manpower re-organization. 

(P.S: Note that I have acquired 14,000 shares of SPH recently from S$1.90 to $1.93 range post announcement of the Keppel offer. In the event that a black swan event occurs such that the deal does not proceed, holding on to SPH is still a relatively fair option given that it can still spin off its Student Accommodation Business into a future IPO to realize its intrinsic value. Seletar Mall and Woodleigh Mall can also be sold off into SPH REIT).  

Sunday 1 August 2021

Capitaland China Trust- 2 Things To Take Note If You Are Going to Invest In It And Key Dividend Distribution Cut Off Date of 5 August 2021

Capitaland China Trust ("CLCT") is a China-focused REIT that I have been holding on for about 2 years. It was memorable for me as I bought it in different tranches (the first 2 tranches at crazy high price). The first 2 tranches were bought in September 2019 and January 2020 respectively (under my Margin Account) while price per unit were at an all time high before the pandemic struck at around S$1.55 per unit before the price collapsed and I nearly had a heart attack.  But I still held on to it as I believed the China growth story and that China will be one of the first country to walk out of the shadow of COVID. The other huge tranche was bought at one of the lowest point during the depressing month of March 2020 at S$1.12 per unit. I was lucky to have picked up a substantial tranche then. Recently, CLCT finally announced a higher partial restoration of its distribution per unit (DPU). On an enlarged unit base, 1H 2021 DPU rose 40.1% to 4.23 cents, compared with 3.02 cents for 1H 2020. This represented an annualised distribution yield of 6.04% (based on unit price of S$1.40 as at 30 July'21) with further upsides from the upcoming economic recovery in China. 

1. Key dividend distribution date to take note- Ex-dividend date is on 5th August 2021 to qualify
CLCT’s ex-dividend date is on 5th August 2021, and Unitholders can expect to receive their 1H 2021 DPU on 27 September 2021. So for those who are interested in CLCT, you have up to Wednesday (4th August) in the coming week to get some units if you want the dividends. Historically before COVID, CLCT's distribution yield hovers around 6.5% to 7%. I will also elaborate more on 2 other things to take note of below.
    


2. Investing in a "rojak" mix of assets. 
CLCT used to be focused only on China retail shopping malls. However since a change of mandate in September 2020, CLCT announced that it will also invest in office and industrial estates. This can thus also include business parks and data centres. Subsequent to the expansion of investment mandate, CLCT has acquired 5 business parks from its sponsor. 

I am not sure whether this is good or bad idea to have a "rojak" of assets. Apparently, this is the current trend. In the past, the trend is for business to crave out part of its segment for IPO to become a pure specialist of a certain class of assets and to bring about fair valuation being realized to its stock price. I guess in another few years, management may decide that the REIT is too large to manage and best to segregate the assets and spin them into another IPO. Afterall, running retail and industrial properties are actually very different. Either strategy type has its own pros and cons. It depends on the mood of the moment perhaps...haha...I just find it funny and cannot help myself thinking of these financial engineering of capital going on behind.

It will also be interesting if CLCT starts to focus on acquiring data centres in China similar to Keppel Data Centre REIT which will boost up the resiliency of its earnings.

3. Risk of increasing COVID-19 Delta Variant Outbreak and the Effectiveness of Sinovac vaccines
The Delta variant proves itself to be fit and effective in spreading widely. It is as contagious as chicken pox. China just had another outbreak of COVID. As per the Global Times, China fully vaccinated rate is 53% as at 22 July 2021. This is one of the few highest vaccinated countries in the world. The real world experiences by countries such as in Thailand and Indonesia seems to illustrate that Sinovac may not be as effective as Pfizer and Moderna. However, it has been proven that Sinovac at least works well against severe illness and deaths from COVID. Hence as long as the vaccination rate is high, it does not matter and will bring the raging beast under control and for the economy to function without drastic lock downs once herd immunity has been achieved. There maybe some hipcups on and off till that target is achieved by year end. 

Parting thoughts
CLCT has a well seasoned team operating in the China market for many years. The growth prospect is enormous for the REIT as there are S$33 billion worth of assets in its pipelines from its sponsor Capitaland in China. Also, the brand name and the support of the Singapore government will always be there. If there is any crisis, the deep-pocket of its sponsor will always be there to pick up tab in equity raising to ensure business continuity. Weak sponsor are unable to provide cash injection during financial crisis which can lead to the fire-sales of assets and investors not getting a single cent back. The pandemic has illustrated the importance of sticking with only honourable sponsors who are financially strong especially during such dire times. η•™εΎ—ι’ε±±εœ¨, δΈζ€•ζ²‘ζŸ΄ηƒ§!