Investment Portfolios Updates- S$562K (30 April 23)- Investing For Future Passive Income Growth Albeit Market Downturn.

The stock markets continue to drop relative to my last portfolio update on 6th March 2023. Market talks by experts and analysts kept hampering on an upcoming global recession soon. There is no better time to invest to continue to build up one's investment portfolios over these downturn period. Current projected passive income from above portfolios is around +S$52K per annum (please also refer to my other Family Portfolio under management which is projected to yield +S$17K 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 also to repay annual financing charges as well as to gradually pay down the margin loan through dividends generated.) 

For upcoming months, I will continue to focus on paying down the margin loan as high interest rate is here to stay for another year at least and all my REITS holdings prices are still badly bruised from higher finance cost.  

Changes over the past 2 months include purchase of Hong Leong Finance, Netlink Trust as well as additional accumulation of ComfortDelgro.

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

(i) Sold off DigiCore REIT after some capital gain and bought into Manulife US REIT when its price suddenly plummeted below US$0.20 per unit due to its debt crisis-awaiting further announcement from the Mirae deal by Manulife US REIT's management.  

(ii) Added 100 shares into Alibaba when its price dropped back to HKD80 plus region. Seriously wondering whether Alibaba will be paying out dividends in future since it is spinning off its various business and will just be a holding company.

4. Portfolio 4 (Other Investments)- Non-listed equities,DBS DigiPortfolio + Endowus

I have invested into Fidelity Global Dividend Growth Fund using Endowus. However, I think I will go for Endowus's Income Portfolio later on- the minimum entry for Endowus Income Portfolio is S$10K. 

Summary

Eventually, I will be increasing my passive income generation using Endowus's Income Portfolio which offers a very broad banding of diversification in global equities and global bonds including Asian high yield fixed income. I will probably build this up to 30% of my entire investment portfolios. 

Family Portfolio Management Update-28 April 2023

I am currently also handling investments for my wifey and will be documenting this on my blog for ease of personal reference for this portfolio and also for general sharing purpose. My "second half" has a very low risk appetite, it took me many years to finally convince her to put down more of her excess cash on hand into equities besides the usual fixed deposits and Singapore Saving Bonds. Recently, I managed to get her to also sign up for the Robo-Adviser platform- Endowus. I will elaborate more on the rationale later. Current passive income generated is around +S$17K per annum from this portfolio (please also refer to my other Investment Portfolios under management which is projected to yield +S$52K per annum). 

Use of Endowus Robo-Advisor 

Investments into only SGX stocks or local treasury do over-concentrate geographical risk into only Singapore market. This is a major risk to possible disruption of all the passive income for future retirement. Kyith's previous post ("9 Strong Points to Why I Say, the Dividend Income Retirement Mindset is Not a Good Retirement Risk Management Model") has been a good wake up call to some of my blind sides on volatility and also oversimplification of retirement income. 

Endowus has an Income Portfolio that offers immediate diversification into global equities and global bonds. In addition, this particular Endowus Income Portfolio is supposed to be capital accumulating in its investment philosophy unlike some funds which pays income out of capital and will gradually deplete itself- see screenshot below.

Extract from Endowus Income Portfolios

Parting thoughts

Going forward, will be using more of Endowus as an alternative to gain exposure into global equities and bonds for all my portfolios.

Dasin Retail Trust On Verge Of Collapse-The Can Of Worms Finally Got Revealed With Sponsor In Deep "Sheep"!

