Trading Halt For Both Mapletree Commercial Trust and Mapletree North Asia Commercial Trust

Trading halt was called since this morning for both Mapletree Commercial Trust ("MCT") and Mapletree North Asia Commercial Trust ("MNACT"). Looks like a possible merger and acquisition involving the two REITs to build up its size for greater synergy? Yesterday, I was trying to buy additional Mapletree North Asia Trust due to its high distribution yield of around 6.5% but was very surprised to see the price keep shooting upwards and have to give up. SGX  regulators ought to do better in preventing leakage of important information from leaking out before major announcements. In the end, I decided to invest the extra cash into Capitaland Integrated Commercial Trust (this is another story that I will share on another day). Let's keep our fingers crossed that Mapletree will come up with some value adding initiative in their upcoming announcement for all investors.

(Note: I am currently vested in both MCT and MNACT).

Dasin Retail Trust On The Verge Of Bankruptcy Declaration? Will It Be Suspended From Trading on SGX?

This is a follow up on my previous post on Dasin Retail Trust ("Dasin") on 18th September 2021 with regard to its debt crisis of S$500Mil since the syndicated bankers were willing to only grant a short term extension of 5 months from July 2021. The day of reckoning for Dasin approaches this week with the bank loan officially being in default on 19th December 2021 if it is unable to secure support from the syndicated bankers. Up till today, there is still no news being released by Dasin's new Trust Manager, Sino Ocean on SGX. Dasin's senior management has been silent since the last announcement made to the public on 7th November 2021 on the change in new Trust Manager. Unit prices for Dasin also dropped sharply and is now near its all time low at S$0.375 per unit in stark contrast to S$0.785 per unit during its peak this year. The silence for so many weeks in the face of imminent loan default is deafening. Are we witnessing the calm before the storm?

1. Taking calculated risk

I am still holding on to my small stake in Dasin Retail Trust as my investment thesis is that since the new Trust Manager, Sino Ocean which took over is a listed company on the Hong Kong Stock Exchange and well-known, the bankers will be willing to grant a long term extension of the due bank loan instead of rolling into a default and proceeding with creditor winding up process. Forced sales of investment properties is not going to be good for all stakeholders. Its current dividend yield is close to +14.2% based on its last unit price of S$0.375 per unit as at 14 December 2021.

2. Liquidation stress testing of realisable assets to repay bank loans and Unitholders

I have written in to the Customer Relation Officer on their website but till now have not received any reply on the status of its bank loan negotiation. In the worst case scenario, we have to assume that the fair value of the investment properties in Dasin's books have been severely inflated. If distressed selling price is at a discount of <-47.3%> of its last disclosed numbers, then this will mean a total loss for current investors-pls see below screenshot for illustrative simulation model. Not impossible given the case of Eagle Hospitality Trust. Also, given that China property debt crisis from Evergrande- if not managed well- may lead to a case of economic meltdown in the entire China market across all sectors. However, I am keeping my fingers crossed that the discounted selling price is at most only 40% off the last valuation in order to recoup back some of the investment costs. 

Parting thoughts

I have no idea how my tiny foray into Dasin will turn out. My investment thesis may turn out to be totally wrong. If so, this will be the 2nd SGX listed Trust (within this 2 years) that collapsed with investors losing all of their investments. The only good thing about Dasin is that the results will be known quickly by next Monday (20th Dec 2021) latest. It will either increase by maybe 50% from good news on renewal of bank loan or be suspended indefinitely due to default of bank loan when the announcement is released.

Please also see my previous posts on Dasin:

1. Will Dasin Retail Trust Go Bankrupt And Be Put On Fire Sales? Annualised Distribution Yield at 12.9% - 18 September 2021

2. Dasin Retail Trust Bounced Back To Life with 22% Valuation Improvement- Will It Survive the Debt Crisis With Sino-Ocean Capital Taking Over As New Trust Manager?- 13 October 2021

Investment Portfolios Updates- S$619k (3 Dec'21)- Equity Portfolios Facing Challenge of Omicron COVID Variant

The stock markets tanked recently due to the Omicron variant. I have sold off 42,000 units of my SPH REITs under my Portfolios to raise cash level at the start of the week. Subsequently, prices of local bank stocks and REITs dropped further and I took the opportunity to buy into more OCBC and Mapletree Industrial Trust while retaining some cash. My investment approach is still primarily an income focused strategy using cash account (Portfolio 1) supplemented by my Portfolio 2 opened with Maybank Kim Eng and leveraging on their Margin facilities-current projected dividend income is +S$44.6K per annum. For me, no point in timing the market by selling a major part of the portfolio as it is better to stay invested in order to continue to receive dividends and not missed out on opportunities such as new M&A announcements.  

