First REIT Just Thrown Its Investors Under A Bus Again Despite Offering a 9.78% Attractive Distribution Yield.

Recently, I was just wondering whether it is time to go back to holding a small stake in First REIT given the "2.0 Growth Strategy" implemented by its Manager to diversify concentration risk in Siloam hospital group in Indonesia. I thought that the 12 Japan nursing homes acquired in March 2022 was a good start for this new visionary strategic direction. The over-reliance on Lippo Karawaci's Siloam  healthacare group has been nothing short of a disaster during the COVID crisis in Indonesia which led to a renegation of the original Master Lease Agreements (of course it was cleverly crafted as a "restructuring" of the master lease agreement) for 14 hospitals in Indonesia from 1st January 2021. Its last quarterly distribution was 0.66 cents per unit which when annualised gives an amount of S$0.0264 per year and an amazing annual +9.78% distribution yield at the closing price of S$0.270 per unit as at 26 August 2022.

1.High distribution yield of +9.78% per annum looks super attractive is it not?

Is the high distribution yield a value trap given the REIT's management horrendous track record? Free cashflow for the 1st half of FY2022 improves significantly relative to the prior comparative period. Cash and bank balances also doubled relative to 1st half of FY2021 from S$36.Mil to S$78.8Mil. Just when I was about to drill further into its cashflow statement and other financials, I saw a piece of shocking development in its announcement. 

2.Perpetual Unitholders which lent money to First REIT in 2016 got screwed by Management.

First REIT recently launched a tender offer to buy back S$60 million in Series 002 subordinated perpetual securities in cash, at only 70% of the original principal amount. My first thoughts were: "Like that also can for redemption of perpetual securities?" 

The management of First Reit said that the rationale for its offer is to “provide liquidity to the securityholders given the illiquid nature of the outstanding securities”, and to optimize the trust’s debt capital structure as part of its continuing capital and liability management initiatives.

Again, First REIT looks set to take advantage of its investors by not redeeming back the bonds at its original issuance price. Perpetual security lenders of First REIT will find that they barely got back the entire capital ploughed in even if the interest rate was 5.68% per year in 2016. Future prospective investors of perpetual securities may ponder whether it is a wise move to invest with First REIT.

 

Parting thoughts

With an attractive annualized distribution yield of 9.78% and the forage into other healthcare properties other than Indonesia's Siloam hospitals, First REIT seems to be embarking on a new growth path that at the same time also aims to diversify its over-reliance on a single tenant as well as geographic segment. This is definitely a step in the right direction.

However, its recent sales of a hospital at only a slight premium plus redemption of perpetual securities at a fraction of the original principal amount does make one suspicious of whether First REIT is back to short-changing investors again notwithstanding the bad track record of "restructuring" of the Master Lease Agreements 2 years back to reduce the rental expenses of Sponsor's Siloam Group. In short, First REIT management's penchant to throw investors under the bus maybe a reason for the extremely high risk premium relative to the risk free rate. Hence I think I will still be staying away from First REIT for now.

Poor Steven Lim- Used As Educational Content By Many People.

Haiz....I saw another investment You Tube Channel talking about Steven Lim and his "all in" S$300k into Singapore Post. Getting bored on this topic. Steven maybe one of the strangest personality out there in Singapore but think he is very poor thing to be turned into an investment topic content and educational material on taboo of lack of diversification investment strategy. It is interesting to note that Steven Kor Kor do Birthday shout out/sing or dance also for S$100 on his Instagram- if you guys are bored, can check it out. :)   

Forgetting And Leaving Laptop Unattended for 30mins And Miraculously It Is Still There.

I think that Singapore has indeed one of the lowest crime rate in the world. This morning, while having early breakfast with a colleague at McDonald's, we were initially seated outdoor of the restaurant. My colleague changed her mind as it was rather dusty outside and decided to shift indoors where it is cleaner and cooler. So we rushed into McDonald air-con indoor premises. 

