Keppel Corp 55th Year Anniversary Surprise For All Shareholders-One Free Huat Gui For Every 5 Keppel Shares Owned.

Good news for all fellow Keppel Corp shareholders! Keppel Corp will be giving out a special dividend in-specie of Keppel Reit ("KREIT") units to mark the group's 55th anniversary.  For every five Keppel shares held, shareholders will receive one free Huat Gui (KREIT) which is trading at around S$0.895 per unit as at 28 July 2023 morning. There is also the usual interim cash dividend of S$0.15 per share being declared for 1H FY2023.

Manulife US REIT Existential Crisis- Dump All Units Immediately Or Continue Holding?

The million dollar question revolving around Manulife US REIT ("MUST") unit-holders recently is whether to dump all holdings or continue holding on to it. MUST's unit price has been nothing short of a major disaster with an -80% plunge over a year. It does not help that the commencement of a "Strategic Review" in November 2022 lead to no concrete solution out of this exercise despite the huge lead time to find an alternative way out of the mess created by over aggressive acquisition of office buildings by the previous management team. Adding to the woes of MUST, the persistent low physical office occupancy rate in US and high interest rate environment drastically reduces its valuation and now spiralled into breaches of bank covenants and an existential crisis. 

Should a Unit-holder of MUST Dumped All His/Her Units Immediately Or Continue Holding?

Note that this is a personal opinion piece so please do your own due diligence and assessment. Personally, I am extremely frustrated at the current predicament facing MUST. Let us not mince our words: Things are certainly not bright and MUST is in a deep Sh-hole. The breach of the bank covenants will trigger off various adverse consequences and we are only starting to see some of them materializing:

1.  Inability to pay out distributions to Unit-holders without express authorisation of the bankers as loans are considered to be all in default.  (Also, I am not optimistic on the strange request by MUST to ask for waiver to pay out distribution- if I am the banker, no way will I allow cash to be paid out as the banks will need to ensure the business have sufficient cashflow to pay them back in event things took a turn for the worst.) 

2. Additional taxes to be incurred as alluded to point 1. This inability to pay out distribution will trigger off additional taxes due to the tax planning structure of the US REIT put in place.

3. Fixed interest rate swaps default to the breach. This will lead to high interest rate expenses. 

Other Consequences That We Have Not Seen But Which Maybe Upcoming:

(i) Doubling of interest rate expenses in even of worst defaulting event. Many term loans terms and conditions come with these to ensure maximum recovery by the bankers to protect their own interest;

(ii) Additional costly professional fees such as lawyer and financial consultancy will be required to rehabilitate the finance position. Liquidation fees may also be incurred if this is still not resolved;

(iii) Prospective tenants may also lose confidence in MUST as a landlord as dire financial stress means that the landlord may not even have the money to continue with basic maintenance. It becomes a vicious cycle in terms of having less and less rental revenue.   

Slow Reaction of The Sponsor And Management Team

The sales and disposal of a major building till now has not been concluded. There is great reluctance also to conduct a rights issue as the Sponsor  is worried that it will end up paying lots of withholding tax during distribution of payout if it ends up with 10% or more stakes. MUST management worries about "this and that" to find a "perfect" solution is the Achilles heel of the current MUST management team. They need to also ask themselves how much money had they spent so far hiring the "financial advisor" for strategic review and yet nothing much comes up timely to save MUST from its worsening predicament. Compare MUST to Keppel Pacific Oak US REIT ("KORE") and one can see the major differences- KORE just announced its 1H 2023 results and it still has ample aggregate leverage before hitting the 50% mark (sufficient to take a 24% hit in its property valuation). KORE also reported a respectable set of 1st half numbers amidst the challenging US office environment and its earlier entry into growing cities such as Nashville, Dallas, Houston, Denver and Eastside Seattle.

Parting Thoughts

Personally, as discussed above, I see a lot of down sides in terms of MUST's ability to navigate itself out of this financial mess. I think I will be selling off part of my stakes in MUST to reinvest the proceeds while their management team try to save its business from collapsing. I will probably still be retaining half of my current stakes- not because I think the upsides are more than the risks but rather, my current holdings in MUST has diminished to just a paltry S$10K. 

Expected US Federal Reserve 26 July 2023 Rate Hike- Hopefully It Will Not Kill Off The Market Rally.