1. Portfolio 1- Stocks held in SGX Central Depository

Not much action here except for selling off of SPH REITs to buy into 1,000 OCBC shares while retaining cash of around S$10K here from the sales.

2. Portfolio 2- Margin purchased securities

(i) The past 2 months has been rather interesting. I took a calculated risk with my margin account by buying into SPH shares after the announcement of Keppel Corp proposed acquisition at S$2.01, figuring that the market pricing then at around S$1.90-S$1.93 range, offers the most probable upsides with S$2K in profits expected with the successful completion of the offer. Next, Cuscaden Peak came into the picture to start the bidding war and I closed off my margin position in SPH shares recently to walk away with +S$6K profits (S$2.34 per share exit) as I do not think there will be another 3rd party offer.

(ii) I have reduced my holdings in retails REITs such as Lendlease REIT and SPH REIT. Anti-COVID measures will hit retail badly if the Omicron strain spreads widely.  

(iii) I have also increased my holdings in Mapletree Industrial Trust. I figured that it is prudent risk management to have the backing of strong sponsor like Temasek in the event that the COVID crisis worsen and there is a need for sponsor's cash injection should the property value plummet like in 2008. 

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

However, my venture into China Alibaba continues spiraling downward non-stop with concern over forced delisting by China regulator from NYSE and I am taking a huge hit of unrealised loss of almost <S$9k> from it. I will probably do a short write-up on Alibaba in my next post. 

Basically, I think the fundamentals of Alibaba are still intact despite the crackdowns by China regulatory and the lower growth rate. Just this week, I have invested another 100 shares of Alibaba at a price of HKD121.6 per share. But I think this is the last batch of Alibaba shares that I am buying to mitigate the risk of holding excessive Alibaba stocks.

Parting thoughts

I am looking forward to receiving further dividends in December 2021 for further re-investments. Let's see how the market reacts next week and whether there is further blood-bath due to the Omicron variant. However, personally, I do not think Omicron will be a repeat of the 2020 March crash as current vaccine surely still must have some effects (despite reduced efficacy) on the new COVID strain and chances of world-wide lockdown again is slim. I will continue buying in piecemeal to exploit the current market decline.     

Digital Core REIT IPO- Exercise Some Caution If One is Venturing into This New Data Centre REIT Crusade.

Coming off the heels of the first REIT IPO (Daiwa House Logistics Trust) on the Singapore Stock Exchange is Digital Core REIT. From the many glorious reviews by many bloggers and cornerstone shareholders such as DBS lining up, we can foretell that Digital Core REIT seems to be on its way to a very smooth and successful listing.  Nevertheless, I am not really excited by it and will not be taking part in its IPO- the reasons I will explain towards the end of this post. Let me start by putting a summary background about this second 100% pure Data Centre REIT that will soon be listed on the SGX followed by some quick highlights of its positive traits. Last but not least, prospective investors should take some caution for this data centre investments instead of thinking that US data centres are one of the safest investments out there- I will elaborate more on this point towards the end of this post.  

 

1.Background:

The initial public offering (IPO) portfolio will comprise 10 freehold data centres in the US and Canada with a total net lettable area (NLA) of 1.2 million square feet (sq ft).

Four of the data centres are located in the Silicon Valley, with another 3 in Northern Virginia, 2 in Los Angeles and 1 in Toronto.

Portfolio occupancy is at 100 per cent with a tenant base comprising blue-chip companies including global cloud providers, global colocation and interconnection providers, social media platforms and IT solutions providers.

Weighted average lease expiry of the portfolio stood at 6.2 years based on base rental income for the month of June or 7.7 years by NLA as at end-June. Its distribution yield is expected to be 4.75% for 1st year and increase to 5.26% by second year.

2. Positive traits for Digital Core REIT IPO

The following are the good points I like about Digital Core REIT IPO:

(i). Sponsor is listed on the New York Stock Exchange and well known.

The sponsor Digital Realty is listed on the NYSE and is well known for its development and operation of data centres. Digital Realty was even involved with the sales of its data centres to Mapletree Industrial Trust in early January 2020. So in a way, we can see the footprints of Digital Realty in Mapletree Industrial Trust.