After finishing our chit-chat and breakfast (almost 30mins), my colleague suddenly exclaimed in terror that her laptop bag is not with her and panic. Then she recalled she had placed it on the seat outside McDonald's and forgot to bring it in. She quickly sprinted outside to look for the laptop and miraculously managed to find it intact at the same spot! This is despite many people going by the outdoor area already. 

Singaporeans also seem very confident and trusting in our society. I seen some folks leaving their bags and laptops at foodcourts and hawker centres while they go on to buy their food at the food stalls. Leaving bags besides tissue paper to "Chope" tables and seats thus also seemed to be a popular Singaporean culture. On this, I recalled an incident whereby the tissue chope does not work to guarantee a seat every time. There was once an elderly man who just picked up the tissue on the table and throw it away and sat down. The choped owner came back with food and had an ugly spat with the Uncle who is now sitting on the "reserved" table. Hard to judge who should be awarded the seat in such event- Singaporean unique societal norms/culture of "chope" VS first come first get it in person arguments....haiz!

Asian Pay TV Trust Broadband Rises From The Ash With 5G Adoption and 8.5% Distribution Yield- Undervalued Or Value Trap Again?

Asian Pay TV Trust  ("APTT") used to be the market darling for income investing investors which pays over 8% in dividend yield from IPO. However, APTT has since dropped from its IPO price of S$0.97 (in 2013) per unit to the current S$0.116 per unit as at 19 August 2022. This is a whopping 88% plunge in market valuation for investors did not bail out and are still holding on to APTT. In short, the high dividends then were not sustainable. I have made close to 46% return from capital gain and dividends back in its more glorious days under the Macquarie Infrastructure Fund. But have since lost most of it after accumulating new units from the IPO spin off. I even accumulated more units when its price drop after IPO. But eventually, I was forced to cut loss and sell off at various prices ranging from S$0.60 to S$0.80 due to its worsening cashflow position and declining earnings. But I count myself fortunate that I sold off the bulk of the holdings before its price collapsed further from May 2018 onwards.

1. Is APTT at S$0.116 per unit and 8.5% distribution yield now a STAR buy?

The previous strategy of APPT senior management is to use borrowings to finance CAPEX. This means that its free cashflow actually cannot finance the dividends paid out with massive debt incurred. At one point, the debt issue will explode in particularly if the underlying business decline and can no longer generate sufficient cashflow. Due to its current low price and current free cashflow of up to S$80Mil, the question is whether it is a good to time to accumulate units  of APTT now.

2. Current high gearing ratio despite cutting dividends by 80% since 2018 and 2020 rights issue to repay colossal debt of over S$1.4 billion.

In 2018, borrowings of APTT was at round S$1.4 billion. As at 30 June 2022, its borrowings is still at approximately S$1.4 billion despite cutting dividends by 80% in Nov 2018 and launching a rights issue in 2020. It looks like APPT network CAPEX over the years have been rather intensive. Its current gearing ratio stands at an eye popping 48.8% notwithstanding cutting dividends by 80% in 2018 and rights issue in 2020 to cut down on bank borrowings.

3. Broadband is growing with 5G adoption but Cable TV decline remains worrying

Broadband is growing as APTT partnered with mobile operators to drive fixed-line broadband segment and higher speed plans. However basic cable TV remains in doldrums. For its half year revenue, Cable TV makes up 74% of its overall revenue which implies that it remains an extremely heavily weighted segment in terms of the business performance of APTT. Hence any upsides contribution from its Broadband segment will still be outweighed by the declining basic cable TV segment.

Parting thoughts

As alluded to the above points, I am rather surprised that an analyst from Phillip Capital recently upgraded APTT to "buy" due to recent share price weakness and has a target price of S$0.150 per unit. Personally, I will still be staying far away from APTT. Its core cable TV business is a sunset business segment in view of intense competition from IPTV service providers that will continue to wilt away its core earnings.

Dasin Retail Trust And Investors In Trouble- Loss of S$56.4 Mil for 1st Half of 2022 And No Distribution Being Paid Out Red Flag.

