Lendlease REIT Rights Issue- What You Need To Know To Avoid Severe Dilution And Boost Your Chance For A Quick Realised Gain.

Talking about when the rubber meets the road from my last post and all hell broke loose indeed. Lendlease Global Commercial REIT ("LREIT") announced on 22 March 2022 the impending kick off of the private placement as well the preferential rights issue of 29 units for every 100 units owned and wow, this is more than double the amount I was expecting. As I read on the fund raising document, I nearly fainted when they revealed the price of the rights issue to be at a whopping 9.6% discount to the weighted average market price- a low ball offer of S$0.72 per unit. Unit-holders who have no money or refuse to subscribe will be severely diluted by the super low ball price of S$0.72 per unit which is a 20% discount to the January 2022 peak of S$0.90 per unit. 

I also expect the market price of LREIT to drop further upon the resumption of trade. Preferential unit-holders need to be aware of the dire predicament that they are in and to come out of the gate storming once the preferential rights issue commenced on 4th April 2022-which is a mere short 2 weeks to raise funds. Also, there is no escape, folks who tried to evade the rights issue by selling most likely will be  facing further decline in the already low price once trading resumes; and those who purchase LREIT recently and refused to subscribe will face heavy dilution in their holdings. LREIT management has screwed everyone by the low price of S$0.72 per unit on top of demanding 29 units subscription for every 100 units owned.

Other key points to note:

1. Those who have lost their ATM card or forgot their ATM password please ensure you go to your bank to rectify the issue before the kick off of the preferential tranche.

2. For those who received from your stock brokers the invitation to participate in the private placement, note that you will not be eligible to participate in the Preferential Offerings if you decided to take part in it to get more units. The most discount for this exercise for the new units will be from the Preferential tranche of S$0.72 per unit whereas the Private Placement tranche will be priced between S$0.725 and S$0.740. 

3. Opening date of the Preferential Offering is on 4th April 2022 (Monday 9am) and ends on 12th April 2022 (Tuesday 5pm). 

4. For those who bought units under nominee brokerage accounts instead of your own CDP,  please call up your brokers immediately if you do not receive any e-notification or physical letters to subscribe for the rights issue.

Will market price of LREIT drop below S$0.720 per unit?

Well, you never know. If the Russo-Ukraine war suddenly became a World War 3 with US and its European allies dragged in, then this is definitely a possibility but personally, I think such events will be remote for now. 

Parting thoughts

For long term investors, I think that LREIT offers an attractive dividend yield of over 6.2% and possibility close to 7% forward yield based on the current low ball offer. The recurring tax savings of S$5.6Mil from Jurong East Mall (JEM) being restructured into a REIT and also the redevelopment of the 48,200 sqft car park near 313@somerset into a new multi-functional event space do also provide further potential upsides in the short to mid-term. On a longer term basis, there is the potential yield accretive acquisition in the pipeline of Paya Lebar Quarter (PLQ). 

Dasin Retail Trust Unable To Renew Syndicated Bank Loans For Long Term- Forced to Sell 2 Shopping Malls in Guangdong Province.

Dasin Retail Trust ("Dasin") made a shocking announcement on Sunday (20th March 2022) that it has entered into a non-binding memorandum of understanding ("MOU") with Wuhu Yuanche Bisheng investment Centre ("Purchaser") to explore the sales of Shiqi Metro Mall and Xiaolan Metro Mall in Guandong Province. This was a big surprise to me as instead of announcing whether the current syndicated loan (that has expired on 19th March 2022) has been extended for another 3 months, it went on to announce this first. Anyway, this is a sure sign that the syndicated loans bankers must have some serious concern on the entire Dasin for them to be only willing to give short-term extensions for the past 2 rounds and after another 3 months, no progress has been made. I will put up some points to take note of here on the various uncertainties still plaguing Dasin in spite of the upcoming sales of investment properties to raise cash for loan repayment. 

