Thai Beverage Share Price Dropped To 52 Weeks Low- Is It A Good Time To Accumulate Units?

Thai Beverage has dropped from its 52 week high of S$0.725 per share to S$0.490 per share recently. Is it undervalued by the market and is it a good time to buy? Please see below for my video on YouTube channel. Going forward, I will be posting various exclusive investment contents only onto my YouTube channel. Please subscribe to my YouTube channel also to get the latest content for sharing.

The Curious Case of Elite Commercial REIT Downfall and Rights Issue.

Normally, I tend to stay away from writing any post on Elite Commercial REIT (“ECREIT”) as it can lead to personal attacks and persistent online hustling by disgruntled loyal investor who only wants to hear good points on this investment. But I decided to still press on to write-up on ECREIT here as a personal documentation. It has its share of bad points such as over dependent on one major tenant and on the flip side, good point on ease of capital raising during crisis times which are way superior to other SREITs which have properties in USA such as Manulife US REIT, Keppel Pacific Oak REIT and Prime REIT. 

1. Why did ECREIT ended up on the brink of 50% breach of MAS aggregate ratio as well as potential bank covenant breaches towards end of 2023?

This is the million dollar question that many investors are asking and pondering. 

(i) Since 2021, ECREIT acquired 58 properties that seek to diversify its main tenant of Department for Pensions and Work (“DWP”) of existing properties from IPO. These leases are predominantly UK Government-leased commercial assets and are expected to provide stable cashflow and recession proof yields. 

(ii) In addition, most of the government agencies leases are linked to inflation which has up to 13.1% rental reversion from 1st April 2023 to protect ECREIT from the recent raging inflation from high interest rates. The idea of ECREIT “almost risk free” keeps floating around from almost all media and investors since its IPO in February 2020. So, theoretically speaking, cost of operating the REITs are adequately covered from inflationary pressure.

(iii) To add to the mystery, interim property break clauses for many of its properties were negotiated and remove as at 30 June 2022 and 87.5% of ECREIT leases were being secured up to March 2028. It managed to even secure a 3.5% fair value gain in property valuation at that juncture.

2. House of cards came crashing down from 2023 onwards from “triple whammy”

The mix of 3 factors of (a) UK Government vacating 12 leased offices + rental cuts across another 11 properties to retain tenants, (b) badly managed financial management (from 31% leverage ratio to over 42%) as well as (c) high interest rate charges set the stage for ECREIT to be on the brink of collapse from MAS statutory aggregate ratio and breaches of banking covenants with its bankers. It has spread itself too thin from the 2021 acquisition exercise and excessive debt being undertaken. 

(a) Tenants vacating 12 leased offices + rental cuts across another 11 properties to retain tenants

In 2022, the portfolio of properties were reporting up to 98% in occupancy rate. This has declined significantly to 92.1% as at 30 June 2023. Management seems to be caught completely off-guard and unable to lease these properties out timely and even has to resort to selling some of the properties off. 

(b) Badly managed balance sheet with 42% leverage ratio after major acquisition in 2021 relative to 31% pre-acquisition 2020.  

This is the classic over-reliance on cheap debts in 2021 to provide high yields. The previous management team are rather aggressive in growing the REIT and underestimated the potential downsides from Pt 2(a) above and Pt 2(c) below. The aggregate leverage ratio has shot up from 31% in 2020 to over 42% at end of 2021 post acquisition. Not surprisingly, there were “leadership renewal” changes to the CEO of ECREIT. The CFO of ECREIT also left at the end of 31 December 2022 after seeding the stage for imminent financial disaster-personally, I thought that the CFO should have stayed on for another year to clean up the mess.  

Leverage ratio was a healthy 31% as at 31 Dec 2020 before acquisition

Leverage ratio shoot up to 42% as at 31 March 2021 after acquisition exercise.

(c) Surging financing cost to combat inflation

The relentless interest rate increase worldwide caused the distribution available for ECREIT to plunge by an incredulous <-27%> during Q1 of 2023. Its leverage ratio also remained high at 46.6% as at 31 March 2023. Worse still, only 62% of its interest exposure is fixed which means that 38% are floating rates but the good news is that there is no major re-financing till November 2024.

Parting thoughts

ECREIT will be conducting a rights issue to raise funds to lower its leverage ratio and to prevent it from crossing the red line which will trigger off many adverse events such as bank loans default. This is something that SREITS with US properties are unable to quickly address and we have seen the disastrous Manulife US REIT barely surviving its financial crisis without a solution for more than 12 months. Personally, I do not like that a REIT is so concentrated with over 90% in a single tenant albeit being “AA rated” where the picture of being “resilient” and “virtually risk free” is being painted by most stakeholders. As we can see above, the mixture of seemingly minor issues such as tenants not renewing lease, internal aggressive financial management coupled with external macroeconomic conditions changes can easily push a REIT towards financial disaster despite this veil of invincibility.

(P.S: I just want to point out that this is a free world. It is ok to have different views from my thoughts above. The above is just my personal view. This is not a recommendation to buy or sell or to talk-down a particular REIT.) 

Lendlease Global Commercial REIT Strange Restructuring of Major Office Lease To Reduce Tenant Concentration Risk.

