Stellar FY2022 Results From United Hampshire US REIT- 11.3% Distribution Yield and Key Points To Take Note.

United Hampshire US REIT ("UHREIT") delivered another set of stellar results for its 2nd half FY2022. Looks like my greatest worries over the past few weeks over potential bad news being hidden by its management are unfounded. On the contrary, its operations have been vastly strengthen with refinancing of expiring major bank loans being successfully renewed till year 2026 as well as newly executed tenant lease renewal. In addition, 81.4% of its debts are fixed which will safe-guard UHREIT for possible further rate hikes by the US Federal Reserve which so far only has limited success to tame inflation. Key points to highlight here:

1. Improvement in Revenue and Net Property Income

Gross Revenue and Net Property Income increases significantly by 22.2% and 12.2% respectively relative to 2021 due to  largely due to the contributions from (i) Colonial Square and Penrose Plaza which were acquired in November 2021 as well as (ii) Upland Square which was acquired in July 2022.

There were also improved rent performance of UHREIT Self-Storage properties that give rise to the better overall financials.

UHREIT has pointed to factors such as distribution income top-ups in previous years to explain the fall in DPU of <3.6%>. However, if one were to normalise this, the adjusted DPU would actually be 9.3% higher. Based on current DPU and recent closed price of US$0.520 per unit, this would still give an astounding distribution yield of 11.3%.

2. Credit facilities due in 2023 and 2024 were successfully renewed by UHREIT Management

UHREIT Management has successfully completed the bank credit facilities renewal in December 2022. There will not be any significant due debts (except for a small US$21.1Mil of loan due for refinancing in 2024) until November 2026.

As at 31 December 2022, a substantial 81.4% of loans were tagged to fixed interest rate. This will help hedge against any further run-away interest rate hikes should the US Federal Reserve failed in their current attempts to curb inflation and have to implement huge rate hikes. 

3. UHREIT property valuation is one of the few REITs to have gone up slightly whereas most like Manulife US REIT have declined and has a NAV of US$0.75 per unit.

UHREIT announced that its investment properties valuation has gone up by 1.3% for 2022 which is impressive given the increase in termination capitalization rate for discounting purpose of future cashflow. Many REITs such as Manulife US REIT on the other hand experienced a sharp dive in their valuation. Do note that the positive valuation exclude Elizabeth and Perth Amboy Self-Storage divested on 22 June 2022, and Upland Square acquired on 28 July 2022, in case one is wondering why the published Income Statement shows a negative fair valuation gain in direct contradiction to the assertion in the press release.

Another interesting point is that the NAV of UHREIT is at US$0.75 per unit while its market price last traded on SGX as at 24 Feb 2023 is languishing at US$0.52 per unit. 

Parting thoughts

Given the huge gap in terms of its NAV of US$0.75 per unit on top of a ridiculously high distribution yield of 11.3%, its current market price of US$0.52 per unit as at 24 February 2023 seems to be grossly undervaluing UHREIT from my personal view. I think that UHREIT management has done an excellent job so far. Most likely, I will be taking part in the distribution re-investment plan ("DRP") this round. Please take note of the final election deadline of 20 March 2023 if you are joining in the DRP.  

Will you be taking part in the DRP? Do also share your thoughts and comments such as potential red flags that I missed with regard to UHREIT latest results that were released. 

Federal Reserve To Increase Rates Again To Combat Inflation- Will Stock Markets Crash Again?

Now this is bad, US job data are better than expected (Non-farm payrolls increased by 517,000 for January, notably above the 187,000 additions estimated by Dow Jones) and US wage growth are at 4.4% which is higher than the inflation target of 2%. Other US economic data are also on the rise. Will the Feds reverse their recent down shift in rates increase back to giant size of 0.5% or 0.75%? The elephant in the room would be will the Singapore Stock Exchange market crash again after the recent recovery in view of higher and uncertain terminal rate? 