(ii). Alignment of Sponsor's interest with Digital Core REIT

Post-IPO, Digital Core REIT will have right of first refusal (ROFR) to a potential pipeline of over US$15 billion of data centres - both existing and under construction. Similar to the initial portfolio, the sponsor intends to co-invest in 10 per cent of each of Digital Core Reit's future acquisitions.

(iii). Significant debt headroom of US$596Mil for future acquisition

Digital Core REIT is expected to have an aggregate leverage of 27 per cent as at the listing date -significantly lower than its peers - giving it a debt headroom of up to US$596 million. This means room for taking on cheaper financing from bank borrowings to get a higher return for unit-holders. 

3. Points to exercise caution before diving into this IPO

Despite the positive traits as aforementioned, I do have some serious reservation about jumping into this IPO:

(a) Withholding tax regulatory risk-30% downside risk to distribution yield

The problem with holding SGX listed REITs with US properties portfolio is the ever present significant risk that the US favorable tax rules for overseas REIT may be changed overnight and withholding tax may be applied which will reduce distribution by a hefty 30%. Many years ago in 2018 (if I recalled correctly), there was a big hoo-ha with Keppel-KBS US REIT as well as Manulife US REIT where their unit price crashed overnight due to uncertainties over the tax holding structure while pending clarifications from the US IRS. I reckon that the current high yield factors in the risk premium from changes in regulatory tax risk.

Anyway, the current approved tax planning always structure a shareholder loan extended to the US entity holding on to the properties and then charging an interest as a form of tax shield. The main way to repatriate profits will thus be via capital distribution via the return of the loan. 

For those interested to understand more about the current tax structure to mitigate US withholding tax for US properties, please refer to my previous post on "Are The Distributions From Manulife US REIT (MUST) Sustainable? Clarifications from MUST's Investor Relation Team".

So, imagine if Digital Core REIT is caught in any such changes to tax regulation, its already low distribution yield of 4.75% will plunge to a miserable 3.33%. The low yield does not seemed worthwhile to undertake the risk especially with such a significant concentration of properties in the USA only.

(b) Worst market timing to choose for IPO- Pure bad luck to be caught with COVID Omicron variant

With stock markets dropping for the past 2 days in particularly with Moderna CEO scaring everyone with his comments that current vaccines will most likely be much less effective against Omicron variant, this is one of the worst possible time for Digital Core REIT to IPO. There are a lot of other alternative investments out there to exploit the sharp drop in stock prices. You can buy into banks or if you are into data centres can snap up Keppel DC REIT or Mapletree Industrial Trust to diversify away the over concentration risk with excessive properties holdings in the USA. 

Parting thoughts:

I have decided to give the Digital Core REIT IPO a miss given that I am really not comfortable with the US regulatory tax risk vs the low distribution yield on offer of only 4.75%. My personal preference would be to take advantage of the numerous opportunities that arises during the current stock markets sell-off. For those subscribing for the IPO of Digital Core REIT, please note that the public offer will end at 12pm on 2nd December 2021 (Thursday) and publicly commence trading at 2pm on 6th December 2021 (Monday). 

Keppel Corp And Cuscaden Peak Got Whacked by SIAS Over SPH Offer.

The Securities Investor Association ("SIAS") has again stood up for retail investors by questioning the big boys Keppel Corp and Cuscaden Peak over their offer for Singapore Press Holdings ("SPH"). Talking about SIAS means also talking about Mr David Gerald, the original founder and president of SIAS. I recalled meeting the man himself over a decade ago while doing my Final Year University Project on Corporate Governance and interviewed him. He is a good man who is passionate in his drive to help retail investors. I recalled his request to my project team members then to join the SIAS as he needs "younger blood" as he is worried about the continuity of SIAS. I have utmost respect for this man. Back to the Singapore Press Holdings epic drama. SIAS has raised questions to both Keppel Corp and Cuscaden after feedbacks from retail investors:

1. Letter to Keppel Corp Senior Management
(i) Mr Gerald's letter to Keppel Corp questioned why Keppel is making it so urgent for SPH shareholders to cast their votes. Keppel had mentioned that the sooner the scheme is approved, the better it is for SPH so as to reduce any further uncertainty and instability for its various stakeholders and preserve value. 

SIAS shot back at Keppel by asking what does Keppel mean by "Uncertainty and instability" and raised the points by some retail investors that it would be fairer and easier for them to make a decision if both offers could be considered at the same time.