This is really weird and funny. Lendlease Global Commercial REIT ("LREIT") announced on 18th December 2023 that it will be restructuring its long term Milan office lease of Sky Complex with Sky Italia in order to "reduce tenant concentration risk".  I find the header of the announcement extremely misleading and giving the impression that LREIT is the party which decided to review and downsize the major tenant, Sky Italia, on its own initiative. There are many ways to reduce tenant concentration risk such as embarking on future M&A to further reduce the impact of Sky Italia as a major tenant. Chasing after existing tenant to vacate office by a landlord to "reduce tenant concentration risk" when the lease has not expired is virtually unheard of in the market. The only plausible explanation is that the tenant must have approached the management of LREIT to re-negotiate a package deal for reduced footprint since the tenant does indeed hold an option to pre-terminate the lease (till 2032) over the entire Sky Complex in 2026.   

1. Negative impact of upcoming partial exit of major tenant on LREIT

As alluded to the above, a tenant wanting to cut space is bad news for any landlord. It also signalled that there maybe something wrong with the macro-economic environment. The vacancy rate for office real estate in Milan, Italy, varied greatly depending across different city areas from 4% to 16% based on Statista.com. Since Sky Complex is outside the CBD, it may be experiencing a higher vacancy rate issue and will take some time to fill up Building 3 which will be returned to LREIT. 

2. Good news that major tenant, Sky Italia, will compensate LREIT on 2 years worth of rental for Building 3 on top of reinstatement cost.

But not all is bad on the restructuring of the Sky Complex lease. The tenant, Sky Italia, will provide a consideration to LREIT of an amount equivalent to approximately two years of existing annual rent of Building 3 after its reinstatement in 1st quarter of 2024. 

This 2 years of compensation is a critical life line as well as creates much needed breathing space for LREIT while its leasing agents in Milan work on getting new tenants to gradually fill up all the vacant space albeit the possibly weak office commercial market. Any immediate filling up of space will be a bonus to LREIT.

Parting thoughts

Overall, I thought that the deal is a win-win for both LREIT and its tenant, Sky Italia. However, it does worry me on the financial status of Sky Italia since it decided to give up on one building to cut cost. Things may not be as rosy as it seems on the surface and fellow investors may want to closely monitor further developments in Milan. 

SREITS Charging Up But Local Banks Going Down- 三十年河东；三十年河西。

The Singapore stock market rally after US Fed remarks signalling rate cuts in 2024. The resultant SGX run up seems to be more SREIT driven. Our local banks have not been performing well recently due to anticipation of lesser profits from weakening net interest margin. I thought that it is interesting that SREITs and our local banking stocks are having quite an inverse relationship in share price performance and makes a good playbook for future inflationary combat references. When SREITS are plunging due to ever increasing interest rates, local banks stock price went to all-time high- now it has turned the other way round. 

1. SREITs Rally and Exceptions Update-Manulife US REIT and Keppel DC REIT

I am not sure whether the current rally is sustainable given that there is still grave market uncertainty. Gold price for example is expected to continue surging in 2024 due to macro-environmental risk factors.  Market is just too volatile these days.

-Manulife US REIT ("MUST") shot up close to 7% today (15 Dec 2023) with the successful conclusion of its EGM whereby unit-holders voted an overwhelming 95%-97% for all the 3 inter-connected resolutions to pave the way for the recapitalisation rescue plan. I have sold off all my 9,900 units speculative trade after making a decent amount to have a meal at Jumbo Seafood. 

Previously (July 2023), I have realised my losses in MUST when it was hovering around US$0.105 level and re-deployed the funds mostly into Keppel Pacific Oak REIT. Too much risk involved in holding MUST made me decide to throw in the towel then.  

 

-Keppel DC REIT ("KDC") buck the trend on 15 Dec 2023 by dropping -9% in a single day due to the sudden announcement that its China Guangdong tenant (Guangdong Bluesea Data Development) has defaulted on its rental payment at the end of November 2023. This represents close to a 10% drop in distribution if the China tenant decided to just declare bankruptcy.

2. Bargain Deals Still Around Despite Recent Rally in Stock Market

I have took up close to S$20K of position in Thai Beverage ("ThaiBev") when its price keep dropping till S$0.50 per share level (and even below for a while recently) after its "disappointing" results announcement. Personally, I thought that it is a fairly decent set of numbers. FY2024 and FY2025 should turn out better for ThaiBev given the dominance of its market share in Thailand as well as in Vietnam and the increase in tourists visit from the economic recovery. Its dividend distribution remain unchanged and is giving a 4.5% dividend yield right now at a close to 52 weeks low pricing. I will probably share more details in another post if I have time. 

I think many analysts are overall still optimistic over the future of ThaiBev. Besides ThaiBev, there are also a couple of other interesting undervalued businesses (Non-REITs) that I am closely monitoring and will be deploying another S$10K of funds to buy into their stocks by year end. I will share more details after Christmas period.

