Is DigiCore REIT a Good Buy Now Since its 41% Decline in Unit Price From IPO?

This will be a short post with regard to DigiCore REIT. The last week of December 2022 has not been a pretty sight for DigiCore REIT unit prices. Its price sank to U$0.515 per unit at one point in time. I have invested my excess fund of approximately SGD10K over 2 tranches of 7,000 units each at prices of US$0.540 and US$0.520 respectively during this last week of December 2022. In fact, I have been gradually building back my stakes in DigiCore REIT since I sold off all my DigiCore REIT units at US$0.865 per unit to take profit during the mini-rally in August 2022.

To be honest, I do not really like Digicore REIT since its IPO days as it does not have a strong sponsor affiliated with Temasek Holdings and also due to the fact that one of its major tenant started to sink into bankruptcy soon after its IPO debut (not exactly helpful with building up trust and confidence in the sponsor when such "bad news" suddenly materialised after IPO). Nevertheless, its current unit price performance has been in the doldrum- despite its management commencing share buyback from 1st December 2022- and thus gives one a golden opportunity to be vested in new economy assets.

My recent additional investment of DigiCore REIT at an average entry price of US$0.530 per unit gives around an attractive distribution yield of +7.78% (some more this is before the recent M&A completion). As long as its fair valuation of investment properties do not decline to the poignant state of Manulife US REIT to affect the MAS imposed aggregate leverage level (maximum 50% for SREIT), I shall be able to wait till its price recovery before selling it off again.

Manulife US REIT Spectacular Self Implosion- Risk of Firesales of Office Properties Or Dilutive Rights Issue.

Manulife US REIT ("MUST") just dropped a bomb shell this morning (30 Dec 2022, 6.48am) on SGX that its fair valuation of investment properties dropped by a whopping <10.9%> (US$237.4Mil) and that its leverage level went up to 49% which is just 1% shy of Monetary Authority of Singapore ("MAS") aggregate leverage limit of 50%. It is fortunate that back in April 2020, MAS had announced that it had raised the leverage limit for S-REITs from 45% to 50%, else MUST would have been in blatant default of regulatory limit already and this may lead to further breaches of financial covenants. Still the current 1% buffer is not at all reassuring. No wonder its unit price has plunged <20%> since 1st December 2022 from US$0.375 to as low as US$0.300 per unit despite no news being announced publicly beforehand- I reckon that some insider news got leaked out way beforehand. What ever lead to this sudden self-implosion that has an ominous and potentially fatal consequence?

1. MUST Own Disaster in the Making?

Note that I am vested in MUST and I was shocked by this announcement as the REIT itself is now hanging by a cliff in terms of its survival. In previous years, MUST had embarked on a path of rapid M&A to build up its properties portfolio and income for distribution. Personally, I do not like the numerous occasions that MUST proceed to issue rights in private placement tranche at a discounted price without making such rights available to existing unit-holders by pointing to the need for urgent completion of the M&A deal. Another consequence of the rapid and aggressive pursuance of M&A deals resulted in its aggregate leverage level becoming one of the highest among US Office REITs at over 40%, thus leaving it with little leeway in the event of major economic downturn which can lead to a drastic fall in the fair valuation of its investment properties. 

2. Potential Red Flag of the US Office REIT Managers

I thought that Choon Yuan who runs the Investmoolah blog summed it up beautifully in his posting on US REITs (Why buying US Reits like PRIME and ManuLife Could Be Dangerous) on 29th December 2022, just one day before the disastrous announcement by MUST, on this:

"One thing that worries me is how both managements are not doing a share buyback when they are valued at a 50% discount to their property valuations. The REITs are afterall a portfoilo of properties and at such a discount, REIT managers would have deemed it attractive to be a good buy.

The lack of action by the management shows that either the REITs are short on cash or that they are anticipating a large writedown in property value of a magnitude greater than 20%. These would be terrible situations that the managers are not revealing. For context, a smilar US REIT called Digital Core is buying back its shares during this sell down at the 0.6-0.7 Price book value. Hence, it is no surprise this particular REIT has outperformed the other 2."

3. Why Did the Fair Value of MUST Properties Plunged So Drastically?

The bulk of the decline in fair valuation actually come from Figueroa which dropped US$104Mil (or -33% from prior year). The reason cited by MUST is that in the case of Figueroa, , the valuation as at year end 2022 is reflective of the occupancy plans of the property’s two largest tenants, Quinn Emmanuel and TCW Group, with the former executing a renewal and downsize while the latter plans to vacate at the end of their lease term (31 December 2023). Figueroa makes up 44% of the portfolio valuation decline as at year end 2022.

Personally, I thought that the valuer may have been too conservative in their projection on the replacement of vacated space after the exit of major tenants of Figueroa in 2023.

Parting thoughts

While I was initially optimistic on the future prospect of MUST given that their management is rather pro-active and has commenced its strategic review in early December 2022, the current development is extremely worrying. MUST is coming close to a breach of statutory requirement as well as breaches of banking covenants. We thus cannot rule out a fire sales of its properties or a dilutive rights issuance coming up for MUST. I thought that there is some similarities to the 2008 and 2009 Global Financial Crisis in terms of plunging property valuation of REITs and possible credit squeeze if the US economy continues to spiral downwards.