Wow....Dasin Retail Trust ("DRT") which has been keeping a low profile lately released not just one but three bombshells to investors on April 24, 2023. The gist of the announcements is that Zhongshan Dasin Real Estate Co.,Ltd , the Sponsor, of DRT is facing a myriad of law suits (a whopping 113 cases at least) of approximately S$338Mil against it since 2020. This piece of pertinent information I believed must have been well-known to the syndicated bankers hence their reluctance to re-finance the syndicated loans unless DRT reduces the quantum of the loan, as they need to cut down on their credit risk exposure. In addition, I reckon that the Sponsor has also been deliberately withholding this information from the Trustee-Manager of DRT in order to prevent a confidence crisis which will lead to a domino chain effect collapse that will eventually affect DRT adversely. There were also at least 9 existing equity freezes against the Sponsor's equity interests in some of its subsidiaries due to construction project contract disputes. The Sponsor of DRT is currently also listed on the "Blacklist of Defaulted Parties". This revelation is too drama and deserved to be filmed into a financial disaster movie to warn retail investors the danger of buying into Chinese companies.

1. With this can of worms officially open, how on earth is DRT going to get the syndicated lenders to re-finance its expired bank loans?

DRT tried to end this off optimistically by commenting that there is still no clear evidence that this can of worms, opened at this particular juncture, has any effect on the perception of its syndicated lenders.  

2. Valuation woes for DRT-S$652Mil of investment property valuation vaporised into thin air within 2 years?

In 2021, S$127Mil were written down. This got worst in 2022- there was a sudden sharp decline of -S$525Mil (-23%) in independent valuation of all its shopping malls portfolio as at December 31, 2022. This effectively means net equity of DRT dropped by an astounding -50%. One of the reasons was due to the cancellation of the Xiaolan Master Lease and E-Colour Master Lease due to related company default of rental payment. Other factors like negative rental reversion as well as higher vacancy rates led to the severe plunge in valuation of its investment properties.

The key question is this, even with an adjustment of -23% to fair valuation, is anyone certain that the remaining valuation can be trusted? Is it really worth this amount or actually another 50%-60% write down needs to be buffered in especially if the bankers exercised their rights and ask for a creditor liquidation of all assets at firesales prices. As with all fire-sales like what happened to Eagle Hospitality Trust, the bankers will get most of the proceeds with very little left-over (or none at all) for DRT unitholders and other creditors.

3. Other woes
One of DRT major anchor tenants, Carrefour China, has gone for early termination of its 20 years lease from December 28, 2014 of 191,000sqft at Ocean Metro Mall. Ever since the 2nd half of 2021, Carrefour China has not paid the rent of S$1.4Mil as at 31 March 2023. This is also complicated by a counter-claim by Carrefour China against DRT of S$1.43Mil for reimbursement of renovation costs.

This begs the question of can we even trust the financials of DRT and that there are no more defaulters?

Summary thoughts

Originally in Sep 2021, I was thinking that there is a high return potential from taking calculated risk into DRT as investors have been punishing it unduly and its unit price will eventually bounce back to at least S$0.70-S$0.80 per unit. I can only heave a sigh of relief that I have long exited my various small bite-size foray into DRT in 2022 after the many continuous red-flag signals. Personally, I think that this is a real classic case of catching a falling knife along with many major surprises hidden by its management and Sponsor. DRT is in a race to the bottom and there is the possibility that one can end up in a death spiral quickly with DRT. 

My Insurance Agent Introduced Innovative AIA Investment Product That Gives Back Huge Return of 53% Bonus Within First 3 Years Of Yearly Invested Amount!

Recently, my insurance agent (her name is "Aura") arranged an appointment with me to introduce a highly innovative investment product from AIA. Ms Aura further mentioned that AIA is now working with Blackrock to manage their assets. She told me that for a yearly sum of S$12,000 (payable for 10 years), the AIA Pro Achiever product gives very high return of 15% bonus for the 1st year, 18% bonus for the 2nd year and 20% bonus for the 3rd year which is a whopping cumulative 53% bonus! 

Well, it certainly gives me the false impression that one is given a stellar S$3,960 of investment return (+16.5% return) out of S$24K of capital being invested into this innovative product within 24 months of investing S$24K in pre-paid premiums. At the same time, 100% of the premiums paid are being converted into Investment Link Product ("ILP") units according to my agent. So it appears that AIA is doing charity work?

