Manulife US REIT Rescue Plan Status and The Fallacy of Equity Fund Raising For US REITs.

 

Interestingly, Manulife US REITS released an announcement and a presentation deck with regard to the CGS-CIMB US REITS Webinar  on 10th October 2023. It contained the latest status updates regarding the myriad of issues besieging Manulife US REITs. While I see no further new information (other than those we already knew) from this particular release, the market price of Manulife US REITs has surprisingly increased by a significant 9.62% immediately a day after the announcement......

Please see video on my YouTube Channel.

Singtel Finally Managed To Divest Cash Burning Cybersecurity Division For US$205Mil.

Singtel has finally found a buyer for its cash burning Cybersecurity business of Trustwave. It has agreed to sell Trustwave to MC2 Titanium (growth equity fund of the advisory firm The Cherloff Group) for US$205Mil. Singtel had purchased Trustwave for an astounding US$770Mil in April 2015. This is now half a billion dollar losses in terms of investment capital. If we take into account the losses retained since 2015 M&A, Trustwave has burnt a big hole in the treasury chest of Singtel ever since the acquisition. 

Back in 2015, while I was still working in Singtel Group, I could still vividly recall this much talk about "strategic acquisition" of this new business which is supposed to catapult Singtel to become a global player in Cyber Security.  This is meant to expand Singtel’s existing portfolio of cloud based solutions and further entrench its leadership position in the managed services market. Singtel will leverage Trustwave’s threat intelligence, technology and talent to meet the growing demand for always-on managed security services in North America and the Asia Pacific region. However, no one knew that this venture was destined for failure and became a white elephant. 

Parting thoughts

I am pleasantly surprised that some industry player is willing to part US$205Mil to buy this piece of cash burning business and attempt to turn it around. With this disposal, the balance sheet of Singtel will become even stronger. 

Anyway, I am looking forward to Singtel latest re-organisation where it has crafted out its local and regional data centre businesses  as a standalone infrastructure unit. Singtel seems well positioned to unlock latent values in this new engine of growth.

Investment Portfolios Updates (29 Sep 2023) - S$551K and Projected Annualised Passive Income of S$51K.

The stock market continued its horrendous game of Yo-yo with the US Federal Reserve threatening more interest rate hikes and the stock market tanked with the news earlier this week. Even the bond market is not spared. So buy equities or buy bonds one will still get whacked hard these days. September 2023 has been a good month as I finally received dividends payout of S$19K which I used to invest in Keppel Corp and also to purchase more balanced funds from Endowus platform. Overall, net asset value stands at S$551K and a projected passive income of S$51K as at 29 September 2023.

(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.)

I have continued investing into Keppel Corp when its prices fall to S$6.75 per share. The much anticipated EGM for Keppel Corp has been announced and it will be held in October 2023. Special dividends in the form of Keppel Office REIT units will be given to existing shareholders once it is approved by shareholders.

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.) 

(a) I have earlier sold off all my investments in Manulife US REIT ("MUST") in late July 2023 and re-invested the proceeds into Keppel Oak US REIT. No choice but to bite the bullet as MUST is unable to pay out dividends due to a breach of bank covenant and it seems that MUST is entering into its final death spiral;

(b) Additional purchase of 5,000 units of Mapletree Industrial Trust at S$2.22 per unit on 7 August 2023;

(c) Also bought into additional 1,000 shares of OCBC at S$12.22 per share on 22 August 2023 as I think that its management strategy of focusing on growing its wealth management business will enable OCBC to do well for its future;

(d) I have also paid off S$8K of margin loan using dividends received in September 2023 to reduce interest expenses and also leverage ratio.

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

(i) Sold off all my DigiCore REIT to take profit at US$0.575 per unit. Have bought back 13,000 units when its price began to drop;

(ii) Despite the Manulife US REIT financial woes due to downturn of US Commercial office sector, I have re-entered into this REIT for speculative purpose over 2 tranches at US$0.60 per unit and US$0.45 per unit. Anyway, this is just a tiny stake to earn some spare change for a buffet dinner in the event that MUST management managed to save it. This also reminds me of Barista Fire's recent rather interesting posting on gambling mindset "When Investing Becomes A Dangerous Mistake" ;

(iii) Have also purchased small stakes in US Utility provider Nextera Energy when its price dropped steeply. Also entered into Mercury Systems Inc in US market. Mercury is in the defence technology and equipment sector.

4. Portfolio 4 (Endowus & Other Investments)

(a) I have began investing 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

I have began building up more exposure to bonds using Endowus balanced funds to further diversify away from my excessive exposure into equities. I believe that bond funds should benefit from capital appreciation next year once the interest rates are being cut by the US Federal Reserve. 

Maybe Management of Manulife US REIT Should Learn From EC World REIT To Call For Trading Suspension?