Choon Yuan (Investmoolah) put up another insightful thoughts of his regarding the current predicament faced by US REITs of risks arising from (i) higher discount rates and capitalisation rates of properties as well as (ii) high vacancy rates. Before ending this post, I will just put up some food for thoughts-I have extracted and placed here his exact words in the comments section of his post during our interaction at his blog:

"The first risk mentioned will affect all US reits from Digicore, Utdhampshire, PRIME, Keppelpac, Manulife; while the second risk has varying degree, I expect all 5 REITs leverage ratio to increase in 2023 and it depends on who will bust the 50% limit first".

Last December 2022 Government Treasury Bill Tranche Coming- Will it Yield Over 4.4% Again?

With the last T-Bill issuance at an all time high of 4.4% cut off yield, my friends and colleagues were all rushing down to banks to apply for the latest hotcake in town using their CPF Ordinary Account. The excitement in office was overwhelming and feels just like buying the Toto! The frenzy over T-Bills is absolute madness indeed. 

Crazy yield relative to the low 1%-2% at beginning of the year.

Those interested can start applying. Auction date is on 21 December 2022. Check with your bank on the last date to apply using electronic banking so that you do not miss it. For those who want to take out CPF ordinary account, well.....too bad....you have to go down to bank to queue to apply. CPF Board for some reason does not allow electronic application online. Guess CPF Board frown upon the outflow of cash from their agency. 

Happy application and Merry Christmas folks!

Is the UOB One Account at Attractive 7.8% interest Income Per Annum Just A Marketing Gimmick?

I was utterly shocked beyond words when my wife told me that she had found an almost risk-free way to earn 7.8% interest income using a saving accounts that would beat my equity investment portfolio. Apparently, United Overseas Bank (UOB) is launching its UOB One Account which offers a highest interest rate ever on one's savings. Too good to be true right and what is the catch here?

2 Steps to earn "7.8%" interest rate per annum

Effective interest rates is just 5% for up to S$100K and definitely not 7.8%

(1) Well, the actual effective interest rate is just 5% for up to S$100K. Yes, the 7.8% is just a gimmick as it applies only to amount higher than S$75K but less than S$100K banding. If you have only S$30K or less in your balances, then you will at most earn a 3.85% per annum rate- please see below illustrative table.

(2) Another important point to note is that UOB website did not indicate that this interest rate will be guaranteed for 1 years or 2 years. There is a high probability that UOB will not be able to maintain such high interest rates perpetually. It will probably be wiser to place money into either fixed deposits or Singapore Savings Bond to have any higher interest rate on offer to be locked in for at least 1 year.

Parting thoughts

The extremely high 7.8% interest rate in the "invitation to treat" is just a marketing gimmick to gain attention and interest to try to get retail customers to place their deposit with UOB. While the actual effective interest rate of up to 5% per annum is still very attractive (and some more with the deposits guaranteed by the Singapore Deposit Insurance Corporation), this rate on offer may only be for a short term duration. Personally, I will rather place excess cash into either Treasury Bills or the Singapore Saving Bonds which offers more certainty to the duration of the higher rates.

Manulife US REIT Upcoming Strategic Review- Will Unit Price Shoot Up Substantially Like Singapore Press Holdings Post Its Review?

Great news! Manulife US REIT ("MUST") just announced on 25th Nov 2022 (Friday) that Citigroup Global Market Singapore has been appointed as its financial advisor to conduct the much anticipated strategic review of its business. Please also refer to my previous post:  "Is Manulife US REIT A Good Buy at over 14% Distribution Yield Or A Dividend Trap?". I am pleasantly surprised that the CEO of MUST's Manager, Mr Tripp Gantt,  took such rapid action coming off the 2nd Nov 2022 announcement that MUST will be launching self-introspection on its mandate as an only office REIT. Based on the current unit price, MUST is giving out a high distribution yield of around 13%-14%. I will further elaborate on 3 major implications of this upcoming strategic review exercise as well as touch on the possibility of the worst case scenario (as well as other possibilities) that will leave existing unitholders in a lurch.    

MUST unit prices has been pulverised by almost 50% over the past 12mths due to weak structural demand  issues post COVID lockdown & rising interest rates

1. Signs that the drop in US physical office demand maybe perpetual in nature hence the strategic review.

The extremely low physical occupancy rate actually indicate that demand may never return to pre-COVID levels. Currently 33.33% to 50% in different states are back to office. The only question now is how much is the magnitude of this permanent drop. 

2. What other sector for its new business to venture into given the expertise among current management team?

Will MUST acquire warehouses or industrial buildings like Frasers Logistics & Commercial Trust ("FLCT") ? Or will it be venturing into Data Centres? If so, does its senior management team have the right expertise and proficiency given they have been managing only office buildings ? This bold move thus embolden certain business risk.

3. Even if the REIT ventured into other sectors, how would it finance and execute this transformation?

Now, this is the million dollar question. Will MUST start to sell off some of its freehold office buildings and then switch to acquiring new properties in other sector? Or will it spell a rights issue at the current pathetic unit price of US$0.385 and dilute all existing unitholders?