1. Syndicated bank loans default and unit-holders still entitled to the payout on 30 March 2022? 

The key issue currently is whether Dasin Retail Trust is in default of bank loans. A default will mean that the distribution being declared for 2nd half FY2021 cannot be paid out on 30 March 2022. Bank loans usually have extra terms and conditions imposed on the entity upon default. This is exactly what had happened to the last distributions which were being withheld due to objection by the bankers of the demised Eagle Hospitality Trust.

This pertinent question went unanswered as at 22 March 2022, 10.15am. I am flabbergasted by the lack of inquiries by our SGX regulatory team and have written in to SGX to raise my concern on the lack of transparency and the lack of prompt disclosure by the management team of Dasin. 

2. Sales proceeds to be use to repay Dasin's existing syndicated loans and working capital.

The net proceeds from the sale of the properties shall be used to repay the Trust's existing syndicated loans and the remainder if any for working capital purposes. The million dollar question here are:

(i) What is the sales price of the 2 properties given the seemingly urgency to offload them? 

(ii) How tight is the timeline to repay the syndicated bank loans? Till now no disclosure by the management of Dasin. 

3. Why sell 2 properties? Isn't the syndicated loans due only S$500 Mil?

Extract of Loan Payable Summary from 31 Dec 2021 FS

The bad news here is that while S$499.5Mil of bank loan is already due, another S$105.7Mil is due in September 2022; S$132.9Mil is due on 15 July 2022 and another S$17.6Mil due on 28 September 2022. 

Hence a total of S$755.7Mil of loans are either already due or due within 6 months. Dasin needs to sell at least 2 properties urgently to get out of the loan default mess.

4. Estimated sales proceed from divestment of the 2 malls

Extraction from valuation report from Jones Lang Lasalle

The total valuation of Xiaolan Metro Mall and Shiqi Metro Mall are RMB4,836,700,000 (S$1,015Mil).

Since it was mentioned in the recent MOU announcement that the Purchaser will grant Dasin put option for shares in the Special Purpose Vehicle created to acquire the 2 properties, I presume an estimated S$760Mil will be in hard cash so as to repay the bank loan while the remaining S$255Mil will be in a mixture of shares and cash to Dasin.

Parting thoughts

Overall, Dasin may end up in a distressed sales of not just 2 malls but perhaps all of its shopping malls at firesales price if the above divestment does not go through. Personally, I thought that the new Trust Manager, Sino-Ocean, seems to have done a lot to prevent a firesales of Dasin's investment properties by tapping on its networking to arrange a suitable deal. At the same time, I am apprehensive of the reason why Sino-Ocean did not propose a direct capital injection into Dasin with its partner but instead come up with such a financing structure. I smelled a rat somewhere which Sino-Ocean and the syndicated bankers are not revealing on why the syndicated bank loans failed to be renewed for the longer term of 2 to 3 years. 

Last but not least, Dasin is trading at just 0.225 times of its net asset value of S$1.40 as at 31 December 2021. So if the above deal pulls through at a close enough price to the Jones Lang Lasalle valuation, it is tantamount to the unlocking of a huge potential upside for existing unit-holders.  Of course, whether Dasin is investible or on its final death bed at this juncture is an enigma by itself....so beware.

P.S: Please see my previous posting on Dasin Retail Trust

1. Dasin Retail Trust 15.4% Distribution Yield Per Annum- Typical Value Trap Or A Hidden Gem?- 12 March 2022

2. Dasin Retail Trust On The Verge Of Bankruptcy Declaration? Will It Be Suspended From Trading on SGX?- 14 December 2021

Don't Be A Full Time Employee- Be An Options "Investor" Instead- Say Goodbye to Your 9-5 Job!

Tim: "I earned S$6K per month."

Duncan: "Me too! I also earned around S$6K per mth."

Tim: " I also got to use the Company car and work from 9am to 5pm and need to do overtime work sometime".