There is no free lunch and "out of the world" investment return from insurance companies

Taking into account the many mouths to feed in AIA, its fund manager as well as the commission for the insurance agent herself, everyone will know that this product does not make sense if it is giving out freebie and cannot be behaving like a normal unit-trust. Investment Linked Products from insurance companies are still murkier than mud with a total lack of transparency and worst still, as hard to comprehend as ever on the strange technical terms that their agents use to muddle their prospective victims customers.

The marketing gimmicks embedded here is that the impressive returns are actually "bonus" as well as the myriad of well-concealed charges to claw back the "bonus". For those who en-cashed their whole-life insurance bonus before will know that it is not a S$1 to S$1 basis when insurance bonus gets converted to cash equivalent. So I seriously do not understand why insurance agent like Aura keeps hammering on this super-size bonus award as their key selling point for an investment product. I thought the key selling point should be the type of investible funds but alas for me, a whole half an hour was spent by Ms Aura talking about the 53% out-sized bonus instead. 

For those still interested, I list down the key points of this "innovative" product and you can contact your own AIA insurance agent over this irresistible product:

1. What is this AIA Pro Achiever that brings in such stellar return for investor?

2. High "Bonus Return" from this product

3. 100% of your premiums used to buy into units immediately? So free sales charges-so awesome wor!

Parting thoughts:

There are sales charges and other yearly fund management charges that one needs to clarify in detail over this "innovative" ILP product. 100% premiums invested upfront into units does not mean that the insurance company cannot sell the units subsequently to pay for the above mentioned charges plus the "special bonus". Last but not least, do your own due diligence. Don't get smoked by your own insurance agent and then ended up buying something that you will regret later on. Have a great week ahead folks! 

Interesting Postings On Websites & Blogs Over the Weekend- 2nd Investment Property and Flaws in General Dividend Investing Mindset.

I thought that it is rather interesting to see 2 "related" posts over the weekend. One post is on a couple in their 40s who earns S$280K per annum and thinking of getting a bigger second private property for own stay and then letting out their existing property. The thing is that there seems to be some folks who are keen to pursue their dream of owning a private property for own stay and then having another private property for passive income purpose. The other post is by Kyith from Investment Moats over the weekend on flaws to watch out for in adopting the Dividend Income approach for retirement which makes a lot of sense. There is a part from the post on some folks who based their retirement entirely on the local banking trio (DBS, OCBC & UOB) for dividend income and exposes the danger lurking in the corner for doing so.

What is common/related among the 2 posts?

Rental income and dividend income are similar in the context that for retirement planning, both serves as a "passive income stream". So the point that I am making here is that for folks whose main future income stream comes mainly from one single retirement source which is a local investment property, there is simply just too much concentration risk.

Private property prices in Singapore is absolutely crazy for me, let alone buying a second property and taking up huge mortgage in order to derive a rental income stream from it and then get saddled in  over-concentration country risk (unless one is super rich to buy many properties in different countries and also other form of investments).

Recently, I met-up an old buddy for dinner-he was from my University days who lived in a HDB with his family. He got too much cash on hand from his bonuses over the past few years. As he does not want to invest in unit trusts and stocks which is "too volatile and risky for him", he decided to opt for a "safer and proven" investment route, that is, a 2nd property for investment in district 10 (1 bedder with  half of it financed via mortgage), jointly invested with his wife, at cost of S$1.2 Mil- imagine the ABSD of 12% on that property which would have been a whopping S$144K donated to the Singapore government. 

Parting thoughts

I thought that what Kyith has posted is a good wake up call for all not just in dividend investing but also those who dabbles solely in rental properties for income. How many advertisements or You-Tube videos have we seen thus far that calls for de-coupling and the purchase of second private property to make capital gains and rental income? 