Parting Thoughts

For those like myself who are more into dividend focused investing approach, the rally in SREITS does not have much impact. I intend to hold most of my current SREIT portfolio and will not be selling them. Instead I will be investing future dividends and excess funds into Non-REIT equities as well as bond funds via Endowus to diversify my over-concentration in SREITs,

Unitholders of Manulife US REIT Need To Calm Down And Make Rational Decision On 14 December 2023 EGM.

Wow, I seen some very upset folks on forum bashing the recent rescue plan announced by Manulife US REIT ("MUST") and wanting immediate liquidation. Personally, I do also feel short-changed given the high financing charges of the rescue loan from the Sponsor but note that there is no other viable alternative plan on the table currently in this dire and critical situation. The 9.8% restriction of individual unit-holders maximum holdings under the Trust Deed of MUST also means that the usual rights issuance rescue to be undertaken by the Sponsor or other White Knight under normal circumstances is not feasible for US assets REIT due to the tax efficient structure being crafted in place to avoid a hefty 30% withholding tax being imposed.  Also, no sane bankers will want to underwrite the rights issuance when the whole US Commercial REIT market is in doldrum and winter mode. 

1. The consequences of a breach of loan covenant is being underestimated by some existing investors.

I think that some investors are under-estimating the severity of the current breach. Note that this is just a step away from financial disaster. The bankers can call for a recall of all the bank loans immediately. Some of the grave repercussions that I can think of are as follow:

(a) Defaulter interest (if it has not already been imposed) of 2 times -10 times the original rate (depending on what was in the loan agreements);

(b) Tenants maybe able to exit their current rental agreements with MUST under clauses inbuilt for such situation and rental income will drop drastically which further pushed down resales value;

(c) Prospective tenants will not want to sign lease with an office landlord that does not even have the funds to expend for basic building maintenance and essential repair;

(d) exorbitant professional restructuring consultation fees as well as lawyer's legal fees further burning up available cash hence leaving nothing for unit-holders;

(e) fire-sales does not mean 25% discount to latest valuation. It may be even 50% (as we have seen in Eagle Hospitality) or more. The bankers do not care about obtaining the highest value for unit-holders. They will seek to auction all properties at the highest bid even if the current market situation resulted in massively discounted offers by bidders during a firesales. A couple of potential buyers have also failed to get the necessary bank loans to buy over office building from MUST due to the virtual credit freeze in the US Office sector so it appears that a super huge discount to last valuation maybe required in forced liquidation.

Due to the above, in every such forced liquidation, there is a high probability that unit-holders (being the last in the queue of claims) will be left with a big fat zero. As an investor, we do not want to end up in such a predicament. 

2. Some folks have been harping on why "Rights Issue" exercise is not conducted.

Under the Trust Deed of MUST, any unit-holders who exceeded the 9.8% holdings will have their units forfeited automatically and held by the Trustee of MUST, which will then proceed to sell the units. Manulife sponsor will end up with more than 9.8% units given that there are no external underwriter to take up the excess unsubscribed units.

3. "Why are there no external underwriter willing to take up the excess units?" 

The reason is simply that given the high risk involve as earlier discussed in Point 1 above, no sane bankers will want to offer it as part of their risk management. So any calls for rights issue is just not feasible at this juncture and will be just a waste of time and additional expenses to be incurred to conduct the exercise. It is most likely doomed for failure in raising the required capital via this route.

4. Rights issue exercise once financials and operations stabilised.

The more opportune time for conducting right issue should be after the current rescue plan is approved so that MUST can cure the breach of banking covenant and to ensure the financials cum operations are eventually stabilised. This will give better visibility to external parties. 

Parting thoughts

I am currently still vested in 9,900 units of MUST. Good luck and all the very best to all existing unit-holders! Who dare wins and may the force be with you. 

(P.S: Pls see my previous post-  "Devastating Recapitalisation Exercise for Manulife US REIT- Sponsor Raided Shareholders Via Loan-Shark Loan".)

Investment Portfolios Updates (1 Dec 2023) - S$566K and Projected Annualised Passive Income of S$50K.

Recent good news is that Jerome Powell seems to be done with his interest rate hikes to combat inflation and that we are nearing the peak interest rate cycle. As a result, most of the REITs rallied in prices due to better outlook. I have continued to put down additional funds into United Hampshire US REIT, Frasers Logistics & Commercial Trust as well as purchase of bonds (via Endowus). Dividends received for quarter 3 were also utilised to pay down my margin loan given the high interest rate environment. Perhaps the most interesting event was the Keppel REIT units being given out  by Keppel Corp which I have retained. 

(Note: Please also refer to my other Family Portfolio which is projected to yield +S$20K of passive income per annum).

 1. Portfolio 1- Stocks held in SGX Central Depository 

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

2. Portfolio 2- Margin purchased securities

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

Dividends received were used to pay down the margin loan. I have also invested into Frasers Logistics and Commercial Trust as its unit price has plummeted over the past few months.

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

I have added some United Hampshire US REIT when its price crash to US$0.36 per unit. In addition, I have taken profit and sold off all my DigiCore REIT under Tiger Brokers portfolio. In a strange twist, Alibaba declared a final dividends to all shareholders.