Duncan: " I work from home and so the car is not necessary for me. I only need to work 30 mins a a day and I have time to spend with my family"

Tim: "Wait? What? Wait a minute.....how?"

Duncan: " All I need to do is to spend some time doing research on great companies doing technical analysis and applying the right strategy in options trading and this helps me to generate about S$6,000 a month".  

Tim: "I see. So what are the strategies that you are mentioning? It is not for me. I am just asking for a friend."

Duncan: "Yes you can join us at our 2 hours option foundation class to find out how you can kickstart your option investing journey." 

Tim: "Alright, thank you!".

It is not necessary to do extraordinary thing to achieve extraordinary results. Similarly, just by working longer hours does not guarantee a higher pay in your 9 to 5 job. By learning how to invest in options, you are able to use less time to exchange for a better results than your 9 to 5 job!

Personal thoughts:

Wow, I saw the above advertisement video and is impressed. Looks like option trading can be a very good form of investment. Earning S$6K per month every month and only 30 mins required every day is definitely better than my sucky daily job as an employee. 

The Ministry of Education of Singapore should seriously consider including such courses in schools for all students to teach them to be financially savvy in options investing instead of letting many students eventually ending up as an employee in future and slogging in 9 to 5 job. Not sure whether Skills Future can be used for such courses offered by the advertiser. 

On a more serious note, I have seen seasoned investors using options and making money out of it along with their normal stock investments. However, options maybe risky....like a year ago, no one would have dreamed that Alibaba can hit $70-$80. So I am really wondering how many people can earn S$6K every month from it. If it is that easy, guess no one would be working in a 9-5 job....it would have destroyed many economies. 

Alibaba Rebounded Sharply After 30% Crash- Good Buy Or Time To Cut Losses?

Alibaba (9988) crashed from around HK$100 per share to HK$71 per share in less than a week. This is an incredulous plunge in value of almost 30%. US Sanctions on China over Ukraine interference, China regulatory on Tech firms as well as potential delisting of China businesses on US Stock market culminated in the spectacular downfall of China tech stocks and Alibaba was knocked out. The speed of investors bailing out of China equities reminded me of the days in 2008 Global Financial Crisis. 

Thankfully, Alibaba and most tech stocks rebounded today (16th March 2022) by over 20% after the irrational selling the day before. It closed at HK$90,70 as at 16th March 2022. I have already exited the bulk of my Alibaba investments on the 1st week of March 2022 and currently still vested in 100 shares of Alibaba 9988. I am also fortunate to have stopped additional investments into Alibaba from my Tiger Brokers portfolio since 2nd December 2021 as I decided to mitigate the risk of holding excessive Alibaba stocks.

Parting thoughts

Basically, I still think that the fundamentals of Alibaba are still intact despite the crackdowns by China regulatory, threat of US delisting and the lower growth rate going forward. However, I think that there maybe some good opportunities to take some calculated risk for investing the funds into other riskier stock investment. I may rotate the funds back into Alibaba later on as I think that the recovery for Alibaba will not be so soon given the above negative factors all coming together. 

Dasin Retail Trust 15.4% Distribution Yield Per Annum- Typical Value Trap Or A Hidden Gem?

Dasin Retail Trust ("Dasin") S$500Mil syndicated bank loan is still in limbo despite the past 2 loan extensions- latest extension being given is from 20 December 2021 till 19 March 2022. Once again, there is not much news or disclosure from the Senior Management of Dasin with regard to the status of the syndicated bank loan albeit the deadline of 19th March 2022 fast approaching. The unit price of Dasin has been severely punished by the market and has dropped from its 52 weeks high of S$0.765 per unit to S$0.310 at its lowest point due to the high possibility of bank loan default. As at 11 March 2022 (Friday), the unit price of Dasin recovered slightly back to S$0.340 per unit. The late payment of distribution for the 1st half of FY2021 as well as the repeated failures to renew the syndicated bank loan for the long term have dented investors' confidence and it looks like Dasin will keep trading well below its NAV of S$1.40 per unit for a very long time. In addition, the free cashflow analysis which I came up with seems to be pointing to an unsustainable current distribution rate from Dasin in the long run (I will elaborate this point later on).