Another 25 basis points hike is widely expected by many economists for the upcoming US Fed Reserve meeting. I can only lament the high cost of borrowings faced by businesses which are getting hammered relentlessly over the past year from higher borrowing costs. We have already seen sporadic "banking crisis" erupting this year in US and Europe which were just being barely contained. Some of the Real Estate Investment Trust ("REIT"), which are heavily leveraged, are already facing financial stress over property valuation. The borrowing costs increase also threatened to bankrupt the some of the tenants in REITs with the excellent example of Cyxtera (the 2nd largest tenant of DigiCore REIT as well as prominent tenant for Mapletree Industrial Trust & Keppel Data Centre REIT). 

Final Rate Hike?
Keeping my fingers crossed that this will indeed be the Final final hike for the year to contain inflation before the global economies breaks into pieces and spiral into a deeper recession from such unabating hikes.

DigiCore REIT Roared Back To Life- 17% Surge In A Single Week!

DigiCore REIT jumped 12% (and as high as 14%) in a single day today to US$0.56 per unit as at 20 July 2023. This is an impressive 17% upswing in its unit price performance within a single week given that DigiCore REIT was languishing at US$0.480 per unit last week. It looks like the market has assessed and decided that the default risk of its 2nd largest tenant, Cyxtera is over. I tried to google but could not find any latest updates on the bankruptcy case. But I think that most likely, the stalking horse bid has been successfully selected which thus gives rise to the re-rating. 

Please refer to my previous post: “US Digital Core REIT- Worst Maybe Over With Unraveling of Stalking Horse Bid by 16 July 2023”
 

DigiCore REIT response to SGX query on the sudden jump in unit price

Manager’s Response: The Manager is aware that a brokerage firm has circulated a client bulletin reporting that final bids for the REIT’s second-largest customer were due today and it had received at least six letters of intent for its business, which the brokerage firm hypothesized should be a good sign for providers with exposure to this customer, as the brokerage firm speculated any intention to reject its existing leases likely would have been done prior to today’s deadline – which may or may not be a faulty assumption, as the sale process is still underway.

In addition, the brokerage firm noted that the recent share price rally implies that the REIT is on track to be included in the FTSE NAREIT Developed Asia Index as early as the next review in September 2023.

Parting thoughts

I am keeping my fingers crossed that DigiCore REIT can break the US$0.60 per unit level within the next 2 months. I am currently in a dilemma over whether to sell off part of my holdings in DigiCore REIT acquired recently so as to take immediate profit or to hold on to it for a longer term view.

How Come Suddenly So Many Affairs Revelations In Singapore Politics?

Wow, the out of the blue revelations of all the scandalous affairs in Singapore politics over the past 2 days is mind-blowing. The timing of the release by whistle blowers such as the ex-personal driver of Mr Leon Perera which implicates so many WP leaders is also puzzling. Personally, I do not believe in coincidences. Looks more like dirty politics and holding on to pertinent information as a weapon to unleash during one's chosen opportunity. Also dabbling in tactics to use certain news to cover up for other "major screw up". I am actually more interested in the corruption investigation of our Transport Minister and hope that the Corruption Bureau released their report to the public soon for transparency and accountability.

I do hope that our leaders do not get distracted by the juicy affairs of fellow Members of Parliament & focus more on governing the country and concentrating on resolving major issues (such as high cost of housing and food) affecting the bread and butter of all Singaporeans. Looks like our poor Prime Minster Mr Lee needs to hold on the fort for a few more years.  

Hong Leong Finance Looks Set For Record FY2023 1st Half Earnings- Projected 7.3% Annualised Dividend Yield.

Hong Leong Finance ("HLF") looks set to report a record earnings for its 1st half performance of FY2023 given that the global rate hikes in earlier part of the year should have pushed up its Net Interest Margin ("NIM"). Despite previous announcement that its FY2022 net profit after tax has increased by +54.4% relative to FY2021, HLF share price has barely moved up and on the contrary, decreased even further, relative to prior years. Pre-COVID 2019 days, HLF's share price was at S$2.66 per share as at 31 December 2019. HLF share price is currently at only S$2.50 per share as at 14 July 2023 (which strangely marks a decrease in market price performance amidst the stellar FY2022 results). At this price, HLF is currently offering an impressive dividend yield of 6.8% based on historical distribution-pls see pt 2 below for the upward revision in projection of 2023 yield given that 1st half of FY2023 should be a lot better than 1st half of FY2022 previously. 

