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.