Earlier on 8th November 2023, I sell off all of my units in Manulife US REIT ("MUST") and took profit of 50%+ in my small stake speculation. Then on 30 Nov 2023, MUST price crashed 50% after the announcement of a rescue package with loan-shark loan and I took the opportunity to re-initiate a small position in MUST again with different tranches between US$0.56 to US$0.66. This is pure speculation as chances of firesales of its assets are quite high with possibility that unit-holders will get back none of their money.  

4. Portfolio 4 (Endowus & Other Investments)

(a) I have continued adding into the Higher Income Endowus fund that seeks to pay out passive income of 5.5% to 6.5% per annum. This is a combined funds portfolio that is 20% equities and 80% into bonds and recommended by Endowus.

(b) Have also been adding on to the Balanced Fund that I self-created using PIMCO GIS Income Fund, Allianz Global High Yield and Fidelity Global Dividend Fund.  

Summary

The camp between stock bull market rally in 2024 while the others asserted that a global recession is imminent does cause a bit of a headache in terms of allocation of investment funds. I am adopting a conservative approach with more of my investments going into bond funds via Endowus and also paying down the margin loan. 

Devastating Recapitalisation Exercise for Manulife US REIT- Sponsor Raided Shareholders Via Loan-Shark Loan.

The much anticipated rescue plan was announced by the Manager of Manulife US REIT ("MUST") on 29 November 2023. First and foremost, let me address the elephant in the room in the current MUST fiasco. Personally, I think that all unit-holders have not much of a choice but will need to vote for this at the upcoming EGM to approve the loan-shark loan from the sponsor. There is currently no other viable alternatives-MUST had previously explored and exhausted various alternatives to address the breach of financial covenant and the sharp decline in the real estate valuation but to no avail. Failure to do so will mean an immediate liquidation or firesales of all office assets at this worst possible juncture which is the trough bottom of the US commercial office market.   

1. Loan-Shark Loan (US$137Mil)- Interest of 7.25% per annum and also additional 21.16% extra of the capital return at year end- total  64.66% financing cost over 6 years!

For a sponsor loan of US$137Mil from The Manufacturers Life Insurance Company, all unit-holders need to pay an overall whopping financing cost of S$89 Mil at the end of 6 years. This is actually an interest rate of 10.7% per annum- this is an additional financing expenses of US$14.7Mil per annum.

2. Halting of all distributions until 2025.

Half-yearly distributions to Unitholders are to be halted till 31 December 2025. The distributions may resume during such period if the "Early Reinstatement Conditions" are achieved. For 2024 to 2025, note that because distributions are halted, the current tax savings vehicle built into place has collapsed. There will be additional corporate tax imposed on MUST.

"Early Reinstatement Conditions" definition (Pt 15 of Appendix A announcement):

(i) Consolidated Total Liabilities to Consolidated Deposited Properties is no more than 45%; or

(ii) Consolidated Total Liabilities to Consolidated Deposited Properties is more than 45% but not more than 50%, and Interest Coverage Ratio is more than 2.5 times,

3. Additional corporate withholding tax

As alluded to point 2, tax as high as 43% maybe imposed on the retained distributions in particularly for failure of unit-holders to supply the United States withholding forms and certificates. I will be using a 30% withholding rate as the average for quantification of the impact. Considering the yearly distribution of US$76Mil using an annualization of 1H 2023 results. This is an additional needless cash burnt up of US$22.8Mil per annum.

Parting thoughts

This is really a nightmarish outcome. A breach of banking covenant due to declining property valuation led to additional financing and tax expenses of US$37.5Mil per annum (as aforesaid mentioned in point 1 and point 3) being imposed on MUST which is equivalent to a mind boggling 50% of the yearly distributions being wasted. 

Netlink Trust Disappointing Results From IMDA Pricing Review.

Netlink Trust ("NLT") announced on 27 November 2023 that the Infocomm Media Development Authority (“IMDA”) has completed their pricing review. I was shocked that the chargeable tariff has not increased at all despite inflationary pressures on labour costs, CAPEX and escalating financing charges. What was even more surprising was that the chargeable tariffs for Residential Connection and Non-Building Address Point got adjusted downwards (please click here for the YouTube Video version).

Basically, over the past 5 years, residential connections have grown from 1.2Mil to 1.5Mil which gives an compound annual growth rate ("CAGR") of 4.5% in terms of volume. Non-Building Address Points ("NBAP") has grown at an impressive 26.5%. Hence due to surge in volume economies of scale over total cost of operating the fibre network, this leads to a regulatory reduction in prices per connection.

Distribution yield of 6.43% not sustainable over longer term

At the price of S$0.815 per unit, this represented a distribution yield of 6.43%. However, note that part of the distribution is being financed from bank borrowings which is not ideal. From a free cashflow perspective, the sustainable distribution yield will be at a lower 4.95%. Given that money market funds with online brokers hover around 4% to 5%, a mere 4.95% distribution yield from investing in NLT equity is beginning to look like a really bad choice. 

Parting thoughts

As aforesaid mentioned, I am extremely disappointed by the outcome of the IMDA pricing review. If one is sure of the continued compound annual growth story of new connections in driving revenue, then NLT seems to be still a good investment. Personally, I will not be adding on to my stakes in NLT as I think that the IMDA wants the shareholders to do charity work and the borrowings to fund dividend distribution is a strange concept to me. Nevertheless, I will still be keeping my minor stake in NLT for now. 