4. What are the other types of possibilities from this Strategic Review?

Due to the drastic sell-down, MUST unit price of US$0.385 as at 25 Nov 2022 is at a ridiculously low level compared to its net asset value of US$0.70 per unit as at 30 June 2022 (Mid year financial announcement). Besides the option of change in mandate to diversify into other sectors, there can also be 2 other options/scenarios:

4.1- Sell off some office buildings to realise its fair value of US$0.70

MUST can simply choose to sell off some of its freehold office buildings to realise its fair value. Since this is not a fire-sales, MUST will be in a strong position to negotiate with prospective buyers on a package deal. This has the potential to unlock value up to 82% with such realised sales. This can then be distributed out to unit-holders as a return of capital and an immediate catalyst to support the ridiculously current low unit price.

4.2- Buyout existing unit-holders at 20%-30% premium to current market price with investment firms and privatise immediately and subsequently seek to re-list at US$0.70 in another 2-3 years with some changes to assets mix.

Now, MUST can play punk and use a notorious method to take advantage of the current low unit price by offering a 20%-30% premium price to unit holders (by working with a few well-heeled partners) for them to privatize the REIT.  They could offer US$0.462 per unit to US$0.501 per unit to rally enough support from existing disgruntled investors waiting for a quick bailout.

After fine-tuning the properties mix with some add on, they can relist the REIT publicly at its fair value to earn big bucks for its partners.  However, many unit-holders will most probably be cursing and swearing at MUST management for short-changing them as many would have invested when price were hovering between US$0.70 to US$1.00 range 2-3 years back.

Parting thoughts

Personally, I thought that the conclusion of the strategic review would most likely lead to a huge rally in unit price of the currently badly battered MUST. The former Singapore Press Holdings share price is a good example of the eventual sharp rebound from its strategic review exercise. I have invested another 18,000 units of MUST (@US$0.385) per unit over the past week upon the appointment of the financial advisor. 

(Note: There is no guarantee that MUST will implement any of the options identified through the strategic review. Also, MUST management reminded unitholders to exercise caution when dealing in the units of Manulife US REIT and to refrain from taking any action in respect of their investments which may be prejudicial to their interests. In the event unitholders wish to deal in the units of Manulife US REIT, they are advised to seek their own professional advice and consult with their stockbrokers, bank managers, solicitors, accountants and other professional advisers if they are in doubt as to the actions they should take.)

PSLE Results Does Not Determine Our Kids Future- look beyond that!

I am sure by now many parents of their primary 6 kids would have "chilled down" after the Primary School leaving Examination (PSLE) results were released on 23rd November 2022 (Wednesday). Like most parents, my wife and I have butterflies in our stomach while the school principle was addressing the school on overall results. The 98.4% news header of PSLE students progressing to secondary school looks impressive but underneath this glamorous front, there is a big can of worms festering in our education system. 

1. How the new Achievement Level System Works?
The Ministry of Education made a deliberate shift away from the old T-score system in 2021 so that students do not chase the last mark. An obsessive overemphasis on examination results is not healthy for the development of our children. 2022 is the second batch of kids sent to the butcher embarking on this fantastic new grading system.

Under the new scoring system, each standard-level PSLE subject is scored using eight bands known as Achievement Levels ("ALs").

Each pupil is given AL scores from one to eight for each subject, instead of grades like A* to E.

Instead of the previous T-scores, a pupil's total PSLE score is now the sum of the AL of each of the four subjects, with the best possible total score being 4 points.

A key feature of this new system, first announced in 2016, is that pupils will be graded based on their individual performance in the subjects, regardless of how their peers have done.

2. Why it still sucks?

Basically, this new scoring system sucks big time still and I don't see how it reduces the stress level. In fact, it worsen the situation in particularly if a student is weak in Mother tongue and keeps failing it but excel in English, Maths or Science. No longer can he or she rely on the total score to plug the deficit in one subject. 90 for Maths or 100 marks for Maths still constitute an AL1 score only.   

The numerous tuition and book mugging continues under the new AL system.

3. Failure of the primary school system

I was shocked beyond words that only 51% of students scored 65 marks and above for English and Maths respectively for my kid's primary school. This means that the rest of the 49% of student population will score below 65 marks and I thought Singapore pride itself on its maths programme. When I check with my friends/colleagues with kids in other school, I was told that the statistics is almost the same. I think that our MOE need to seriously re-look at improving these numbers to help more students. 

4. Does PSLE results really show your child's aptitude?

I was speaking to other parents whose child has been doing well for say Maths or their Mother tongue consistently (AL1 to AL2) for past 2-3 years but screwed up in PSLE and their grade dropped 2 bands lower. So does this mean that the child cannot make it in these subject? Unfortunately, exam stress does happen.

For my own kid, the school principal exerted considerable influence on my kid who has a flair for his mother tongue to drop his Higher Mother Tongue subject as he did not do as well for other subjects during Primary 5 final exam (so that have more time to concentrate on scoring better for other subjects in following year PSLE). It is sad that our education system is no longer geared towards developing what the child excels in but instead became a tool for the school to look better statistically for the PSLE.  

Parting thoughts

If we want to really stop the current PSLE madness and stress, I have this extreme thought that perhaps we need to stop having PSLE at the young age of 12 years old and focus more on delivering a more holistic education and with more resources and time devoted to kids who are weaker in a particular subject. Why waste so much time on PSLE preparation? I have seen and heard of major disappointments and kids breaking down in tears over their PSLE results. Is it really worth it to put our kids through this? Anyway, above are just my personal thoughts. Wishing fellow parents in the same predicament all the best in their school open houses visit to finalize the secondary school application exercise. 