1. HLF's 5 Year Key Financial Highlights and Huge Discount of Market Price to Net Assets Per Share.

A record high of S$77.1Mil was retained by HLF in FY2022 relative to prior years of S$43.4Mil in FY2021 and also pre-COVID 2019 of S$36.1Mil. Its Net Assets ("NTA") Per Share is S$4.55 per share as at 31 December 2022. This is a stunning +82% premium over its current share price of S$2.50 per share as at 14 July 2023. I expect the NTA per share  for the 1st half ending 30 June 2023 to go up even further given the higher interest rate environment and the higher NIM.

Extract of AGM and Shareholder Query to HLF's Chairman Mr Kwek Leng Beng

Unfortunately, the current senior management of HLF does not seemed to be too keen to unlock the value for its heavily discount market price-please see above screenshot AGM extract. I do not want to speculate too much on the "strange" response but personally, I think that there are a number of actions that can be done to unlock share price such as share buybacks, increase dividends payout, or corporate action like privatization or selling off to a 3rd party.  

2. Annualised Forward Dividend Yield To Cross Over 7.3% In FY2023

Personally, I would expect HLF to be giving out interim dividends of S$0.05 per share due to expected better results for 1H FY2023. Using historical 2nd half dividends of FY2022 of S$0.1325, this will give an annualised dividends of S$0.1825 and an yield of 7.3%. I am also of the view that the good old days of low and cheap financing rates are over and that higher interest rates is here to stay which will benefit HLF. 

Parting Thoughts

The bad news here is that HLF has always been trading at a discounted fraction of its NTA for many years. The market price of other financial institutions like Development Bank of Singapore, United Overseas Bank and Overseas Chinese Banking Corporation have generally always been at a premium of over 1 times to their respective NTAs- so some might call holding on to HLF as a value trap. 

Furthermore, I do not think that Hong Leong Group will want to trigger any sell-off of HLF as long as Mr Kwek Leng Beng is still helming Hong Leong- his reply at AGM regarding the abnormally low share price is as good as no reply. Nevertheless, I think that in 4-5 years time, once there is a change in new generational leadership at Hong Leong Group, the new senior management team may decide to eventually sell off HLF to the local banks given that its competitive advantage is limited relative to the local big 3 financial institutions. The huge discount of 82% of HLF market price to its NTA just does not make logical sense without taking corporate action to enhance value to all shareholders. 

P.S: For those holding on to HLF, please do share your personal outlook and perspective over this lacklustre stock that remains in a slump.

(Note: I am currently vested in 10,000 shares of HLF- started acquiring its shares in different tranches from the beginning of 2023).

Will Hotel Properties Limited (HPL) on SGX Crashed Today?

Wondering whether Hotel Properties Limited ("HPL") will crash today given that prominent businessman Ong Beng Seng is also implicated in the Iswaran corruption investigation and given a notice of arrest by the Corrupt Practices Investigation Bureau ("CPIB"). Interestingly, HPL share prices shot up by more than 10% in early June 2023. 

Wow, more and more cans of worms being revealed in the recent corruption scandal. 

Manulife US REIT Webinar Updates: "What lies on the horizon for U.S. office?"

For those who are unable to attend the Manulife US REIT (“MUST”) webinar on 12 July 2023, please see below key highlights with two seasoned researchers from JLL, Scott Homa and Jacob Rowden, discussing on the US office sector outlook as well as insights into how the cities that MUST's properties are located in are performing:

<QUOTE>

Dear Media,

Here are three key takeaways we had from yesterday’s ‘MUST Insights: What lies on the horizon for U.S. office?’ webinar, conducted in conjunction with JLL.

Takeaway #1: When will U.S. office recover?

It’s not so much a question of timing as it is of asset quality. With flight to quality, trophy and Class A buildings that were completed recently continue to see strong leasing volume and rental growth. Building quality will be a major driver of office recovery going forward. In addition, an end to interest rate hikes, stabilising loan spreads, clarity on hybrid work’s impact on office demand, and dwindling office supply due to demolishment, conversions and a delay in new construction will help to fuel this recovery.

Takeaway #2: How can we expect office valuations to move this year?