1. Dasin Retail Trust 15.4% Distribution Yield Per Annum- Typical Value Trap Or A Hidden Gem?

First and foremost, the super high +15.4% distribution yield is due to distribution waiver by the substantial unit-holders. The income waiver over the past few years end on FY2021. Going forward, there will no longer be waived since the business is deemed to have stabilized. Without the income waiver by the sponsor, the distribution yield will only be at +13.7%. This may still appear high but there are 4 main worrying points to take note in case one thinks that Dasin at its current price is a hidden gem and cash cow.

1(a) Worrisome plunge in fair valuation of its shopping malls for 2 consecutive years even as COVID brought under control in China in 2021

In FY2021, fair value of its shopping malls dropped by <S$62.8Mil>. In FY2020, this fair valuation was <S$105Mil>. Total fair valuation decline over the past 2 years combined is <S$167.8Mil>. Since the valuation methodology is based on discounted future cashflow by Jones Lang LaSalle, this means that expected future cashflow has plunged. This maybe attributable to higher interest rate and also lower occupancy rate [please see 1(b) below].

1(b) Occupancy rate of its mall has dropped further

As at 31 Dec 2021, occupancy rate of the shopping malls have dropped to 93.9% relative to 96.5% as at 31 Dec 2020. This is strange considering that by FY2021, the COVID situation I thought is already better managed in the whole of China. 

1(c) Is the free cashflow available for distribution sustainable on a longer term?

The free cashflow does not seemed sufficient at all and being financed from current pool of existing cash balances. This will dwindle over time. The current distribution by Dasin is unsustainable in the longer run. If based on free cashflow, the sustainable distribution yield will only be +5.84%.  This is where I find it extremely worrying. I will probably do a more in-depth analysis on this enigmatic issue if Dasin survived the upcoming bank loan default.  

 

1(d) Can't help but wonder whether the numbers reflected in its financials and presentation are reliable

In addition, I sometimes wonder whether the numbers presented in Dasin's financial are reliable. 

-Are there also as many tenants still operating in the different malls with good footfall from shoppers?

-Are there also huge unrecorded liabilities that is waiting to pounce on unsuspecting unit-holders? 

-Does the bankers have in possession certain unfavorable information that is why the refusal by some of them to to refinance the syndicated bank loan even after 2 extensions?

However, to be fair, not all signs are gloom and doom with regard to Dasin as I will further elaborate in Paragraph 2 and Paragraph 3 below.

2. Reputable new trust manager and major shareholder-Sino Ocean

Sino-Ocean Capital is listed on the HKSE. So at least there is a glimmer of hope that the bankers will be willing to re-finance the loan given the better reputation and financial position of Sino-Ocean.

3. NAV of Dasin is at S$1.40 per unit- Market Price/NAV ratio of an incredulous 0.243

If one look out the latest China Retail Focused REIT/BizTrust Comparison by Vince on REIT-TIREMENT, we can do a rough comparative benchmark to similar retail REITs as follow: 

-BHG Retail- 0.59 

-Sasseur REIT- 0.88

If we are conservative, we can just use the lower BHG Retail REIT's ratio of 0.59 as reference benchmark. So, if Dasin managed to survive the bank loan renewal crisis, then its fair market value may have a potential upside of recovering to S$0.826 per unit. This is a whopping 147% potential upside in capital appreciation. Of course, this is just a speculation as I am somehow unable to figure out the root cause of the low free cashflow for Dasin as alluded to paragraph 1(c) as aforesaid mentioned.  This is also subject to the reliability of the financial figures being provided by Dasin with no hidden surprises.