(ii) Keppel Corp also got shot a second time when SIAS raised another query on why is it beneficial for existing shareholders to receive Keppel units that trade at a discount to net asset value and why are SPH shareholders asked to trade their exposure to the current SPH assets for commercial properties owned by Keppel REIT. 

Personally, I think that Keppel Corp is only thinking for itself on how it can conserve cash else they would have given a cash option like what Cuscaden is offering right? But they are caught in a predicament as Keppel cannot openly admit this else it will be tantamount to saying "screw" the current SPH shareholders, we just want to minimize our cash outlay for this deal.

2. Letter to Cuscaden Peak

Cuscaden Peak (consortium made up of hotelier Ong Beng Seng, Capitaland and Mapletree) were not spared the hard questions. I think it is funny, as a matter of fact, the way SIAS did not mince their words.

(i) Firstly, SIAS raised a very good question on if Cuscaden's bid were to succeed, what is its long term plan for SPH REIT? Well, Cuscaden has been very quiet on this aspect.

(ii) Secondly, SIAS questioned the strange chain offer for SPH REIT made by Cuscaden of S$0.964 per unit given the last trading price of S$1.01 per unit as at 22 Nov 2021. The chain offer becomes lower than the recent market price? Does not make sense right? Do "surface job" must also do better right?

Parting thoughts

Market pricing hovers mostly at S$2.34 per share (after Ex-Dividend) despite the Cuscaden offer of S$2.36 in full hard cash. Probably market is pricing in uncertainties over whether all the regulatory approvals for the deal will go through. For myself, I have sold off part of my SPH holdings to take some profit while waiting for further drama to unravel and settle down. Looking forward to the replies by Keppel and Cuscaden to SIAS.

Daiwa House Logistics Trust IPO- 3 Reasons Why I Am Staying Away From It.

The talk of the town recently is on the IPO of Daiwa House Logistics Trust ("DHLT"). Although I see a number of good reviews on it, personally, I will neither be taking part in its IPO nor buying any units post IPO (unless its price plummet to justify a higher distribution yield of at least 7.5%). I will do a quick background introduction of this new SGX REIT and then state the 3 reasons on why I am staying away from it.  

Some background on this new IPO on SGX this year

DHLT is a Singapore REIT established with the investment strategy of principally investing in a portfolio of income-producing logistics and industrial real estate assets located across Asia. The initial portfolio of DHLT (the “IPO Portfolio”) will comprise 14 high quality modern logistics properties in Japan with an appraised value of approximately JPY 80,570.0 million or S$952.9 million and an aggregate net lettable area (“NLA”) of approximately 423,920 square metres (“sq m”).

Three reasons why I am staying away from DHLT:

There are some points that I do not feel comfortable when it comes to DHLT. 

(1) DHLT is supposedly from a renowned sponsor Daiwa House Industry Co Ltd which is one of the largest construction and real estate development companies in Japan.

It is stated that the sponsor Daiwa House Industry Co Ltd is one of the largest real estate developer in Japan. In addition, it is also listed on the Tokyo Stock Exchange. Unfortunately, I am not familiar at all with Daiwa House. This is different from property groups like Lendlease listed on the Australian Stock Exchange. I will prefer to monitor its financial performance  for some time first before taking up a small stake in it for diversification. 

(2)  Some reviews reported that DHLT is a Japan-focused logistics REIT. This is not true.

DHLT is not a pure Japan-focused REIT. The sponsor intend to recycle its Indonesian, Malaysian and Vietnamese properties via DHLT in the near future. I do have personal doubts on the quality of such overseas assets. It gets very tricky when we deal with such overseas market properties. Not every REIT has the expertise of long standing groups like Mapletree. Will unit-holders end up with the shorter end of the stick?

(3) Will the REIT do well in rental collection in the face of deflation challenges in Japan's economy

The current property bubble and debt crisis in China reminds me of the same for Japan back in 1990s. Japan's "Lost Decade" was a period that lasted from about 1991 to 2001 that saw a significant slowdown in Japan's previously bustling economy. The Japanese's battle with deflation and the liquidity trap is a long drawn one that unfortunately still affects Japan even today. 

Parting thoughts on this IPO
For now, I think I will be staying away from DHLT as alluded to my discomfort over the 3 points listed above. Note that DHLT public tranche subscription will end by 24 November 2021 (Wed) 12pm. The REIT will commence trading on 26 November 2021 (Friday) 2am. Will this IPO flopped upon 1st day of trading or will it rise sharply? 