Dasin Retail Trust ("DRT") just released a shocking set of 1H 2022 results whereby its investment properties valuation went down another <S$64Mil> for the 6mths period ending 30 June 2022. This is not including the <S$62.8Mil> written down taken for the previous financial year ending 31 Dec 2021. The total of <S$126.8Mil> of fair valuation being written down within a year makes one wonder about the real valuation of their balance sheet items. DRT also took a <S$11.4Mil> allowance hit for the 1H 2022 due to impairment of trade receivables from tenants. Notwithstanding the aforesaid mentioned, the worst news was that the management of DRT decided not to pay out a single cent of earnings in distribution for its 1st half using the pretext of prudent working capital management in the face of potential worsening of COVID outbreak in China.

Worsening financial health and unable to get back long outstanding debts owed by tenants.

For me, the danger signs of DRT in either bankruptcy or forced liquidation has been increasing and the last straw is the lack of a single cent of distribution for 1H 2022. I will be bailing out of DRT and withdrawing the bulk of my funds-leaving only S$500 to S$600 in capital (in the event that DRT survived the imminent business crisis). S$751Mil of loans remain due by 31 December 2022 even after so many rounds of loan extension by the bankers. Outstanding debts allowances has also ballooned to <S$11.4Mil>.

Sales of investment properties to raise cash to partially repay bank loan demanded by bankers

The management of DRT has been unable to conclude the sales of some of their shopping malls to raise cash despite only about 3 more months left in the loan extension. Extremely slow execution means that the potential buyer is also having doubts with regard to the quality of the assets being put up for sales. DRT could be on its way to a rights issue or forced liquidation of assets at firesales price if the bankers decided to take action to mitigate their risk exposure.

Parting thoughts

From the perspective of minimizing risk of total losses of capital, I have drastically reduced my stake in DRT by selling off 21,000 units immediately. Personally, I think that DRT management has neither been very transparent in the handling of its syndicated loan re-financing exercise nor timely in its routine operational updates. I also have serious reservation on the declared Net Asset Value of S$1.25 per unit asserted by the management. S$1.25 per unit may seemed like a lot of buffer and room for any black swan event or financial fraud. However, from the collapse of Eagle Hospitality Trust we can draw some parallel of what else may happen. The subsequent long drawn restructuring process ended up in the Trust becoming beyond saving. DRT may well be worthless if either the restructuring process drags on or the realised valuation of the investment properties is only at 50% of its current value posted on its statement of financial position- there is now a distinct high probability based on the recent turn of event. All the very best to other contrarian retail investors still holding on to DRT.  

Lendlease REIT Excellent Performance Post JEM Acquisition- High Distribution Forward Yield of 6.4%.

Lendlease REIT ("LREIT") announced a beautiful set of 2nd Half 2022 results post acquisition of Jurong East Mall ("JEM"). Its net property income for the same period was S$45.9Mil (increase of +S$19.4Mil or +73%) driven by the additional contributions from JEM as well as post COVID recovery of tenant sales in both 313@Somerset and also JEM itself. The tenant sales actually surpasses the pre-covid level. Distribution yield post JEM acquisition declared is S$0.01312 per unit for 31 March 2022 to 30 June 2022. Annualized yield would thus be S$ 0.05251 per unit which means a 6.4% distribution yield at the last trade price of S$0.82 per unit as at 8 August 2022. This is one of the highest distribution yield among other office and retail REITs on SGX. I also foresee further upside coming from LREIT in the next quarter announcement. A few quick highlights on LREIT:

1. Increasing DPU since listing on SGX

The above depicts the strong financial performance delivered by the management of LREIT for 2H FY2022 as well as for the entire FY2022. Note that its DPU has also been increasing since IPO. Not an easy task given the impact on COVID for the past 2 years. 

2.  25.8% of LREIT is occupied by financially stable tenants- Singapore Government and Sky

The offices portfolio of LREIT in Singapore and Italy are full leased to the Ministry of National Development ("MND") till 2044 and Sky Italia till 2032 respectively.  The MND office at JEM is subject to rental review every 5 years while Sky Complex is subject to annual rental review based on 75% of The Italian National Institute of Statistics consumer price index variation. 