Digicore REIT Self Implosion- 58% Plunge In Market Valuation Within 1 Year And Is It A Star Buy Now?

Digicore REIT is one of the worst performing SREITs over the past 1 year. From its peak of US$1.20 per unit during Jan 2022, its unit price dropped to US$0.50 as at 31 October 2022. This is a shocking plunge of <58%> of its market valuation, all in less than 1 year. If one had subscribed to its IPO in December 2021 at US$0.88 per unit, the loss would still have been a mind-boggling  <43%> decline in original investment cost. Current market price of Digicore REIT is languishing between US$0.50 to US$0.60 per unit. As at 22 November 2022, its unit price of S$0.555 means that it is at an annualised distribution yield of 7.42% which is way higher than what Mapletree Industrial Trust (6% yield) and Keppel DC REIT (5.6% yield) are offering. In addition, its future distribution is expected to grow 2% with the upcoming partial acquisition of Frankfurt data centre. So whatever happened to Digicore REIT for the market to punish it so severely? Is Digicore REIT a starbuy currently or is it a dividend value trap? 

1. Investors are very worried that the Tech Industry woes will spill over to Data Centres.

The main concern for investors seems to be that the current crisis faced by the Tech Industry will lead to many default in rental as well as lowered demand for data centres. It probably does not help that Digicore REIT had earlier announced that one of its major tenants, Sungard Availability Services, had filed for bankruptcy protection. 

In response to questions from unitholders, Digicore REIT disclosed on 17 November 2022 that it has reached an agreement with Sungard to amend the lease to allow for an orderly exit of the premises by 31 December 2022.

Digicore REIT also have in hand a surety bond or essentially a security deposit for two months rent. Moreover, the space in question is only 37,000 sqft and the REIT is confident of backfilling this space quickly. 

2. Interesting potential upsides of 25% increase in rental rate due to high demand for data centres and low supply.

Based on the heads up provided by the Senior Management of Digicore REIT on 17 November 2022, I thought that it is interesting that rental rates in future maybe renewed at a double digit rental reversion. Moreover, the data centre sector has historically remained stable even in the face of a changing macro environment, including the 2007/2008 Global Financial Crisis.   

Parting thoughts

Personally, I think that Digicore REIT is a starbuy at the incredulous 7.4% distribution yield on offer given the market expectation of an eventual 5% terminal borrowing rates by the US Federal Reserve. The huge decline in its price does offer one a relatively safer margin of error and to wait out the catch up in its market valuation.  I reckon that a 20% increase in future market valuation is certainly possible and will collect the high distribution yield while waiting. I have slowly been accumulating additional units of Digicore REIT during this down period. Saying that, I plan to keep my investment cost in Digicore REIT to less than S$50K.   

FTX Crypto Collapse A Good Parallel On How To Make Up Stories and Shift Blame At Workplace.

FTX's founder Sam Bankman-Fried is a genius. He has mentioned that for the billions of dollars being transferred from customer accounts at FTX to his own trading firm Alameda Research, is actually a "margin loan". Hence indirectly saying that it is not an illegal fund transfer. It is really amazing how FTX financial controls and internal governance actually allows a margin loan to single party to grow till so large. Even more puzzling is the fact that stakeholders such as customers, investors, employees and auditors themselves were not aware that the deposits in custody at FTX were being used for trading at Alameda Research. Who dare wins indeed! 

Maybe Bankman-Fried is now busy preparing a lot of documents to backdate them to cover his backside. We can probably employ the same tactic as Bankman-Fried in the real commercial workplace to make up story to cover up screw ups (this will make us similarly deplorable). 

The FTX crypto implosion is unfortunate and reflects the dark side of the promise of "decentralization" governance away from central authorities. I feel sorry for investors who were caught under the latest FTX collapse and I say this without any trace of schadenfreude. The inherent peril in investing in any assets is always there. It is just not possible to easily predict and prevent such collapse. Even Temasek Holdings poured US$200Mil of investments into funding FTX along with Blackrock. 

(Note: I lament at the complete loss of US$200Mil- imagine if the government had given out this to all Singaporeans instead and we can have $40 to S$50 per person to spend on an awesome meal at Din Tai Fung).     

Is Manulife US REIT A Good Buy at over 14% Distribution Yield Or A Dividend Trap?

Manulife US REIT ("MUST") has seen its unit price diving from US$0.708 to US$0.375 in over a year. This is a whopping <47%> slump in its market price. US office REITS (MUST, Keppel Pacific Oak & Prime REIT) had all previously held up extremely well during the COVID 2020-2021 lock-down crisis but lately, their unit price had all plummeted and is offering an enticing 14% high distribution yield (as per StocksCafe). What is happening to US commercial office sector? While today's higher interest rate environment as well as concerns over implication of new withholding tax rule played a part in contributing to its downfall, there is another critical unresolved issue on hand which I should elaborate further below. 

1. Physical occupancy is well below 50% and at some US offices, just 33% had returned to office

While MUST reported that its overall occupancy for the recent period is 88.1% (down from 90% recorded as at end of 1H 2022), another more interesting indicator is the "physical office occupancy". The office scene in US is in stark contrast to the state in Singapore-it was reported that in some states, only 33%+ workers are physically back office with most still working remotely from home. In Singapore, most workers are already back office and you can tell from the many folks squeezing onto our MRT and buses rushing to work in the morning and the large crowd making their way home after work on public transport in the evening.