Parting thoughts

The free cashflow evaluation seems to be pointing to a future cut in distribution to unit-holders as it is not sustainable in the longer run since it is being drawn down from available cash and leverage.  Anyway, this intriguing issue is not important right now. The upcoming deadline for renewal of the bank loan is perhaps the crux issue for Dasin now as it will determine whether there will be an immediate rights issue to repay the syndicated bank loan or a forced liquidation of investment properties. Saying that, there is also the possibility that the end of Dasin is once again postponed by the bankers should they choose to kick the can down the road for another 3 months extension on 19th March 2022.

Lendlease REIT Plunged 11.6% Since Beginning Of The Year-Curse of the JEM Acquisition.

Ever since the announcement by Lendlease Global Commercial REIT ("LREIT") on 14 February 2022 (Valentine's Day coincident release?) that it will be acquiring the remaining stakes in JEM, its unit price has taken a wallop. No, this is not just the impact of the Ukrainian Russo war or global interest rate hikes, but some investors seems to be upset at certain aspects of the deal such as the upcoming issuance of so many new units which reduces the NAV of LREIT to a mere S$0.80 per unit. For most companies, if they announced a mega deal, prices theoretically should go up but LREIT went all the way down from its S$0.90 per unit at beginning of the year till it hits an all time FY2022 low of S$0.795 per unit on 8th March 2022 a day after the EGM. So what exactly happened to LREIT? A mega-deal now became its Achilles heel and curse? 

1. Main query by some unhappy unitholders to directors of LREIT-NAV  decline to S$0.80 per unit

NAV per share declined to S$0.80, which is not better for unitholders as it means that that acquisition price is too high. The drop is due to the high number of new units to be issued. However, considering the fact that NAV per unit before the acquisition for FY2021 is only S$0.81 per unit, I think one can actually live with this slight drop. It is strange that after the EGM on 7th March 2022, the price did not even bounced up. 

Personally, I thought that the Profit Before Tax is the most important as it will determine the ultimate distribution payout (DPU) to unit-holders-please see paragraph 2 below.

2. Distribution Yield improves by 1% point from 5.2% to 6.22%

This is where it gets very interesting. Price per unit of LREIT is around S$0.90 at the beginning of the year. At a pre-acquisition DPU of S$0.0468, this represented a yield of only +5.2%. However, prices after the EGM hovers around S$0.800- S$0.805 per unit. If we further add in the impact of GEM acquisition, this will boost the DPU to S$0.0501 per unit. This is a yield of +6.22%. For passive income investors, LREIT suddenly seems to be a better deal considering other REITs such as Capitaland Integrated Commercial Trust distribution yield is only around 5%. 

In addition, the GEM acquisition adds much needed diversification into LREIT's only 2 properties of Sky Complex and Somerset 313 @ Orchard. LREIT's new offices of Sky Complex in Italy and GEM Offices now consists of 2 extremely resilient recurring rental income streams from Sky Italia, a subsidiary of Comcast Corporation (one of the world's largest broadcasting and cable television company) and also the Ministry of National Development of Singapore respectively. 

However, there are some some worrying points to take note of- please see paragraph 3 below. 

3. Issuance price and sufficient cash on hand to avoid dilution 

(i) One unknown factor of concern to me is how low the rights issue of units will get priced. The illustrative example used  in the presentation materials states that this is S$0.82 per unit. Obviously, if one is going to issue at S$0.82 per unit when the market price is only S$0.805, this rights issue will never work. Why would one subscribe to a higher priced rights issue when one can get it from the market at a lower price?

Extracted from "Reponses to Questions from Unit-holders" by LREIT Management-1st March 2022

(ii) The other worrying part is that to acquire the remaining 68.2% in JEM, LREIT will need to raise financing of S$1,790Mil. This is an enormous eye popping sum. The elephant in the room is how much is the share of contribution for retail investors like us who do not have deep pockets. From the above extract, it seems that 40% (S$718Mil) of the required funds will need contribution from all unitholders (excluding the Sponsor). If including the sponsor's share and the recent approval to issue up to 1,265 Mil units, price of new units can go down to S$0.752 per unit.