Alibaba Giving Out Dividends To Reward Long Suffering Shareholders.

This is going to be a short post. Alibaba had just announced its September 2023 quarter results. Cloud segment growth at 2% fell a bit short and the management has also decided not to spin off this particular business unit for IPO. As a result, Alibaba share price dropped 10%. Well, the good news out of all this is that the management of Alibaba has declared its first ever annual dividend for the year ending 31 March 2023. 

The dividend declaration is definitely a step in the right direction. The share repurchase programme of Alibaba has not much effect in boosting its share price and as a matter of fact, its share price has been languishing and spiraling downwards for a few years. If Alibaba has no better business or other investments, it should give back more of its earnings as dividends back to reward loyal investors. Management of Alibaba has announced that it will review this annually subject to its capital requirement. The current US$0.125 per share declaration is approximately a 1.3% annual dividend yield based on its HK$73.25 per share as at 17 November 2023. Perhaps Alibaba management should stop the share buy-back white elephant and then increase the dividend payouts to loyal shareholders.

Note-Key Highlights:

1. The Ex-dividend date is 20 December 2023 

2. Payment date is on 11 January 2024.

Tesla Breakthrough In Automated Full Self Driving With Use of Artificial Intelligence.

Tesla is set to release its latest version 12 of Full Self Driving ("FSD") technology using the revolutionary Artificial Intelligence ("AI") learning. According to Elon Musk, this will be released in another 2 weeks time (end November 2023 or early December 2023). The use of AI presents a paradigm shift in Tesla's approach to self driving technology which will rely on car cameras and AI learning. 

According to Elon Musk, FSD version 12 no longer rely on the traditional pre-defined code for routine driving decisions like stopping at signs or slowing down for speed bumps. Instead, it uses vast amounts of video data from Tesla vehicles worldwide to learn and adapt, which is an incredulous stark contrast to the 300,000 lines of C++ code in its predecessor.

I am not sure how good will be the released product as it was reported that Elon's vast optimism may still have some hiccups as during a live drive demonstration by Musk, he still had to intervene at one point to prevent his vehicle from running a red light. 

My personal overall sensing is that Elon Musk and Tesla are probably on their way to succeed in something that was once thought to be a virtually impossible feat. 

Sadly, it looks like my backup plan to become a Taxi/Grab Driver in event that I am retrenched maybe in jeopardy if Tesla really managed to resolve all kinks and leapfrog autonomous driving.     

Please see details from the below technology posts: 

1. How Tesla Is Using Artificial Intelligence to Create The Autonomous Cars Of The Future

2. Tesla's upcoming FSD V12 is two weeks away according to Musk

Endowus Income Portfolio- How Come Singapore Passive Income Portfolio Differs From The Solution in Hong Kong?

In view of the higher interest rate environment, bonds have been giving out attractive high yields relative to the past few years. I have thus been putting more than half of my recent extra cash on hand into the Endowus curated Passive Income Portfolio. This is a 20%-80% portfolio split (into equity and bonds respectively) that aims to provide passive income of 5.5% to 6.5% distribution per annum. The strange thing is that Endowus Hong Kong has another deployed solution that pays a higher 6.5% to 7.5% using a 100% bond strategy.

Singapore Passive Income Plus

Endowus Hong Kong Passive Income-Plus

Anyway, I will be dropping a note to Endowus Singapore to check with them on the enigmatic differences in configuration of Income Portfolios for Singapore and Hong Kong when both are under the Endowus branding. Good thing about bond fund is that they provided sufficient diversification for one to invest in risky high yield debts.

Updates on 15 Nov 2023- Response from Endowus Client Advisor on the differences:

<QUOTE>

Thank you for reaching out to us. 

 

(1) To share, the portfolios are designed differently as the audiences/investor markets in Singapore and Hong Kong are quite different. Additionally, the fund offerings (investible universe and currency denominations) between the two countries differ as well. 

 

(2) One more thing to note would be that in Singapore, the advised portfolios are pre-set and thus any investors in the portfolio would be subscribing to that exact allocation; on the other hand, in Hong Kong, the Passive Income Portfolios are model/template portfolios that client may refer to and modify. 

</QUOTE>

United Hampshire US REIT Still Badly Beaten Down Despite Q3 Operations Updates-Incredulous 14.8% Distribution Yield.

United Hampshire US REIT ("UHREIT") has been badly bruised for the past year. From its 52 week high of US$0.535 per unit to the recent US$0.380 per unit as at 9 November 2023, this is an extremely worrisome and disappointing plunge of <-29%> . This translates into an absurdly high 14.8% distribution yield and an insanely low Price to Book Ratio of almost 0.5 times. UHREIT is thus currently providing a +10% yield above the 10 year US Treasury rate of 4.6%. 

1. Stable results and continued good news from Q3 Ops Updates

Gross revenue and Net Property Income for the 9mth of 2023 has increased 11.7% and 12.2% year on year respectively. UHREIT also continued to maintain its high committed occupancy of 97.2%. This is a far cry from other US Commercial REIT such as Manulife US REIT, Keppel Pacific Oak and Prime US REIT. 