Just to side track, I saw that a number of folks use positive rental reversion as an indicator to justify that things are still looking well for US office REITs. I am skeptical on this as the positive rental reversion seems more of to do with inflation rather than directly linking to improved take up rate of office space hence not a direct reflection of the dire state of office rental market.

As at 12 October 2022, it seems that this number has gone up to 47.8 percent in places like New York. The numbers would probably go up further as CEOs of US companies are increasing their mandatory return to office mandate. Nonetheless, it appears that some form of hybrid working arrangement is here to stay post-covid lockdowns in US hence the demand for working space will no longer be as robust as 3-4 years ago. Apparently, this is a permanent shift in US office usage trending.

2. MUST launching hotelisation initiative of their office

Tripp Gantt, CEO of MUST’s manager, had announced in Aug 2022 that MUST will join the bandwagon of "hotelisation" of some of its office assets to adapt to the new realities that have arisen at the workplace, especially post COVID-19. What this means is that MUST will give options for more flexible use of its office space as well as provide curated experiences like having gyms for office tenants.

Personally, I am not sure how this hotelisation strategy will turn out. I can only conclude that in US, there is a drop in physical office space required and this trend seems permanent in nature, hence MUST and other US office REITs are definitely fighting headwinds. 

3.  MUST launches self introspection over its mandate as an office only REIT

In November 2022, Mr Tripp Gantt disclosed that MUST has commenced an introspection process within MUST as part of its efforts to rejuvenate its business operations. This provides strong hint that MUST management may soon diversify into other asset types besides office buildings acquisition. 

Parting thoughts

With over 14% high distribution yield at its current market pricing, I am wondering how MUST is going to do any yield accretive M&A deals. It maybe a good idea to sell off some of its office buildings and diversify into other asset classes in order to unlock intrinsic value for unit-holders. Despite the prevailing headwinds from market conditions as well as the high gearing ratio (over 40%), I think that MUST maybe in a better state than the other 2 US office REITs (Keppel Pacific Oak & Prime REIT) by virtue that their management team, led by Mr Tripp Gantt, have already kicked off an introspection process as alluded to point 3 above to rejuvenate their business and to re-position it for future growth.   

Please also see latest update announced by MUST on its strategic review on 25th November 2022:

Manulife US REIT Upcoming Strategic Review- Will Unit Price Shoot Up Substantially Like Singapore Press Holdings Post Its Review?

Investment Portfolios Updates- S$522k (28 Oct'22)- Investing During Bear Market Turmoil.

My net investments market value plummeted dramatically from S$613K to S$522K (a loss of S$91k) within a short span of 2 months. Gross investment before margin financing went down S$918K to S$795K (a decline of S$123K). I still vividly recalled being made "famous" by some retail investors during the March 2020 COVID crisis (whereby I faced an even worst decline) when my blog was published by those individuals on Hardware Zone forum as a good lesson to all on the danger of using margin financing despite them not knowing anything about my overall financial position and contingency plan in place. In addition, as an income focused investor, I am more concerned with the resiliency of dividend/distributions in my portfolios during bear market rather than the market value. I only have this to say about the use of margin financing: if one does not have any strategy, self-discipline or contingency plans in terms of managing leverage in different scenarios, then it is best to stay far away from it.

Anyway, the various global stock markets performance have been going up and down as if they are playing a game of Yoyo. The last 2 weeks has been extraordinary volatile with ferocious & rapid sell off in SREITs to 52 weeks record low- I was simply stunned by the brutalities of investors who kept dumping their units as if there is no tomorrow. For this round of market turmoil, I am glad that my SREIT holdings such as Capitaland Integrated Commercial Trust and Keppel DC REIT continued to report good results despite the great fear instilled by the relentless increase in borrowing rates. In spite of the volatility, I have continued investing during this dark period and also make some minor changes to my portfolio which I should elaborate further below.

1. Portfolio 1- Stocks held in SGX Central Depository 

(Note: This portfolio is designed to provide immediate dividends for use (if required) as it is under my own CDP account and the dividends credited goes directly to my bank account.)

2 main updates here:

(i) I have purchased Digicore REIT. Personally, I find that its price has fallen till a very ridiculous level with distribution yield of over 6.5%.

(ii) Selling off 10,000 units of Keppel Data Centre ("KDC") REIT and switching to another badly beaten down REIT- pls refer to "Keppel DC REIT Unit Price Dropping Like Flies- 43% Decline From S$3 Per Unit To S$1.70 Per Unit". A number of folks have requested me to reveal the identity of the "badly beaten" down REIT: I have actually used the proceeds from KDC to buy into United Hampshire US REIT which has declined sharply but with a higher distribution yield.

2. Portfolio 2- Margin purchased securities

(Note: My margin purchased securities has grown to a sufficient scale to sustain itself and also to repay annual financing charges as well as to gradually pay down the margin loan through dividends generated.) 