Please see the following posts:

1. We Make S$280K Per Year And Are In Our 40s. Can We Afford To Decouple And Buy A Second Property? - by "Stack"

2. 9 Strong Points to Why I Say, the Dividend Income Retirement Mindset is Not a Good Retirement Risk Management Model.- by Investment Moats

Manulife US REIT Clarifies That Sponsor Will Retain Its Shareholding And Divestment Of Office Building to Sponsor.

Some good news finally! The manager of Manulife US REIT (MUST) released further clarifications on the Mirae deal in its recent strategic review updates. It is also heartening to note that MUST's sponsor (The Manufacturers Life Insurance Company) is not abandoning the REIT through a "golden parachute" deal packaged with the sales of the REIT manager as alleged by Quartz Capital (please read my previous post). In addition, with the challenges faced by MUST for asset dispositions mainly due to (i) rising interest rate environment, (ii) tight credit financing and (iii) grave uncertainty over market demand for office space, the sponsor has finally stepped in. As a show of support, the Tanasbourne office property was sold off to the sponsor for US$33.5Mil on a willing buyer & willing seller basis by taking the higher of two valuations arrived by valuation specialists. The market has viewed the announcements by MUST positively and market pricing has reversed the huge plunge of <12.25%> to US$0.172 per unit closing price in the previous day to US$0.184 per unit as at the date and time of this posting. Nevertheless, there were still some major issues that were not resolved which I should elaborate further below:

1. Mirae is being brought in as a value adding strategic stakeholder to MUST but dilutive impact to unit-holders unresolved.
The management of MUST is in for a show down with other unit-holders over the dilutive impact of new units issuance to Mirae. Mirae will definitely not be subscribing for new shares priced at the NAV per unit level of US$0.55 per unit as at 31 December 2022 if they can purchase MUST units at a fraction to that on the secondary stock market for less than US$0.20 per unit. 

The entry of Quartz Capital with a long track history of shareholder activism will add complexity to the already delicate situation. On one hand, MUST management seems to be insinuating that they need Mirae as a strategic stakeholder to ensure access to its US asset pipeline across various sector classes (e.g. hospitality and logistics) which will allow MUST to execute its pivot strategy away from office properties. On the other hand, unit-holders along with Quartz Capital will be opposing deals that are highly dilutive to existing unit-holders as this is the worst time to issue out equity given that the unit price of MUST is pricing in fire-sales of distressed assets in the worst case scenario.

I do hope that MUST strike out a good balance to the above conflict and craft out an equity fund raising exercise that is on offer to all existing unit-holders out of fairness and also issue some additional new units to Mirae to align their interest. Else all parties will be ending up in a stalemate that is back to square one and detrimental to all stakeholders.

 

2. MUST managements need to be more transparent and timely in release of pertinent information
I was surprised that it took so long for MUST management to come out to calm investors by finally clarifying that its Sponsor is only selling away the REIT Manager and the Mirae Transaction does not involve Mirae acquiring the Sponsor's existing 9.1% unit holdings in MUST. There were a number of posts such as article on Business Times talking about the Mirae deal and the seemingly lack of support from a reluctant Sponsor as well as the shocking letter from Quartz Capital alleging that the Sponsor is trying to exit with a golden parachute. I trust that the reason for the delay in such announcement is not because an exit strategy indeed was one of the various options being contemplated by MUST and its Sponsor and it is merely a slip in proper business communication. 

Perhaps most importantly, how does MUST management expect to complete the Mirae deal with an unit price that is ever spiraling downwards? Personally, my thoughts are that more timely information and transparency will serve MUST well.   

Parting thoughts

Summarising, the corporate restructuring for MUST will probably take a long time to complete. Unit-holders who still believe in MUST's future may need to start raising cash on hand in event of a rights issue. For me personally, I used to believe in MUST's management and the strength of its sponsor but as alluded to point number 2, the lack of timely disclosure coupled with the ridiculously low market price that smacks of the market pricing in a fire-sales of its assets is making me extremely nervous. 