For Q1 of 2023, I have S$18.8K of dividends due for payment from my investment portfolios being announced by the investee companies. Currently pending for 22 Feb 2023 results announcement on the distribution that will be released by United Hampshire US REIT- this is my last major investment that has not announced its distribution. Hopefully can get up to additional S$4.2K distribution to bring it up to S$23K for re-investment in March 2023.

Another Lippo Group REIT Embroiled In Financial Crisis- Lippo Malls Indonesia Retail Trust.

On 13th February 2023, Lippo Malls Indonesia Retail Trust ("LMIRT") management announced that Moody's Investors Service has downgraded the corporate family rating of LMIRT and the senior unsecured bond issued by LMIRT to Caa1 from B3. There is unease in the whole market that LMIRT has no workable refinancing plans for its bank loan maturing in November 2023 and January 2024 and also its US dollar bond that will mature in June 2024 amid the high interest rate environment and risk conscious bankers. Not forgetting what happened during the recent COVID crisis to First REIT (another Lippo Group related REIT listed on SGX), it seems that another group of retail investors is on the verge of falling victim to the poor management by the Lippo group. 3 things to take note of with regard to LMIRT albeit the seemingly very attractive distribution yield of 11.6% per annum: 

1. Falling Indonesia rupiah strength relative to SGD and worsening property valuation double whammy on top of expiring banking facilities

LMIRT is not just facing refinancing risk of a whopping S$400Mil in bank loans and bonds due over coming 12-18mths but also a continuous weakening of Indonesian rupiah against the Singapore dollars. Its leverage ratio is already at 42.2% as at 30 September 2022. There is a real risk of LMIRT breaching its bank loan covenants if valuation worsens. 

There is only S$106.7Mil of cash and cash equivalents on hand on the balance sheet of LMIRT as at 30 September 2022.

2. Occupancy rate above industry average is just an illusion- its mall only has 80.4% occupancy rate and worse still, a significant part of tenants are related to the Lippo Group.

Occupancy rate above industry average?

While it seems that occupancy has been improving, it is still at a miserable 80.4% as at 30 September 2022. Even with this 80.4% being so called better than Indonesia's industry average, it is just a mere illusion to me. The fact is that there is a huge concentration risk of existing tenants that are related to the Lippo Group which means that if there is another similar COVID crisis or political crisis like the bribery case in its property development arm which ended up with officials targeting the entire Riady family business, the rental stream to LMIRT will be severely impacted.

As one can see, approximately 25% of the 80% occupied spaces in its shopping malls are related to the Lippo Group. this is as good as another 20% being wiped off from current occupancy rate which means only 60% of its shopping malls are occupied by external non related party brands. This concentration risk cannot be simply ignored. 

3. Lippo Group has a long track record of throwing retail investors under the bus.

I will not waste time here to write about what happened to OUE Commercial REIT (you can google it to find out more on the non-yield accretive M&A deal in 2018 on OUE Downtown acquisition and the rights issue impact on retail investors). 

For First REIT, I have written many posts previously on how retail investors were being short-changed and the massive destruction of value.

(i) First REIT's Sponsor Plan to Default on Original Rental Support Agreements- Price Collapsed By 30% Within A Day (1 Jun 2020)

(ii) First REIT Twisted The Knife Further Into The Heart Of All Unitholders- Nightmare of Nightmares Right Issues Announced At More Than 50% Discount Off Last Market Price (28 Dec 2020)

Parting thoughts

There are various key reasons (as discussed above) on why the REIT has dropped from S$0.392 per unit to the current S$0.031 per unit and trading at 60% discount to its NAV over the last 5 years. Personally, I have seen how the Riady family run their business and took advantage of retail investors-look at how First REIT is being run to the ground with their reneging of original master lease agreement and also value destructing super lowly priced rights issue to save their own skin while throwing everyone else under the bus. I will not be surprised that Lippo will do another one onto LMIRT. So personally, I am keeping a ten foot pole away from any businesses setup by the prominent Lippo Group and the Raidy family.

Is ComfortDelGro Severely Undervalued Or Is It Facing Shift In Demand For Its Transportation Services?