I have taken profits by selling down the bulk of my banking stocks OCBC and UOB (while retaining some small stakes in my margin portfolio) and reducing my margin borrowing by S$31K (from S$304K to S$273K). While it is true that rising interest rate does benefit banks but the problem here is that if a severe recession with numerous job losses (we already seen the radical 900,000 job retrenchment exercise being announced by Credit Suisse), default of banks loans as well as decrease in loans granted will mean worsening results for the bankers. I decided not to take the risk and to lock into the profits. 

In addition, I have made further investments into Capitaland China Trust and also AIMS APAC REIT.

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

Main updates here:

(i) I continued to accumulate some Alibaba stocks (where many expert investors are cursing & swearing at it and showing off that they are right in predicting its dismal performance) as its price keep dropping. I will be holding on to it for now despite the higher political & economic risks associated with a pivot towards a socialism economic model. Please see "Alibaba Plunged 12% And Hit All Time Low of HKD61 Per Share- Time To Sell Off And Exit Alibaba Mayhem?"

(ii) sold off SingMedical whereby its directors made a privatization offer. I am lamenting at the low ball offer being made and have sold off my stakes directly. Please see "Singapore Medical Group-Directors Made Low Ball General Offer For Privatisation At Only 37 Cents Per Share".

(iii) I have also ventured into investments into S&P 500 initially here but have since sold it off to raise the level of cash to wait for good opportunities during this market turmoil.

Summary

Given the recent good results announced by the various SREITs (except for US office REITs), I expect dividends to continue rolling in over the next few months.

Application for Singapore Government Treasury Bills- Decent Discount Rate Expected.

A few days ago, my wife suddenly asked me a question on how to apply for MAS Treasury bills. I was rather stunned by her query as she is normally very conservative and the most complicated "investment" she is willing to go into on her own initiative is fixed deposit. Her forage into equities came only after very extensive persuasion and efforts from me. Anyway, turns out that her colleagues were all obsessed with placing money into fixed deposits and subscribing for Treasury bills these days. The 6 month Treasury bill for this upcoming 2nd half October 2022 tranche is expected to be approximately 4% financing rate which is a far cry from the pathetic low rates in the previous years.

1. What are Treasury bills?

Treasury bills (T-bills) are short-term Singapore Government Securities (SGS) issued at a discount to their face value. Investors receive the full face value at maturity. The Government issues 6-month and 1-year T-bills. 

Application highlights for Singapore Government Securities (using DBS platform as an example)

2. How to apply for Singapore Government Securities?
I think that Kyith (Investment Moat) has a very good and useful write-up on the intricacies including using different banking platform aside from DBS. Please refer to "How to Buy Singapore 6-Month Treasury Bills (T-Bills) or 1-Year SGS Bonds"

3. What is the cut off timing to subscribe for the latest tranche?

Unfortunately, the latest tranche application has closed. DBS closed it at 9pm, 26 October 2022, 1 business day before the auction date of 27 October 2022. Interested folks can wait for the upcoming November 2022 tranche and possibility higher interest rates.

Parting thoughts

I thought that the Singapore Government Securities (Singapore Savings Bonds, Treasury Bills & Government Bonds), offer quite a decent return for risk adverse investors as an alternative to letting cash remain in bank account. Nevertheless, for myself, I will rather put extra cash into local banking stocks or SREITs to take advantage of the huge decline in market price and higher distribution yield. 

Updated 27 Oct 2022-Results of Auction:

Cut off yield is 4.19% for this issuance! Much higher than what I expected....OMG....those who put in $200K gets S$4,190 immediately refunded. This marks the highest ever yield on a 6 mth T-bill since more than 30 years ago (September 1988) where it peaked at 4.73%.

Alibaba Plunged 12% And Hit All Time Low of HKD61 Per Share- Time To Sell Off And Exit Alibaba Mayhem?

With the unveiling of China's Communist Party new senior leadership over the weekend, the Hang Sheng Index declined immediately over 6.2% while the Hang Seng Tech Index slumped over 9% in a single date as of 24 Oct 2022. It is certainly a nightmare that China's new leadership team have no market reformist on board and this is scaring the hell out of all investors. It does not help that the Chinese president Xi Jinping has called for regulating the mechanism of wreath accumulation in reference to private capital and "common prosperity goal" and this signaled no let up in regulatory oversight and continued campaign against Tech companies like Alibaba, Tencent and Meituan. Alibaba Group thus tanked 12% in a day and set a record 52 week low. Is it time to sell off one's Alibaba's shares in view of the China tech sector mayhem?

Sudden double digit drop burns a big hole in one's portfolio with Alibaba. 
Just how low will Alibaba go? No one knows whether we have reached the capitulation stage for Alibaba but it seems it is still a long way away. I am glad that I have held off from putting down excessive funds into Alibaba and kept it below S$50K. Anyway, if one is still confident of the basic fundamentals of Alibaba as well as the future of the Chinese economy in the longer term, then one can hold on to one's holdings. I have about S$30K in Alibaba as of last week in my investment portfolio 3 (Tiger Brokers), so the dramatic plunge today will mean S$3K+ of valuation shaved off my capital growth portfolio in a single day. Personally, I will still be holding on to Alibaba and wait to ride out this political economic storm in China. 