 

U.S. REIT valuations have seen a ~30% decline from their peak. Asset valuations, on the other hand, are hard to generalise with limited data points in the market. Still, there is healthy investor appetite for the top tier of office assets, while some distressed assets have had their valuations beaten down due to several anchor tenant departures and deferred capital expenditure. Valuation movements are highly situational based on specific assets in each micro-market.  

 

Takeaway #3: When will U.S. employees return to the office?

Return-to-office mandates will cumulatively impact ~2.2 million employees in 2023, a third of whom have yet to return year-to-date. The office sector could reach a new equilibrium in two to three years at about 60% of the pre-pandemic office attendance. This transition is already unfolding and reflected in tenant downsizes and space rationalisation.
</QUOTE>

Parting Thoughts

I thought that it is rather interesting to note that the worst be over for the US Office commercial sector if the above analysis by the "experts" are correct. Nevertheless, the main hurdle to clear now is still the selling off of Phipps Tower to lower the aggregate leverage ratio that is bordering on breaching the 50% imposed by the Monetary Authority of Singapore. I thought that MUST management will try to close this before 30 June 2023 but till now, I have yet to see any further developments.   

Investment Portfolios Updates (7 July 23) - S$538K and Projected Annualised Passive Income of S$53K.

The stock markets had a good recovery over the last week. However, my portfolio remains in the doldrum-all additional capital injection over the past 6 months into the SGX seems to be sucked into a bottomless blackhole. I have made some adjustments to the dividend income yield projection listed on StocksCafe for US office REITs by taking a further haircut of 25% to reflect forward dividend returns. (Note: Please also refer to my other Family Portfolio which is projected to yield +S$20K 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.)

The major change here was the selling off of Fu Yu Corp and switching to Keppel Corp  and OCBC over the past 1 month- please read more here: "SGX Listed Fu Yu Corporation No Longer A Cash Cow- 3 Things To Be Wary". I have been building up my position in Keppel Corp, which is similarly undergoing a business transformation, in both my Portfolio 1 and Portfolio 2.

I have also been busy building up additional stakes in Netlink Trust to ensure sufficient diversification away from REITs. 

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.) 

(i) On 5th May 2023, I have sold off all my 16,000 units of holdings in Mapletree PanAsia Commercial Trust @S$1.72 per unit. All proceeds have been reinvested into Keppel Corp. Please read more here: " Saying Goodbye to Mapletree Pan Asia Commercial Trust".

(ii) Added 4,000 units of AIMS APAC REIT during its recent rights issue exercise to finance AEI initiatives. Please see "AIMS APAC REIT Announced Fund Raising For Asset Enhancement And Property Redevelopment- Important Timelines To Take Note".

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

Sold off whatever remains of Fu Yu Corp and partial disposal of Alibaba and switched to DigiCore REIT. Please refer to my previous post on rationale: "US Digital Core REIT- Worst Maybe Over With Unraveling of Stalking Horse Bid by 16 July 2023".

4. Portfolio 4 (Other Investments)- Non-listed Equities+ Endowus

(a) I have added PIMCO GIS Income Fund and Allianz Global High Yield Fund to my existing Fidelity Global Dividend Fund in Endowus to create a "Balanced Fund" portfolio that targets to return distribution of 5.5% yield per annum. This is a 20% equities and 80% fixed income portfolio- the equity component will allow one to still have some upsides in terms of long term capital appreciation from global equities on top of having a high distribution payout on a monthly basis. 

(b) The Endowus Secure Cash a money market fund that is offering a target of 3.7% to 3.9% annual return on cash placed. Withdrawal can be anytime and there is no lock in period. 

(c) The Endowus Enhanced Cash seeks to pay out higher distribution of 4.2% to 4.5% per annum. Have put some funds here also to test run. So far, the return has been worst than the Endowus Secure Cash with negative returns on some days.

Summary

I am extremely disappointed with my Alibaba holdings which seems to have become a value trap and incurring lots of opportunity cost. The only consolation is that I have stopped adding on to it and Alibaba forms only a small portion of my overall portfolios. Nevertheless, I will still be holding on to the remaining Alibaba shares and hope that with the upcoming IPO of the major business divisions, it can finally unlock value for the long debilitated share price.

US Digital Core REIT- Worst Maybe Over With Unraveling of Stalking Horse Bid by 16 July 2023.