It has been painful to watch one of the most well known and iconic blue chip fall from grace. ComfortDelgro was once trading at S$2.80 per share during the pre-COVID lockdown days of 2019. It has since languished to S$1.13 per share as at 19 January 2023 which is a colossal decline of 59.6%. In 2018, I still recalled purchasing ComfortDelgro slightly below S$2 during the then recent market low point and then selling off when its price recover a little a few months later- I am just glad that I did not hold it long term otherwise I will now be staring at a huge capital loss. The key question that everyone is wondering seems to be at S$1.20 per share as at 10 February 2023, is comfortDelgro finally a good buy after coming off the trough of 52 weeks all time low of S$1.13 per share in January 2023? 

1. View by some investors that Taxi business facing strong competition from GRAB hence leading to huge decline in ComfortDelgro revenue and profits.

First and foremost, we need to address this strange perception by certain retail investors that the entire ComfortDelgro's share price is being punished due to poor performance of its taxi business against GRAB competition. From 2021 annual report extraction of Group Business Segment revenue, the taxi business consists only 12% of total consolidated revenue. If we look at operating profit level in 2021, the taxi business only contributed  8.8% of total group operating profit which is a remarkable turnaround from the lockdown 2020 of operating losses. With the worldwide lockdown (including China) coming to an end, there will be a gradual recovery from tourists coming to Singapore which should give a much needed boost to Public Transport as well as the Taxi segments in 2023- this is evident already in the 1st half results for 2022 and I think even more so for the results of 2nd half of 2022 that is yet to be announced. Overall, I do not think that GRAB still poses a major threat, they are in fact struggling to raise fresh capital in the current high interest rate environment and the era of using cheap financing to fund losses for marketing and market share expansion is over. 

2021 Extract of Segment Results

Another point to note is that even if we were to go back to pre-COVID days, 2018 annual report extraction of Group Business Segment revenue, the taxi business consists only 19% of total consolidated revenue. For 2018 operating profit level, the taxi business contributed a significant 29% of total group operating profit which in terms of quantum is around a S$100Mil differences to 2021 due mainly to a double whammy of a decline in revenue generation from lesser demand and a substantial increase in operating costs. 

2018 Extract of Segment Results

Trending of Segment Revenue 2017 to 2021

Trending of Segment Operating Profit 2017 to 2021

Using a hasty mental projection, pre-COVID period price range at end of 2021 and mid 2022 is around S$2.42 per share on average while operating profit has dropped by around 50%. So S$1.21 per share seems to be a reasonable hair cut that has some additional upsides like further recovery in transport demand built in. 

2. PE ratio 17.46 using 5 years historical data.
From earnings of S$0.0548 per share during the 1st half of 2022, annualised impact is S$0.1096 per share. This gives a projected future price of S$1.90 per share based on historical PE ratio.

Parting thoughts

Personally, I have started initiating bite size positions into ComfortDelGro at prices of S$1.19 per share to S$1.20 per share as I think that the worst is over for ComfortDelGro. The dividend yield (as per StockCafe) is around 5.3%. Perhaps more importantly, I need to diversify my dividend portfolio away from holding on to more REITs. 

Selling Away All Stocks On Hand To Buy Second Property In Singapore For Investment.

Singapore property market earth defying stance is simply incredulous. It is so incredulous that many folks are telling me that it is best to sell away all stocks on hand to buy a 2nd investment property in Singapore.  Look at Tanah Merah, the latest integrated development Seneca Residences is selling at a whopping S$2,072psf on average on launch day itself. AMO Residences in Ang Mo Kio also over S$2,000psf.

 

Then look at the lackluster performance of equities over the past 3 years, no wonder many folks are lamenting that buying and holding property is way better than holding stocks. Even the rising interest rate environment to combat inflation is unable to contain the exuberance of the property bulls of Singapore.

Personally, I am not joining the fray. The only time I will consider property as an alternative investment is when our government removes the Additional Buyer's Stamp Duty ("ABSD") which will be a clear signal that the property market is finally in the doldrums. Or even better, if you are one of the three lucky winners of the S$12Mil Toto Hong Bao Draw last week, then the current out of the world property selling price does not matter anymore. 😅