Parting thoughts

China seems to be moving backwards in the market reform policy advocated by the late Deng Xiaoping- this does not bode well for innovation as a return to communal sharing of all wealth kills off entrepreneurship and innovation if they became too skewed towards a socialism economic model (of course, let's keep our fingers crossed that the Communist party does not decide overnight to move to communism economy whereby all property and economic resources of capitalist are confiscated and converted to State ownership).  The "common prosperity goal" emphasis also looks set to further reduce the gross profit of Alibaba. The key contentious question will be at HKD61 per share for Alibaba, whether does this already cover all the negative downsides and is Alibaba oversold? Do share your thoughts. 

Zyanya Review- City Fringe Freehold Condo At Geylang Food Haven And Near MRT Station With Incredulous Price Of S$1,700psf.

While I was on my way to lunch in the Geylang area, I walked past the Zyanya showflat located in a shophouse and thus decided to drop in for a quick visit. Zyanya is a freehold 34 units boutique condominium located in the eastern city fringe location of District 14. This is definitely one of the nearest freehold condominium to Aljunied MRT station. You just need around 5 to 6 minutes to walk from Geylang Lorong 25A to the MRT station. Given the S$2,000plus psf new launch at Lentor Modern and AMO Residence at the Outside Central Region (OCR), Freehold Zyanya at 1,700psf at city fringe (Rest of Central Region- "RCR") appears to be a great steal. In addition, 99 years leasehold developments Sims Urban Oasis and the latest Penrose condominiums in the vicinity area are already asking for S$1,700psf to S$2,000psf. 

Front view

Zoom in front view-level 2 is the mechanised carpark

Side view

Backview

Besides the attractive price on offer for Zyanya, I am going to list down a few other highlights of staying in this well-known city fringe area:

1. Food Haven

Geylang is highly regarded to be one of Singapore's hot spots for famous hawker stalls and street food. One can always savour the famous Geylang fried prawn noodles and Geylang Frog porridges near the comfort of one's home. 

2. Excellent location well connected to other parts of Singapore 

5-10 minutes drive to Kallang Wave Mall, Suntec City, Bugis Junction and City Hall via Nicoll Highway. One can also get onto major expressway PIE or KPE within 5 minutes 

3. Units layout good but unfortunately some stacks facing West and will have afternoon sun

I will put up some of the better 4 bedder and 3 bedder layout below. For 1 bedder and 2 bedder will not be discussing here as the smaller bedder units have already been mostly snapped up by investors that I reckon are looking to rent them out.

4 Bedder + Study-1302sqft

The above is one of the best layout in Zyanya with spacious living room and even space set aside for a study area that can sit two people. Unfortunately, all the bedrooms are facing west and will get the afternoon sun which means that when you return back home from work, your bedroom will feel like a sauna. Since young I have a very low tolerance level for heat- the best I can accept is bedrooms with east facing which only gets the morning sun but this is my own personal preference. I do know of friends who like the sun a lot. 

4 Bedder-1195sqft

The 1195sqft D1 Type layout is my personal favorite as it is the only one with all bedroom facing the east (only morning sun issue). Its relatively smaller quantum for a 1195sqft means approximately S$2Mil for a 4 bedder configuration at a city fringe location.

3 Bedder+Study-1044sqft

Overall layout for the above 3 bedder + study is not efficient and appers to be odd shape to me. The dinning area is also tiny for a 3 bedder. Good thing for this layout is that there is a small area reserved as study area. Balconies are tiny. My thoughts are to pay a bit more to get the 4 bedder instead.

3 Bedder-893sqft

The compact 3 bedder layout for Zyanya is a bit strange. I thought that the junior master bedroom concept with space wasted for an attached bathroom wasted- it could have been better use for a larger kitchen area or even a small study area. Also, all bedrooms are west facing and will encounter the afternoon sun issue.

4. Limited facilities as only 34 units boutique

This is a small development hence of course, the facilities available are lesser than large scale development. But it does have a decent small lap pool of around 13m in length. There are a total of 28 carpark lots which should be more than enough given that there are 1 bedder and 2 bedders units whereby the owner bought for investment purpose as well as being near Aljunied MRT station, there is really not a need to own a car. But I guess the mechanised carparking system maybe an issue here especially if it breaks down  frequently after a few years of wear and tear- it will depend on how well it is being maintained. 

One should also take note that with only 34 units, managing the Management Corporation Strata Title ("MCST") and balancing the mgt funds book will not be as economical in scale relative to bigger developments with 300-500 units. For folks who purchased for own stay, he or she may even have to roll up their sleeve to join the Management Committee of the MCST to take on the laborious job of dealing with contractors, ensure maintenance is well taken care of as well as ensuring statutory compliance.

Zyanya lap pool at 3rd level.

Parting thoughts

If one is looking to resell their units in the short-term to mid term, then one has to be careful whether one wants to buy into a boutique development with only 34 units as there will only be a few transactions available for benchmarking during future resales. But if one wants to stay in the area for a longer term and to get a freehold city fringe home at an attractive entry pricing, then Zyanya may just be the right choice.

Additional Investment Into Mapletree Industrial Trust As It Hits Record 52 Weeks Low of S$2.21 Per Unit.