The worst maybe over for Digital Core REIT ("DCR") with regard to the default risk from their 2nd largest tenant, Cyxtera, which is under chapter 11 bankruptcy proceedings. US Media has reported that 37 parties had expressed their keen interest in taking over some or all of Cyxtera's assets- out of these, 6 entities have submitted their non-binding Letter of Intent. Moreover, DCR management has stopped their daily Share Buy Back as at 27 June 2023 and the market price of DCR has been surprisingly resilient at US$0.470 to US$0.480 per unit range for the past few trading days in early July 2023. 

1. Cyxtera Expected to Reject Two Data Centres in Amsterdam and Moses to Save US$114Mil

The rather intriguing US Chapter 11 process allows DCR to reject any ongoing contract or unexpired lease with court approval which are underutilised. DCR is widely expected to be rejecting the above data centres to save operating expenses of US$114Mil. To address the elephant in the room, these 2 as aforesaid data centres do not belong to DCR. 

2. Revelation of Stalking Horse Bid by 16 July 2023

A stalking horse bid is an initial bid on the assets of a bankrupt company. The bankrupt company will choose an entity from a pool of bidders who will make the first bid on the firm’s remaining assets. The stalking horse sets the low-end bidding bar so that other bidders can’t underbid the purchase price.

Cyxtera is expected to reveal their chosen stalking horse by 16 July 2023. This should accelerate the recapitalisation and restructuring of the business with a new business owner. Personally, I thought that the probability of the 2nd largest tenant of DCR defaulting on their rental payment has just gone down significantly.

3. Bad Point In That the Market Rental Rate Is Higher Than What Cyxtera is Paying to DCR

If Cyxtera survives the chapter 11 restructuring, this may not be necessary good for DCR. It has been reported that the market rental rate at these properties occupied by Cyxtera is way higher than what they are currently contracted. DCR would have missed out on the opportunity to market out the space to get higher rental reversion as well as to reduce concentration risk of a major tenant.

Parting Thoughts

I have re-allocated my capital with additional S$12K invested into DCR this week as I think that its bearish unit price has bottomed out and I think that many investors on the sideline will re-rate DCR upon confirmation that the bidders for the assets of Cyxtera are real (and not a fragment of one's imagination) on 16 July 2023. Anyway, investment is all about managing the risk & reward and I maybe wrong- DCR may turn into a value trap as disgruntled investors demand a huge risk premium to cushion against future similar "mishap" which has been happening rather frequently since DCR's IPO debut. 

(Note: It is interesting that DBS analyst is extremely optimistic on DCR and has a price target of US$0.90 per unit as at 23 June 2023.)

Dasin Retail Trust Valuation Dropped By 23%-Auto Trigger Breach Of All Offshore Facilities Covenants.

I was stupefied to see that Dasin Retail Trust ("Dasin") announced a trading suspension on 3 July 2023. Upon delving in for a deeper look, I realised that Dasin had also earlier released a valuation report by Jones Lang LaSalle which announced a shocking 23% (-S$350Mil) plunge in fair valuation of its investment properties as at 31 December 2022 relative to FY2021. In FY2021, S$127Mil were already written down. While more and more cans of worms surfaced, I did not expect the end of Dasin to come so soon as the management seems to be able to get special short term extension time and time again of loan facilities from its bankers for the past 2 years. But alas, this 23% plunge in valuation maybe the final straw that breaks the camel's back- it means an  automatic breach of the gearing ratio, interest coverage ratio and loan to valuation ratio which Dasin is obliged to maintain under its Offshore Facilities. 

Worst Not Over

I reckon that the 23% plunge in fair valuation is just the tip of the ice-berg. It was reported in various online media that a number of shopping malls in China are now facing existential crisis despite the re-opening of China post COVID. 

The offshore bankers may finally decide to throw in the towel and press for the liquidation of Dasin to try to recover whatever they could from the bad debt. The fire-sales of the shopping malls portfolio of Dasin may lead to another 50% plunge in valuation. 

Parting Thoughts

If the trading suspension does not get lifted anytime soon, it will mean that Dasin is on its way to face the same tragic fate as Eagle Hospitality Trust. The attempt to raise funds by selling one or more malls has been mentioned again and again by the management of Dasin but no actual corporate action has materialized thus far. It does not help that its Sponsor (Zhongshan Dasin Real Estate Co.,Ltd) is facing financial woes and will be unable to rescue Dasin unlike the case of Manulife US REIT. Worst is that the sponsor & the current manager (Sino-Ocean) are having infighting- law suit has been filed- over the control of Dasin.