SREITs Maybe Overvalued Despite Jumbo Size Interest Rate Cut of 0.5% By Powell.

Wow, what a BIG surprise! The conservative Uncle Powell has finally announced not just a cut in US Federal Reserve rate but a giant size 0.5%. Current US rates now hovers at 4.75% to 5.0%. This is higher than what I was expecting. But still, the recent SREIT price rally maybe overdone. US interest rates will not fall back to the close to 0% in the past unless the US economy crash due to a severe recession. 

Assuming an eventual near term US Fed rate of 3.5% at equilibrium to fight against inflation and also to ensure adequate economy growth stimulation, returns from REITs required for most folks should be at least another 2.5% to compensate for equity risk of holding onto financially strong ones like Mapletree Industrial Trust ("MIT") and Capitaland Ascendas that are linked to Temasek. This will translate to an expected yield of 6.0%. MIT is now trading at 5.3% distribution yield as at 18 September 2024.

While I am still holding on to the SREITs in my current cash and margin portfolios, I have began selling off part of my CPF OA investments in MIT to lock in the recovery and the resultant capital gains at the S$2.50+ range.

Elite UK REIT Entering Into Student Accommodation and Data Centres?

Usually, I tend to stay away from writing any post on Elite UK REIT (“EUREIT”) 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. Having a high concentration risk in mostly one government agency for over 90% of the entire REIT's revenue generation is extremely risky. What is there to stop the government from closing down or downsizing some of its agencies should it meet with financial constraint? EUREIT price has tumbled <-58.8%> from £0.68 per unit from its IPO days to £0.28 per unit (as at 9 Sep 2024) and has done 1 round of equity fund raising to par down leverage during the not too long ago debt crisis (current gearing is at a healthier 41.4%).  

Well, I came across an interesting video and post from Mystocksinvesting.com on an interview with the new CEO of Elite UK REIT, Joshua Liaw. In this interview, the new management team led by Joshua has mentioned that EUREIT is looking at entering into the student accommodation or Data Centre business. While there are question on whether EUREIT has the expertise and financial resources to enter into these segment, I personally think that this is the right step in a new direction taken by the new management team. Joshua has further mentioned that they intend to form a joint venture with those companies that has the right expertise to spearhead their foray into this new frontier. The vision to go into other business sector and diversification from a single major tenant is definitely a plus point. 

Saying that, execution risk of new joint ventures into student accommodation and data centres as well as UK forex losses are other key considerations going forward.

(Note: Another interesting point is that both Joshua and the new CFO, Micheal Tong, are formerly from Lendlease Group).

United Hampshire US REIT Amazing 17.7% Return to Unit-holders Since 30 June 2024.

United Hampshire US REIT ("UHREIT") has delivered an amazing return to unit-holders of 17.7% since 30 June 2024. I was initially extremely disappointed with the plummeting unit price and the ever decreasing DPU over the last 2 years especially during the high interest rate environment imposed by the US Fed. With the softening of hardcore stance by the US Fed Reserve as well as weak US economic data indicating that the US economy is running out of steam, an upcoming rate cut by 17th-18th September 2024 FOMC meeting seems imminent. UHREIT has benefitted from this latest news with a strong rally in its market price over the last 2 months. Please see my video for why I will continue to hold on to UHREIT for now. 

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Oceanus Group Limited and Red-Flag on Strange Loan to External 3rd Party at Incredulous Interest Free Rate.

Oceanus Group Limited just released a very disappointing set of half year 2024 results on 14th August 2024 which revealed a loss of <S$1.17Mil >. This is a hefty 92% worsening of results relative to 1H2023 of <S$610K>. Having years of losses and a mere 5% growth in revenue is one of the red flag indicator that something maybe wrong with its management team. The list of queries from SGX on 22nd August 2024 further add to the uneasiness over its financial health.

Personally, I am a bit spooked by another weird transaction by Oceanus management team. From the SGX query 3, it appears that the management of Oceanus Group has given a S$1.268Mil loan to a 3rd party that is interest free which is honestly absurd. If this 3rd party is so weak financially, why did Oceanus choose to work with it? I am sure there are other vendors out there who can fulfil what they are doing. 

In addition, it is ridiculous to give an interest free loan to a 3rd party and to take up credit risk of default by the external non-related party. This does not make commercial sense at all. Also why not do equity buy-over instead if the platform technology is so unique that the survival of Oceanus Group depends on it?  I am not sure whether it is just me here but do anyone else smell a rat somewhere.... 

Parting thoughts

I am currently vested in Oceanus Group via a small stake of around S$1K as previously I like the growth story sold by its CEO. But seems that there are some "more than meets the eye" stuff going on here. Oceanus Group audit committee should come out to clarify on why their management team entered into something that makes terrible commercial sense.