Mapletree Industrial Trust ("MIT") dropped to a day's low of S$2.21 per unit today (17th Oct 2022)- setting up a new 52 weeks low record. Forward distribution yield now hovers around 6.2%. I have purchased additional 2,500 units at S$2.24 per unit (totaling S$5.6K ) using my CPF OA investment account. This should leave sufficient headroom of another S$4.5K in CPF OA reserved for any dilutive effects from rights issue. Personally, I think that the essence of the current SREIT market blood bath is whether the US inflation is under control else borrowing rates hikes will be further extended by the Feds well into 2024 which I should elaborate further below:

1. US CPI Data confirmed another giant rate hike for early Nov'22.

The recent release of the US CPI inflationary data is still below expectation by the general market which leads to widespread panic that interest rate will continue to sky rocket and terminal borrowing rates maybe at 5.5% to 6..0% instead of the current 4.5% to 5.0% expectation. There are also many investors proclaiming that the stock market crash will only get worse. Is inflation uncontrollable and will inflation continue to rage?

2. US Inflation still uncontrollable?

I thought that there are good signs for Sep'22 with slowing increases and in fact, the energy component depicts oil price declining further in Sep'22 due to falling aggregate demand by consumers. So I am not sure why big ticket items like the US housing seems to be still on the rise in the recent CPI report, but according to Fortune on 3rd Oct 2022, US national home price declines are uncommon, but it does occur on occasion. It happened in the early 1980s, then again in the early 1990s, and most notably in the years following the 2008 housing crash. That said, sharp home price declines are incredibly rare: Only the Great Depression and the Great Recession saw nationwide home prices fall in the double-digits range. 

In short, prices of big ticket items like US housing should come down soon with the sky high interest rates that is killing the entire world economies. The Fed just engineered a perfect storm for a deep recession with their hawkish stance. Hence I do not see how the use of increasing interest rates as a tool for fighting inflation is sustainable going forward.  

Parting thoughts

I have rarely seen stocks and bonds being beaten to a pulp together but it seems the case for those who are holding on to these 2 different asset classes. I also thought that it is rather interesting that our Singapore new launch property prices can keep surging (absolutely gravity defying) despite the sharp rise in interest rates. Anyway, I thought that the US Feds will definitely need to stop their interest rate hike soon as market aggregate demand for goods and services are cooling off fast. We have already seen many layoff of staff by a number of major financial institutions and Tech companies which is spreading into other economic sectors.

(Note: This entry is more for my own internal reference since I do not record my CPF investment into StocksCafe).

U.S Job Growth Resilient In September 2022 But Stock Markets Most Likely Going To Plunge Again- Investing Using CPF.

Friday's U.S job report revealed that for the month of September 2022, it has gained 263,000 jobs. While this is a drop from 315,000 in August 2022, the stubborn resiliency of positive job growth spells trouble for the global economies as Jerome Powell is targeting for more people to lose their jobs in order to combat wage induced inflationary pressure. Hence this seems to guarantee another 0.75 percentage jumbo size adjustment by the Feds for Nov'22 borrowing rates. The US S&P 500 immediately dropped 2.8% to 3,639.66 points overnight on Friday yesterday. For SGX, I would expect upcoming Monday to be another blood bath in the market upon commencement of trading and for it to relinquish the gains from the mini-rally over the last week.

1. US Federal Reserve eager to see evidence that interest-rate increases are cooling off a frenzied labor market, but not enough to tip the economy into a recession. 

Seriously, I am not sure how the US Federal Reserve plan to keep increasing the borrowing rates until it reaches a "just right point" that prevents recession. Easier said than done to achieve this golden equilibrium point. While I think that Jerome Powell is perfectly well-meaning, and he means what he says, I am still of the view that US is headed for a severe recessionary landing soon because the US Federal Reserve has already screwed up the entire US economy by pushing it over its tipping point with the recent 0.75% hike-just that the statistics do not reflect it yet.

2. Investment using Central Provident Funds ("CPF")

I am referring to the ordinary account funds for CPF here and not talking about the CPF special account. For me, I will not touch my CPF special account as it forms my base protection for risk free retirement planning in the event that a black swan event leads to a catastrophically loss of all my cash and CPF ordinary account investments so that I can still have enough to buy bread and butter during retirement age. I have already reached the Full Retirement Sum in my CPF special account a few years back. The current CPF contribution from monthly salary as well as the effect of 4% interest income rate compounding continues to bring me closer to reaching the eventual goal of attaining the Enhanced Retirement Sum.

On the usage of CPF ordinary account, I had S$25K invested into Mapletree Industrial Trust from my CPF ordinary account since the COVID pandemic days. However, MIT's performance has not been doing well with the relentless interest rate hikes as alluded to point 1. 

To exploit the current bear market and also to ensure adequate diversification of my CPF investments, I have decided to invest into five hundred top US companies in the form of an index fund. The S&P500 has a long track history of producing an average of 10% return per annum if one holds on to it over the long term. I have thus invested S$30K this year into the S&P500 in different tranches when it crashed over 20%. I have no intention to add on additional CPF funds to what I had already invested into the S&P 500 unless it slides further to test the next resistance level of below 3,500 points. I will then continue to plough in S$5K for every 100 points decline until I reached my maximum investable CPF fund outlay of S$55K.

Parting thoughts

Upcoming week will be a very interesting one as we see how the stock market play see-saw. Going forward, I am actually examining on a switch of some of my individual stocks/REITs to index funds for my cash & margin investment portfolios as I find that it is virtually impossible to keep up to date with the latest news/development due to the nature of my busy full-time work schedule.