Cuscaden Peak's Superior Counter Offer For Singapore Press Holdings at S$2.40 Per Share- Goodbye Keppel Corp!

Good riddance to Keppel Corp's previous offers. Cuscaden Peak (the consortium making up of Ong Beng Seng, Capitaland and Mapletree) made a superior counter offer for Singapore Press Holdings ("SPH") today. During my last post, I mentioned that Cuscaden Peak may just trump Keppel's offer of S$2.351 per share (mixture of cash and Keppel & SPH REITs in specie) by 0.1 cent only and shareholders should not be too surprised- well, it turned out to be  way above expectation afterall as the current counter offer price on the table is S$2.360 per share (all cash) which is almost +1 cent more. I had enough of Keppel Corp's offers which were always a "hybrid" consideration of cash and REITs units. The market price of SPH, after every one of Keppel's offer, fell way below the fair value consideration.  

Moreover, Cuscaden Peak is extremely generous and provides another option for shareholders who preferred some SPH REITs to be distributed as part of the offered consideration so that they can participate through SPH REIT units in recovery upside of the retail real estate sector while receiving a significantly higher cash component than has been offered in the Keppel Scheme. 

Cuscaden's offer of 2 options to SPH Shareholders are vastly superior to Keppel Scheme.

1. Strategic mistake by Keppel Corp in their bid for SPH.
First and foremost, I think that Keppel Corp management should not have made it clear upfront that their offer of S$2.351 per share is the last and final offer. Keppel Corp may have underestimated Cuscaden Peak's deep pockets. By making a statement that they have already made a final offer, it motivated Cuscaden to just tip the bar over a little to easily trump their bid. Anyway, this is water under the bridge. 

Ultimately, Keppel Corp will walk away with S$35Mil breaking fees from SPH. After paying off legal and financial advisory fees, I expect Keppel Corp to retain a substantial part of the fees for future working capital or for special distribution to shareholders. Keppel Corp share price should shoot up once the trading halt is removed. My sense is that most of Keppel Corp retail shareholders frown upon the SPH deal in the first place. 

2. What does SPH senior management have to say about the current 2 offers on the table?

Subject to the IFA opinion and in the absence of a superior competing offer, the preliminary recommendation by the SPH Independent Directors is that SPH shareholders should vote down the Keppel Scheme and vote in FAVOUR of the Cuscaden Scheme.

Vote down Keppel Scheme first and vote for Cuscaden Scheme later

Also, SPH shareholders should take note that unlike the Keppel Scheme which is still subject to its shareholders' approval, the Cuscaden Scheme does not require the approval of Cuscaden's shareholders. All regulatory applications have been made the deal is expected to be fully completed in February 2022.

3. Other points for SPH shareholders to take note 

Shareholders who need cash and want to cash out immediately should take note that the ex-dividend date for the SPH S$0.03 per share dividend is on 22 November 2021 (Monday). 

So, if trading halt is removed and the price of SPH hits at least S$2.39 (S$2.36 offer + S$0.03 dividend) per share, then SPH shareholders can consider selling off.

On 22 November 2021, if the price of SPH is at least S$2.36 per share, then SPH shareholders can consider selling them off.

From 16th November 2021 to 21st November 2021, I expect the trading price to range between S$2.39 per share to S$2.43 per share. The worst case scenario would be that the price per share lingers way below S$2.36 per share but shareholders just have to hang on and wait till February 2022 for the deal completion to realize the full S$2.36 per share.

SPH's investment property-Seletar Mall at Sengkang Fernvale

Parting thoughts

I do not think that there will be a 3rd competing bidder at this stage since the price per share of SPH has seen such a huge jump over the past few weeks. With the transfer out of its Media business, SPH remaining property business has also come to a quick end. I think that shareholders should take this opportunity to cash out of SPH and let professional property management veterans take over the business. Alternatively, the only other option left is to vote down everything and let SPH continue its business under its current CEO....not exactly an ideal or rational case are my personal thoughts.

P.S: Fellow SPH shareholders, please share your views and thoughts on the Cuscaden Peak's new offer. Will you sell off immediately after trading halt is lifted to reduce further market risk or wait it out for a "counter-counter" offer albeit low probability? 

Please also see my previous posts on this:

1. Keppel Raises Counter-Offer Bid of SPH to S$2.351- Three Things Shareholders Need To Watch Out For And Not Drawn By Clever Marketing (10 Nov 2021)

2. The Keppel Corp and SPH Deal That You Need to Be Careful On- NOT Done Deal Yet. (8 Aug 2021)