Quartz Capital Steps In To Protect Manulife US REIT From Value Destruction by Its Sponsor Manulife.

In a surprising twist of fate, Quartz Capital (investment manager of private funds) have stepped in to rally support against conflict of interest by the Manager of Manulife US REIT and its Sponsor, Manulife, which is trying to package their exit as the REIT Manager along with conducting a private placement exercise with new units at a fire-sales price to Mirae Asset Global Investments, at the expense of all current unit-holders. In a strongly worded letter to the management and board of Manulife US REIT on 20 March 2023, Quartz Capital expressed their shock and grave concerns over the above mentioned transaction at Manulife US REIT due to its potential poor corporate governance aspects and serious conflicts of interest concerns which can further destroy unitholders' value to the seemingly sole benefit of the sponsor. I will just list down and re-produce the main points by Quartz Capital here (please refer to last paragraph for the URL):

1. Any Preferred Placement to Mirae Should be Approved by Unitholders

A preferred placement to a single party is not only highly uncommon, but there is also almost no precedence in the last 10 years of the SGX-listed REIT market unless it has been voted on by unitholders.

Firstly, as the preferred placement to Mirae is part of the potential transaction to purchase the REIT manager, Mirae should be subjected to SGX Rulebook 812. Approval from independent unitholders must be sought before any placement should be given to Mirae. This is to ensure fair pricing and the size of the placement to protect the rights of independent unitholders. Without the approval, the REIT manager can potentially undertake the preferred placement at a highly discounted price to Mirae in exchange for a higher purchase price for the REIT manager to the sole benefit of the sponsor. This is as the value of the sponsor’s stake in the REIT manager is potentially sizably higher than the value of its unitholdings. As Manulife only has 9.8% unitholdings in the REIT, existing independent unitholders will bear most of the destruction in unitholder value from a dilutive placement to Mirae at a low price.

2. REIT Manager Should Take Responsibility for Current Leverage Problem

As mentioned in a Business Times article by Ben Paul, the current high leverage problem seems to have

been caused by the manager’s move to further acquire assets in 2021 despite the leverage level already breaching the 40% threshold in 2020. 

Since Manulife’s US REIT’s IPO, the REIT has purchased more than USD 1.4 billion of assets from the sponsor. Almost all the assets bought from the sponsor have fallen in value, with the valuation of the Figueroa asset falling by more than 25% from USD 285 million to USD 211 million, resulting in the REIT to lose close to a S$75million in a single transaction with the sponsor. Manulife US REIT has fallen by 70% since its IPO in 2016.

3. Sponsor Should Not Be Allowed to ‘Walk Away’ with a Potential ‘Golden Parachute’

It is therefore a travesty that after such a catastrophic performance, the sponsor is now allowed to ‘walk away’ by potentially selling the REIT manager and its stake to another party. 

In most developed REIT markets such as US and Australia, transactions in REIT managers in the last 10 years are permitted and conducted mainly due to internalization, mergers of REITs or M&A in the sponsors of the REIT manager. It is therefore bizarre if MUST’s sponsor is now allowed to ‘cash out’ of the REIT manager after potentially putting the REIT into severe distress. 

The potential problems faced by unitholders from the change of REIT ownership is that after paying a substantial premium for the manager, the easiest way for the new owner to recover its cost is by acquisitions financed by capital raising in order to increase its portfolio management and acquisitions fees. 

MUST’s sponsor, Manulife, publishes a yearly comprehensive ESG report detailing its strong commitment to corporate governance. However, its treatment of minority unitholders at MUST tells a different story of a sponsor who is potentially ‘bailing out’ and trying to circumvent the SGX rulebook to undertake a preferred placement and selling the REIT manager to a single party at a handsome profit. 

Quartz Capital therefore urge the REIT manager and its sponsor to take responsibility and help the REIT navigate out of the current situation.