The best news from this update is that the Academy Sports Building in Port St.Lucie has been completed way ahead of schedule (originally, I thought that this extension building will only complete in mid 2024). The new 63,000 sqft store opening is projected to commence by end of November 2023 which will mean that a new stream of rental income for the full month of December 2023.

2. Attractive high yield and price to book ratio.

This one really OMG- price crashed till so low and distribution yield now expanded to approximately 14.8%. Maybe many investors staying away from UHREIT due to its 40% plus leverage ratio which is not ideal considering year end revaluation of all properties required by IFR. The other possibility is the sad fate of the US Commercial Office REITs leads to fear of breaching the current banking covenants and distribution suspension akin to Manulife US REIT.

3. How is UHREIT different from other US commercial properties?

The above points depicts the unique nature of UHREIT business whereby its tenants are considered economic cycle agnostic and recession resistant. This also explains why its physical occupancy rate of properties is always so high throughout the past 3 years since its IPO.

4. The hidden dark side of UHREIT and risks of holding on to it

By the way, UHREIT is not entirely an angel and there are some grave risks that even their CEO does not want to address directly:

1. Leverage ratio of 40% plus is a tad too high albeit the recession resistant storyline. In extreme scenario, it will end up similar to the fate of Manulife US REIT once an unforeseen event lead to a breach in its banking covenants and the disastrous chain effect or death spiral might result. The leverage ratio is simply too high for comfort. 

2. Change of US tax rule and imposition of withholding tax. The requirements on the current tax planning structure crafted out can change overnight. This already happened a few years back before where US Office REITs valuation plunged due to the then concern over newly announced tax rule interpretation.

3. Forex risk as the operations are all in USD. If USD were to further weaken, Singaporean investors will see their investment value being eroded eventually.

4. In event that UHREIT needs financial support, equity fund raising via rights issuance will be virtually impossible for a US SREIT due to the group tax structure in place which is closely tied to the 9.8% restriction in ownership. Any change in the trust structure is highly complex which requires tax professional re-design and also US Tax authorities clearance.  Manulife US REIT has led the pack in examining this challenge which it has not been able to resolve even till this date. So, no matter how financially strong are the sponsors, the 9.8% restriction in individual entity/individual shareholding is an unbreakable curse that renders the backstop of equity fund raising exercise by the sponsors as good as useless.

Parting thoughts

Personally, I have been adding some minor stakes into UHREIT in view of the sudden plunge of unit pricing to below US$0.40 per unit as I think it is very undervalued. Nevertheless, I will not be able to add on additional significant stakes into UHREIT as that will further over-concentrate my already large exposure to UHREIT. The economic cycle agnostic and recession resistant storyline marketed by UHREIT is certainly compelling from its historical performance. The problem with investment is that one can never know what they don't know. Diversification is still the only way to prevent one's carefully built up investment portfolios from sinking into oblivion. 

Keppel Corp Owners-Have You Checked Your “Free” Keppel Office REIT Units Have Been Correctly Credited To Your Accounts?

Today is 7th November 2023 which is the much anticipated dividend in specie disbursement of Keppel REIT units for Keppel Corp shareholders. For those holding their Keppel Corp shares in nominee beneficiary accounts in trust and not their own CDP account, do check with your respective stockbroker in case of administrative screw up. I would also like to touch base on a dry topic of how should one record the cost of these free Keppel Office REITs unit- those who are not interested can just skipped point 2 below. 

1. Shares held in Trust (Non-CDP trading account).

I was rather impressed with Tiger Brokers which has an impressive digital platform that immediately allocated the Keppel REIT units in the morning to the sub-account holders. For my shares held in custody with Maybank Trading, they apparently have either (i) screwed up & missed out on this special dividend distribution or (ii) their administrative trust team are doing things too manually and need another few more working days to sort out the allocation of the Keppel REIT units to their sub-account holders.   

2. Cost of the Keppel Office REITs units given out is not zero cost or free of cost.

I was a bit puzzled when Tiger Brokers allocated my Keppel Office REITs units to me and display my cost of purchase as “zero” which means I am sitting on a profit of current market valuation less “zero” cost. This is not correct. 

2(a) Strange concept of “freehold” investment into stocks/REITs

Technically, the disbursed Keppel Office REIT is not a “freehold”. (Btw: I borrowed this term “freehold” from Master Leong when he disputed such a concept of measurement of profits with another fellow investment blogger- freehold means free of cost after taking into account historical dividends paid out that has accumulated over the years and adding that to the current market valuation of one’s investment whereby this total effect becomes easily greater to the original cost of investment). I do not want to dwell into details on who is right or wrong with regard to this concept of one’s investment becoming “freehold” as it really depends on the perspective of whether (i) one is looking at measurement associated with unrealized gain/loss or (ii) just looking at a higher level of realized plus unrealized gains/losses from an investment.  

2(b) What is the cost to assign to Keppel Office REITs one gained from the dividend in specie exercise?

