The Rise Of DeepSeek That Does Artificial Intelligence at a Fraction Of Traditional AI.

Wow, the China developer of DeepSeek managed to setup and train its latest generative Artificial Intelligence ("AI") model at only US$5.6Mil relative to ChatGPT's US$100Mil which is just a fraction of its setup cost. Just when some folks were wondering whether this is a fake claim, the other shock that comes out is that it is open-source and anyone can just look in and see for themselves. 

This startling relevation will bring about chaos in the global stock markets for this week. Looks like AI sytems can be designed using cheaper Graphic Processing Units ("GPUs"). This is certainly not a too happy relevation for Nvidia and its stock price may decline while Advanced Micro Devices (AMD) GPUs may now be marketed as a serious and viable alternative to the faster GPUs from its rival Nvidia. Hopefully, the popular AI theme stocks do not decline too much else it may affect the overall global stocks markets. 

(Updated 28 Jan 2025: The bloodbath from DeepSeek threat wiped out US$1 trillion from worldwide Tech stocks with Nvidia valuation dropping by a whopping US$600 billion (-16.8%) overnight. Even SREITs with data centre focus theme such as Mapletree Industrial Trust , Keppel DC REIT and DigiCore REIT were not spared and saw a significant dip of -2.73%, -7.93% & - 6.03% respectively in a single day.) 

The Sabana REIT Disaster and Chaotic Infighting- 溏心风暴!

The latest fiasco revolving around Sabana REIT is an ex-director and unit-holder, Charlie Chan Wai Kheong, has made a requistion for an EGM after gathering support of several other unit-holders to have the minimum more than 10% holdings. Makes one wonder whether ESR is one of the myesterious unit-holders in support of Charlie given his close relationship and past dealings with them. The main essence of the agenda is to make the Manager of Sabana REIT undertake a sale discovery process for the market value of the investment properties held as a precusor to a sale. According to Charlie, the sales of all the major assets of Sabana REIT will offer the best return to all unit-holders instead of the current manager internalisation exercise which has already incurred additonal expenses of S$10.2Mil. For the fun of it, Charlie Chan had previously been rejected from his proposed nomination into the Board of Directors in 2022 AGM. Quarz Capital, an institutional investor who was leading a dissent against Chan’s appointment, had long pointed to potential conflicts of interest given his substantial stake in AIMS APAC REIT and given his prior business dealings with ESR Cayman. 

This means that the requested EGM will add further complication to the already ongoing tussle and further distract the management from its main business of running Sabana REIT.

1. Price Discovery Request Not At All Bad- Depending on One's Entry Price

The current market unit price of Sabana REIT is trading at S$0.370 per unit as at 20 January 2025 while tangible book value per share is at S$0.520 per unit. This is an almost +40% upside if the price discovery process turned out that there are willing buyers who can pay as much as what the valuers are forecasting and offer a good opportunity for all unit-holders to to exit their investments. But don't be too surprised if ESR Group turned up to be one of the buyers. They have been eyeing on the investment properties of Sabana REIT for a long time and very nearly got away with a good bargain price before Quartz came into the picture to frustrate their efforts. Personally, I thought that Quartz and ESR are eternal rivals and the current tussle for control is far from over.

2. Valuation Reports Done and Price Discovery Process Request Can Be Very Different Creature Altogether.

Another point to note is that the valuation done during the financial year end by management and relied on by external auditors is just an abstract and assembly of valuation techniques. It can be as simple as a present value of all future rental income forecast over the expected life of the properties or just an adjustment of parameters of another similar propery in the vincinity to derive a market value. But this year end valuation report may not reflect the exact realisable value and thus a totally different creature relative to the price discovery requistion from Charlie.

For example, there were a lack of buyers for US Office Commercial real estates as banks were unwilling to lend them funds for acquisition even if the valuation appears to be high.

Parting Thoughts

Personally, I thought that the current fiasco will only further distract Sabana REIT's management team from focusing on the running of the business and ongoing internalisation exercise. All stakeholders will be equally worst off. Nevertheless, being listed means that one has to respect the wishes of all other unit-holders who maybe having second thoughts on the initial support for internalisation and wanted a quick exit strategy.

First REIT Announced Major Tenant Buying Over Hospitals- The Art of Destroying Unit-Holders Value.

In August 2024, it was announced in media that Indonesian conglomerate Lippo Karawaci has officially sold most of its stake in local hospital chain Siloam International Hospitals to CVC Capital Partners, which has become the majority stakeholder. Following hot on the heel of this major acquisition, the new owner, CVC Capital Partners, has made another offer to buy over the physical buildings from First REIT where their hospital businesses are being operated. Siloam makes up approximately 39% of First REIT annual rental income which makes this upcoming deal a major one. First REIT has a very interesting history and I was once vested in it. It used to trade at S$1 per unit and then got thrown under the bus by its sponsor, the Lippo Karawaci group to become its current sorry state. Let me recap below.

History of First REIT being run to the Ground by its Sponsor and Management Team

In 2020, Lippo Karawaci plans to default on the rental income support for Siloam hospitals stipulated in the rental agreements. The sponsor has cleverly crafted it as a "rental restructuring" instead of a planned default. Since the "rental restructuring" forced down on retail unit-holders, First REIT market unit price has collapsed from its glorious day of S$1 per unit. 

The subsequent rights issue exercise at 50% discount off its last traded market price of S$0.405 per unit as at 24 December 2020 sunk First REIT into oblivion. For those interested, can read my previous post here:

"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."