4. Preferred Placement Should be Subjected to an Independent Unitholder Vote and Offered to All Unitholders

If a preferred placement needs to be done to reduce leverage, it should be sized and priced appropriately and offered to all existing unitholders to enable them to be able to participate and average down their price if they wish to. Mirae can offer to underwrite the placement subjected to a unitholder vote.

Parting Thoughts:

Quartz Capital has an excellent track record of shareholder activism. Most recently, they had managed to get a better outcome for unit-holders of Sabana REIT by fighting against the ESR merger proposition at a ridiculous pricing. I am glad that an institutional investor such as Quartz Capital has finally joined the fray to tip the balance against Manulife Group which is only trying to save its own skin at the expense of other current unit-holders. 

Existing unit-holders can subscribe to email updates on the following site (https://www.protectmanulifeusreit.com/) setup by Quartz Capital. The letter by Quartz Capital to Manulife US REIT can also be viewed on this site.

Note 1: I am vested in Manulife US REIT. I hope that the CEO and management of Manulife US REIT reject the Mirae deal lest they get into a lawsuit for breach of fiduciary duty, especially, since Quartz Capital has mentioned that Mirae can choose to underwrite the placement of right issue units if it is being offered to all unitholders. There is just no more reason to issue private placement to an external party at such a huge discount.

Note 2: In the absence of alternative solution such as divesting properties and selling back to the unwilling sponsor Manulife Group as buyer, equity rights issue to raise funds (albeit not ideal in such market) seems to be the only solution out of this mess.  

Latest updates on 12 April 2023: "Manulife US REIT Clarifies That Sponsor Will Retain Its Shareholding And Divestment Of Office Building to Sponsor."

Bad News From Mapletree Logistics Trust And Recent Investment Notes.

To be honest, I was initially dancing with joy when Mapletree Logistics Trust (“MLT”) announced that it was on an acquisition spree of up to 10 logistics properties that will be yield accretive to DPU. However, my joy turned into deep sorrow quickly when it was revealed that there will be no rights issue for existing unit holders but only a private placement for the equity component funding. I think that this is very unfair to existing unit-holders as new unit-holders got their units (@$1.649 per unit) at a discount to market price. But guess that MLT wants to complete the deal lightning fast and to have absolute certainty on the fund raising so all existing unit-holders just have to suck thumb. The only consolation here is that there will soon be another cash distribution from MLT (1 Jan 2023 to 10 April 2023) to existing unit-holders before issuing out new units.

Other investment highlights

For me, I do not usually do “monthly investment portfolios” updates like other bloggers at every month end as many times, nothing much has changed within 1 month but nevertheless, I try to update it every 2-3 months for documentation purpose- will probably update it at end of April’23 or beginning of May’23. 

Basically, stock markets are still in doldrums. Things may get worse before it gets better. Personally, the old adage that the stock market is always 6 months ahead of actual economic fundamental is eerily true for me at most time. My thoughts are that there are many good bargains out there for the picking during these dark times. My recent own acquisition sprees in the past month are:

1. ComfortDelgro (recovery play);

2. Hong Leong Finance (boring pick but historically well managed financial institution);

3. NetLink Trust (stable and resilient recurring revenue);

4. Haw Par Corporation (“Tiger balm” company that holds lots of UOB stocks as its strategic investments);

5. DigiCore REIT (its price crash till all time low due to concerns over another tenant bankruptcy);

6. United Hampshire US REIT (resilient revenue from its grocery tenants) and 

7. Fidelity Global Dividend Fund (decided to use Endowus and further diversify investments into funds)

Parting thoughts

Will the global economies and stock markets go down further from here despite the recent rally? Well, I am not sure and does not have a crystal ball. After the past years of abundance and excesses, the COVID pandemic finally ended the prosperous era and kicked off the “years of famine”. I will just continue to invest regularly to build up my passive income portfolio and wait for the better time to return and reap capital returns.