Anyway, back to the costing of this exercise.  Personally, I will neither be be taking dividend cum date nor the ex-dividend date to record the cost of the Keppel office REIT as a retail investor. Despite having absolute certainty that I have a legal right to the asset (via this special dividend exercise) on the as aforesaid dates, the problem is that I am unable to do anything at this particular stage as a retail investor as the units have not been transferred into my CDP or trust account with other brokerages. This is similar to a normal dividend being declared, you can only use the cash given out to buy new shares/units when it has been credited into your bank account on the payment date being declared.

The keppel Office REIT should be valued at S$0.83 per unit which is the opening trade price as at 7th November 2023. This is also the date whereby the units are given to all direct shareholders thus one has the rights to trade or hold the Keppel REIT units on the secondary market. Substance over form, this special dividend exercise is still a dividend income in terms of one’s own P&L and a recording of long term investment instead of cash in one’s Statement of Financial Position. 

I think it is extremely silly to view this as a zero dollar cost investment for future measurement which give rise to a very useless and impractical situation whereby whatever is the market price fluctuation, the percentage profits is always 100% profit even when the market price dropped by half as the cost of holding is “freehold”. How does this perpetual non moving 100% profit margin help one in making sell or hold decision?

Parting thoughts

Anyway, the above is just the accountant in me making a big fuss over the zero cost of purchase of Keppel REITs being assigned by Tiger Brokers. For my own Stocks Cafe recording, I will be imputing a cost to the Keppel Office REITs being disbursed to my CDP and brokerage trust sub-accounts.

Keppel DC REIT Recovery of 7% Within A Week.

This will be a short post. The SGX and SREITS rallied over the last 2 days’ trading session. So I decided to sell off a just acquired small tranche of 1,500 units of Keppel DC REIT (“KDC”) to take a quick realized tiny profit at 7.1%. I am a pessimist. I do not think that SREITs is out of the woods yet with Powell’s announcement that the Fed will not do another hike in November 2023.  Neither am I convinced that there will be any material rate cuts in 2024 and 2025. It will take a while to keep the active money supply (from excessive printing over the past decade) from running amok. 

So for SREITs, the pertinent question is whether the effect of positive rental reversion or increased occupancy will outweigh  the grave negative downsides from ever higher interest rates for bank loans refinancing exercise over the next 2 years. I have redeployed the proceeds from KDC as well as excess funds into US renewable energy stock and also bond funds from Endowus to lessen the high concentration in SREITs. 

Further Market Correction Expected This Week Due To Chaos From Escalation of Israel and Hamas War.

Israel has commenced expanded ground operations against Hamas with battle tanks and ground troops storming into Gaza. I foresee further blood bath in the stock markets this week as we have seen in preliminary market reaction during the on-start of previous wars. This week may pose another buying opportunity into SREITs which has been hammered down close to the COVID-19 low.

Quick Highlights:

1. Inflation may come back in the form of higher oil prices which trickled down into higher energy prices for all businesses

There is a current group think that interest rate is at its peak already and that the US Federal Reserve will not increase rates anymore. Current rates of  between 5.25%-5.50% is actually small relative to the interest rates once imposed in 1980s to combat the Great Inflation dark period- the effective Fed funds rate once reached 19.39% in April 1980. 

Moral of the story is not to be too over-confident that inflation is already brought under control. More rate hikes may come until the global economies tanked into recession for the hot demand to finally cool off and to disrupt the inflationary beast

2. "Stable" SREITs mostly in trouble too

The traditional "stable" government linked REITs such as The Mapletree family of REITs are currently running a very high gearing ratio that are already at or near the 40% mark. For example, Mapletree Logistics Trust, Mapletree Pan Asia Commercial Trust and Maple Tree Industrial Trust have gearing ratio of 39.5%, 40.7% and 38.2% respectively. Valuation may go further downwards given the higher interest rates impact and rights issue maybe on the way to avoid breach of banking covenants if the current economic climate worsen. 

Parting thoughts

Personally, I think that no time is a good time to invest these days. Hence despite the gloomy economic outlook, I will most likely be mopping up additional units in Capitaland Ascendas REIT, Keppel DC REIT or United Hampshire US REIT over this 2 weeks. Frasers Logistics and Commercial Trust also looks interesting since it has very low leverage ratio (less than 30%) but I have already added 23,000 units last week and will wait for its September year end results release on 2 November 2023 before deciding on further action.

Will SREITs Crash Further This Week? Cut Exposure to SREITs Or Buy More At Current Lower Price?

The million dollar question this week is whether our Singapore REITs market will crash further after the 4.8% disastrous plunge last week. Well, so far so good as Monday today (23 October 2023), there is a slight rally. SREITs like Keppel Data Centre REIT (“KDC”) which has dropped -14.4% in a single week, from S$2.010 per unit to S$1.72 per unit, has since rebounded by +3.49%.  However, I don't think we are out of the woods yet with the gloomy macroeconomic situation.

1. Risk of Israel & Hamas War Spreading.
Besides Gaza, Israel has been conducting airstrikes against Syria and Lebanon. Iran has also been aggressive towards Israel. US, China and Russia have also been joining in the fray. There are heighten risk of disruption to global supply chain and oil prices may spiral upwards and worsen energy price. Sticky inflation might also rear its ugly head once again. 