(iii) Last but not least, for retail investors who entered at S$0.90 per unit at the beginning of the year and no longer has any spare cash, it will not be fair if latter institutional investors or existing investors managed to get new units at say S$0.752 per unit. Retail investors thus need to commence raising cash on hand position to prepare and participate in the upcoming preferential retail tranche rights issue. 

 

Parting Thoughts

Based on the above, the JEM acquisition can be either a curse or a blessing in disguise depending on when one bought into LREIT. Personally, I think that the current price of S$0.805 per unit seems to be relatively more attractive to some of the other retail & office REITs out there on SGX. There will also be recurring tax savings of S$5.6 million per annum due to the restructuring of the fully acquired GEM into the REIT structure. I do not mind earning a 6.2% distribution yield annually while waiting for capital appreciation upsides. 

Investment Portfolios Updates- S$613k (4 Mar'22)- Impact of Ukraine and Russia War

The net assets value went down overall due to the invasion of Ukraine by Russia. Oil prices soared to USD129 per barrel on fear that the United States and its European allies will be banning imports of Russian oil. As energy prices went out of control, this will impact all aspects of products and services hence stock markets continued to react adversely to the ongoing Russo-Ukrainian war. 

1. Portfolio 1- Stocks held in SGX Central Depository

I have sold off my units in Mapletree NAC Trust and bought additional units in United Hampshire US REIT and Lendlease REIT from the sales proceeds.

Lendlease REIT has just announced the remaining acquisition of JEM shopping mall. I am rather intrigued by this additional acquisition of a suburban shopping mall along with its office property signed on a 30 year tenure with the Ministry of National Development. This new additional acquisition of the remaining stakes will improve the defensiveness of the earnings of Lendlease.

United Hampshire US REIT offers a very extremely attractive distribution payout of 10% per annum as its market price keep dropping despite good earning results.

Pls see my post on "United Hampshire US REIT Super Attractive 10% Distribution Yield Per Annum- Cash Cow Too Good To Be True?"

2. Portfolio 2- Margin purchased securities

OCBC is interesting. Despite missing their Q4 2021 results against expectations of market analysts, it is still at an overall improvement of 35% net profit for FY2021 relative to FY2020. What's more, the reason for missing target is due more to conservative allowances being made. Personally, I felt that the market seems to have overreacted with a 5.8% drop in OCBC from S$13.16 to S$12.40 on 23 February 2022. Then as at 25 Feburary 2022, it further slumped to S$11.85 per share following Russia's invasion of Ukraine. I have started accumulating additional OCBC shares during this period.

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

Alibaba continued its downward plunge. Terrible performance so far as the growth rate no longer meets market expectations. I have sold off part of my Alibaba holdings to take on higher risk in Dasin Retail Trust by placing a bigger stake here. Will Dasin Retail Trust enter into bank loan default in mid March 2022?

United Hampshire US REIT announced a very good set of 2nd half and full year 2021 results. It has consistently performed well with an extremely attractive distribution yield of 10.0%. United Hamsphire has delivered resilient results throughout this COVID crisis. However, its unit price is currently at a miserable US$0.610 as at 25 February 2022.  Hence I have continued additional bite size investments into this US REIT.

Parting Thoughts

Despite the huge drop in valuation of the investments under my portfolio, I expect the dividends payout for this year to remain consistent. I am currently expecting S$13K of dividends distribution payout in March 2022. This period of gloomy sentiment represents a good time to continue to add on to more banking stocks or REITs to improve on the dividends receipt. I am currently looking forward to the rights issue of Lendlease REIT as well as the listing of Mapletree student accommodation REIT.