From the diversified tenant base, we can see that the Singapore Government (MNC) and Broadcasting (Sky Italia) tenants made up 25.8% of the total tenants. LREIT thus continues to enjoy strong and stable cashflow from these 2 particular tenants for a long term as alluded to the above.  

3. Future upsides from upcoming Grange Road Carpark redevelopment into event space and potential acquisition of Paya Lebar Quarter Mall 

An independent cinema, hawker stalls and multiple event spaces are set to take over the 48,200 sq ft open-air carpark in Grange Road as part of major efforts to rejuvenate the Orchard Road area spearheaded by LREIT. This will be connected to the existing discovery walk linking up 313@Somerset and bring about increased in footfall and other synergies. 

Another major M&A in the form of Paya Lebar Quarter Mall is also in the future pipeline along with other Singapore properties held by its sponsor, the Lendlease Group.

Parting thoughts

Based on the current pricing of S$0.82 per unit, personally, I think it is very much undervalued by the market given the various upsides as discussed above. It is also giving out a forward distribution yield of 6.4%.

DigiCore REIT One Of Best Performing REITS- Price Recovery of 16% Within 1 Month But Uncertainties Still Lie Ahead.

There are good news and bad news coming out of DigiCore REIT ("DC REIT"). Good news is that DC REIT has rebounded from its low of US$0.710 per unit in the July'22 bloodbath. Taking into account the recent price recovery of DC REIT to US$0.87 per unit as at 31 August 2022, this represented a +22.5% rally in market pricing which is an excellent news for all investors of DC REIT. The major bad news is that the 1st half distribution is only US$0.0206 per unit which means an annualised distribution of US$0.0412 per unit. At the price of US$0.87, this gives a distribution yield of a mere 4.74% per annum. Personally, I thought that with such a low yield at current market price, taking up business risks such as the bankruptcy of one of its major tenant is too much notwithstanding its Sponsor, Digital Realty, coming out to "guarantee" its cashflow.  

Dividend of 2.06 cents for 6mths of 1H22.

Sponsor to guarantee cashflow shortfall from future potential default by major tenant's bankruptcy
Initially, I was very excited and happy that the sponsor will make good on any loss of cashflow from the major tenant in bankruptcy. However, substance over form, this turns out to be in the form of a loan which need to be repaid eventually. DC REIT's own term for this loan is nicely crafted as a "cash flow support of shortfall". 

I have a hard time understanding the above arrangement as what is the use of having extra cash upfront but that one still need to return it to the Sponsor by 31 December 2028? Personally to me, this is just a clever financial engineering move to produce a seemingly stable stream of income for distribution at DC REIT level. It does not change the fact that DC REIT which just IPO has a potential default of rental by major tenant coming up. Money borrowed upfront from Sponsor ultimately still needs to be returned. The only consolation here is that the  "cashflow support" given is interest free. 

Extract of Cash Flow Support Agreement from the recent press release

Summary

During early July'22, when DC REIT's market price clashed due to the havoc caused by Chanos shorting data centres, I have accumulated 20,000 units of DC REIT at various batches averaging US$0.743 per unit (I have planned to acquire more units should it plunged below US$0.70 but this did not materialize). In view of the sudden August 2022 surge in DC REIT market prices which resulted in the extremely low distribution yield of less than 5% for DC REIT as well as the issue of major tenant facing bankruptcy, I have exited all my positions in DC REIT at US$0.865 per unit and took an immediate profit of US$2,440 (S$3,318). 16% realized return within a month is equivalent to waiting on capital deployed for 3 years to get the equivalent income distributions. I will be looking to re-deploy this S$20K plus in capital over the next few weeks.  

(Note: Since I am being heckled as well as being trolled online these days whenever my past few posting relating to REITs is put up on a Facebook group, I need to state here that having a liberal mind on discussion of 2 sides of a coin should never be perceived to be "filmsy" or "airy". It is also perfectly ok to disagree with my views but one should not be overly confrontational, in particularly, through harassing or trying to disconcert others with challenges or gibes.)