2. Interest Rates Risk- Rates Maybe Raised Higher.

The Feds have mentioned that the inflation target is still way above their 2% target and that they may be raising the interest rates again in the future. For SREITs, the fear of higher borrowing costs leading to smaller distribution is certainly driving the market valuation down for most REITs.

3. Divesting DigiCore US REIT And Buying Keppel Corp Instead.

On 18 October 2023, I have disposed 13,000 units of DigiCore US REIT @ US$0.555 per unit and used the proceeds to buy into Keppel Corp when it dropped to S$6.36 per share in order to reduce my exposure to US REITs as well as to take advantage of the special dividend from the latter. This turned out to be a lucky move as DigiCore US REIT has since dropped to US$0.480 per unit as at 23 October 2023. 

Parting Thoughts

Strangely, the earlier morning rebound in price for SREITs on 23 October 2023 morning trading session fizzled out by afternoon. Overall, prices of SREITs continued to drop with only a handful exceptions such as Keppel DC REIT, Capitaland Ascendas REIT & Frasers L&C Trust. I am tempted to inject additional funds into SREITs purchases to take advantage of the significant lower market pricing but have decided to wait till Israel commences their ground offensive into the Gaza which may mark further carnages in SREIT pricing.

Keppel Corporation Sharp Drop In One Day and Special Dividend Being Declared After EGM.

Keppel Corp mysteriously dropped by a staggering S$0.220 (-3.36%) within a single trading day to S$6.320 per share as at 18 October 2023. This was a big surprise to me as today marks the Extra Ordinary General Meeting which concluded with most shareholders (99.9%) voting for the distribution of the special dividend in specie resolution. I was expecting a huge rally instead but it went down the drain instead. I can only attribute it to the fear of the Israeli and Hamas war exacerbating into a “World War” with other countries being drawn in. Strangely, other blue chips did not drop as much as Keppel Corp.

Things to note about the special dividends being declared:

1. The Ex-Dividend date is 24 October 2023;

2. The expected date for distributing the special dividends to shareholders is 7 November 2023.

Finally, after waiting for so long…..the giant Huat Kui has materialized.

Is Keppel Data Centre REIT Annualised 5.1% Distribution Yield From Q3 2023 Results No Longer Attractive?

Is Keppel Data Centre REIT 5.1% distribution yield from its recently released Q3 2023 results no longer attractive and will its business continue to go downhill? Find out more in this video.

https://youtu.be/Uor_RRw8gBs

Hong Kong Land Limited Dividend Yield of 6.43% and around 75% Discount to NAV- Why I am Staying Away From It.

I was watching Master Leong You-Tube channel yesterday and Hong Kong Land ("HKL") was being mentioned due to its high dividend yield (around 6.43%) and a close to 75% discount to its NAV where the latter provides a relatively super high margin of safety for those who are going to invest in it. HKL is not a "stranger" to me as during the COVID crisis, I have purchased around 4,000 units then in late 2019 at around US$5.50 per share and then sold it a month later at around the same price to re-deploy the funds due to my bad feel on the development then in light of the Hong Kong protests. To cut it short, HKL market prices has plummeted -50% from US$7+ per share in early 2019, to the current US$3.42 per share as at 15 October 2023- note that this is also after the massive US$600Mil share-buy back programme executed by the management team. Hence this is not exactly a good investment after almost 5 long years.  

1. Most of HKL investment properties and projects in HK and China while the remaining in Singapore

Most of HKL's investments properties are in offices or mixed development with some retail components. I am not exactly a fan of office space investments due to their cyclical nature. Before COVID, I have been staying away from offices and focusing more on retail and industrial REITs. However, during COVID crisis, I have thought that the office REITs especially those in US were holding up their prices and distribution well and thus ventured into them since they have long tenure with tenants. This forage into the office space sector subsequently turned out to be a disaster as one of the notorious one (Manulife US REIT) breached its banking covenants and stopped its distributions totally and is in the midst of divesting properties during the trough of the current US commercial office crisis.

2. The super high margin of safety has been talked about for ages by bloggers/You-tubers since more than 5 years back.

The market pricing for HKL has been lacklustre for donkey years. In early 2019, its price hovered at US$7 before dropping to US$5. 50 towards the end of that year. Most folks were all talking about the remarkable margin of safety offered by HKL net assets value per share. Look at its current market pricing of US$3.42 per share. Add in the US$600Mil of share-buy back programme since September 2021 and one can see that its share price is perpetually stuck in limbo.

3. Future of Hong Kong and Property Development in China

The key risk faced by HKL would be its property development businesses in China/HK and the political policy uncertainties in Hong Kong. In light of Evergrande and Country Garden, it is not a surprise that the market is frowning down upon the real estate sector and unduly punishing HKL. 

The market also does not seemed to view favourably businesses with property development in them which has high risks and also staggered unstable earnings. Even in Singapore, other property developers like City Development also suffered from a significant discount to its NAV per share. 

Parting Thoughts

Personally, I thought that with the worldwide stock markets in doldrum, there are a lot of alternative buying opportunities out there that can offer a good distribution yield and also high discount to NAV. So I will probably give HKL a miss for now.