2. Is this deal good for Unit-Holders?

We have to await further news from the acquirer, CVC Capital Partners, on their exact offer package. But since the ulitmate owner, Lippo Karawaci, already "signalled" abandoning the Siloam ship, it seems that First REIT will most likely be selling it off and then buying other medical properties or nursing homes with the sales proceed.  

My guess is its current direct Sponsor OUE Healthcare (related to Lippo Karawaci), will start to inject and monetise some of its assets into First REIT given the sales proceed from the sales of Siloam hospitals. Whether you like or dislike the properties owned by OUE Healthcare is another issue. 

Parting Thoughts

I will not be surprised if Lippo Karawaci starts to throw unit-holders of First REIT under the bus again with the kick off of the disposal exercise relating to the Siloam assets. In the meantime, the poignant saga continues. Strange that there are finfluencers who are recommending First REIT as a good buy since medical REITs cashflow are deemed resilient in nature- but from what happened during these past 4 years, I am highly skeptical of such assertion. 

Is US Commercial Office Recovering Or Crashing in 2025? Hope or Depression for Manulife US REIT, Prime REIT and Keppel Pacific Oak REIT?

Is the US Commercial Office recovering or going to crash further in 2025? I guess the answer is it depends on who you are asking this question. Long suffering unit-holders of Manulife US REIT, Prime US REIT and Keppel Pacific Oak US REIT have seen their investments pummeled to just a tiny fraction of their original investments. Worst still, distributions have been cut or halted for a long time. On one hand, the higher interest rate environment effect is still ongoing even in 2025 as some office landlords need to refinance their previous locked in offices loans at the current higher rates. On the other hand, there are lesser office supply coming online as well as surge in conversion of office into residential uses which lead some to believe that 2025 will be the market bottom for the US Commercial Office sector hence a rebound is imminent going forward.  

1. The case for market crash of US Office REIT in 2025 and recovery only from 2040.

The Straits Times on Nov 21, 2024 has published an article that has a forecast by Capital Economics that United States office buildings are unlikely to regain their peak pre-pandemic values until at least 2040 as demand for desk space weakens. It further mentioned that values of these offices are expected to plunge by 35 per cent from the peak by the end of 2025 and take an incredulous 15 years or more to recover! This seems to be an extremely pessimistic view. This is also in total contradiction to the view of CBRE and Jones Lang Lasallee. 

2. The case for belief that the US commercial office market has bottomed in Q4 2024.

I thought that the global real estate and investment managmeent group of Jones Lang LaSallee USA ("JLL") has gathered pretty interesting hardcore statistics to back up the case that US office market has bottomed in Q4 of 2024 and that 2025 may see the start of recovery of the office market. One can read more of it here for their report.

<Quote from JLL>:

The culmination of 2024 marked another key development in the recovery of the U.S. office market—as leasing activity has accelerated over the course of the year, Q4 was the first quarter of positive net absorption since Q4 2021, and just the second quarter of occupancy gain since the onset of the pandemic in 2020. Leasing activity has established post-pandemic highs for the past three consecutive quarters, and Q4 volume reflected more than 92% of pre-pandemic averages. 

</Quote from JLL>

Demand has returned to pre-COVID with Net absorption positive in Q4 2024.

Supply Reduction & Employer Pressure Return to Office

US Office Supply Reduction via Conversion of office to residential, revedopment and Demolition

Parting Thoughts

Personally, I though that the US Office market has bottomed given that Q4 2024 positive net absorption confirmed the Q3 2024 signs of rebound with the shifting patterns of office attendance and US Fed interest rate cuts in September 2024 and November 2024 driving slightly more favourable conditions for US office landlords. Nevertheless, I do not think it will be an instant recovery in 2025 and may take a few years for recovery. So US office REITs are not out of the wood yet. I have continued to hold my stakes in Keppel Pacific Oak REIT but will not be adding more units. I do hope that once Elon Musk and his Department of Government Efficiency start axing many US government employees that are stubbornly still working from home albeit the lack of productivity, it will send a message to the private sector employees to get back to office to work- the US office market may recover strongly in 2025 onwards if this is the case. 

Central Provident Fund Personal Updates 2025- Moving Towards Enhanced Retirement Sum Using Special Account.

Time to document my CPF retirement goal update. I will only be sharing my CPF Special Account here as I find the balances in the CPF Ordinary Account ("OA")  and Medisave account are irrelevant for my retirement income planning. Reason being that for CPF OA, amount here will eventually be fully utilised to pay down my housing mortgage as I do not plan to work till age 65 years old and targeting an early retirement. As for Medisave, my parents do not have much medical insurance coverage and I think that I will most likely exhaust all the balances here into their future healthcare. I have seen my cousins Medisave being drawn down to zero for medical expenses for medical payment on behalf as their parents similarly do not have much health insurances or sufficient medisave-this issue always reminded me of the Sandwich Generation video from Income Ltd in 2019.

1.Target for Future Retirement Account

Currently, my special account has a balance of S$266K as of 2 January 2025. My personal CPF special account target is for it to reach S$426K (based on the new 4 times basic retirement sum 2025). Even thought I think I can only achieve 3 times basic retirement sum, think it is good to have a higher benchmark target of S$426K. 

2. Interest Income- S$10.8K for Special Account

Hopefully, our Singapore government maintains the 4% risk free rate for all CPF holders for the next decade. With a passive S$10.8K of interest income being credited, this effectively mean at least another S$100K growth in the CPF Retirement Account every 10 years.

Parting Thoughts

I think that it is hard to beat a risk free 4% offered by the CPF board backed up by our Singapore Government. So I am contended to just let it grow gradually by itself instead of taking out for balanced fund investments albeit very tempted at times to do it. I will do my own retirement planning properly....I will be the last Sandwich Generation!