I thought that it is rather interesting that the management of EC World REIT ("ECW REIT") extended their trading suspension until they have more concrete action plans and updates pertaining to their current financial crisis. The management of ECW REIT believes that it is in the best interest of unitholders for the dealing in its units to remain suspended. Maybe the management of Manulife US REIT ("MUST") should have applied for a similar trading suspension until they managed to conclude their major office building sales to its sponsor, The Manufacturers Life Insurance Company (Manulife)? Anyway, this is on hindsight. We can see that MUST has crashed another <-14.6%> last week to languish at US$0.041 per unit as at 22 September 2023. It has been amazing how MUST shot their own foot with the re-valuation of properties at half year and then positioning itself for a fire sales of its investment properties at the trough of the US commercial office crisis.

Do you folks think that MUST can avert its current death spiral or is this its last swan song?

Lendlease REIT Offering Attractive 8% Distribution Yield- But Will Not Be Touching It For Now.

Lendlease REIT ("LREIT") unit price has been a disaster for over the past 1 year. From S$0.810 per unit to the current S$0.56 per unit, this is a <-31%> plunge in its market price in a mere 12 months. With a half year distribution of S$0.022453 annualized, this implied an 8% distribution yield. While I would love to add on to LREIT at its current weak unit pricing, there are a few worrying points that is making me hesitate to do any further accumulation. Let me elaborate further below: 

1. Rights Issue Maybe On The Table Due to Further Acquisition of Parkway Parade

LREIT has recently purchased a 10% stakes in Parkway Parade Shopping Mall. A rights issue maybe on the way for it to acquire more stakes or to takeover the remaining stakes. If the price of LREIT continue to remain in doldrums for some time and LREIT’s management called for a rights issue, the rights issue price is obviously going to end up 5% to 10% lower than its recent trading price per unit. In short, its unit price performance might worsen even more. 

 

2. LREIT Already Make Up A Substantial Part of One’s Portfolio

LREIT is currently making up 8% of my overall combined portfolios. For those folks who are in the same predicament as mine, accumulating more units in LREIT may mean even higher concentration risk. For example, black swan event like COVID hit retail malls extremely hard. 

In addition, as alluded to Pt 1, once there is a rights issue, existing unit-holders will need to take part to avoid dilution in their holdings.

3. LREIT Gearing Ratio Exceeded 40%

LREIT’s gearing ratio has hit an uncomfortable 40.6% as at 30 June 2023. In the event that the World entered into a global recession, this may lead to sharp drop in property valuation and in turn leads to breaches in MAS regulatory requirement or banking covenants.

Parting Thoughts

Personally, the S$0.56 per unit pricing as at 18 September 2023 and 8% distribution yield seems rather attractive coupled with the upcoming completion of the redevelopment of Grange Road open air car park into a multi functional event facility as well as having a long list of potential M&A pipelines from its Sponsor. Nevertheless, as aforesaid mentioned, I will probably re-deploy excess funds on hands into Endowus fixed income funds instead to ensure sufficient diversification.

DigiCore REIT Price Rebound Again- 15% increase in 2 months.

DigiCore REIT (“DCR”) has a strong rally during September 2023. There was an announcement by DCR Management team that DCR will be included in the FTSE EPRA Nareit Global Developed Index from September 15, 2023. This may have sparked the recent rally in its unit pricing from US$0.505 as at August 1, 2023 to US$0.580 as at September 8, 2023. In addition, the risk of major tenant Cyxtera entering into default and bankruptcy seems to be fading. 

Will DCR Break the US$0.60 Barrier Soon?

I am optimistic that DCR will be able to hit above US$0.60 next year once the interest rate start coming down. Nevertheless, I have sold off part of my holdings (26,000 units being disposed) of DCR at US$0.575 to immediately realize an overall profit of +22.3% for these recently acquired units. I have acquired these units when DCR slumped to the US$0.43- US$0.48 range during the 1st half of FY2023. I do not like DCR as its financial performance has not been stable and as a matter of fact, giving unit-holders many heart-attacks since its IPO. 22.3% profit is equivalent to earning dividends over a 3 year period at 7% per annum. 

Parting Thoughts

On the risk of default of its major tenant Cyxtera, things are looking well from the Chapter 11 proceedings with no lack of suitors. Brookfield and Digital Realty are reported to be interested in acquiring the assets of Cyxtera. I am still holding on to 38,000 units of DCR as I think that there should still be further capital upsides despite the not so ideal performance of DCR since its IPO listing. 

Manulife US REIT Offices On Firesales- Price Dropped Another 19.1% Within A Week And Catching a Falling Knife.

Manulife US REIT ("MUST") has not yet being liquidated by bankers or creditors but it sure looks like a self-imposed liquidation at firesales price is underway for its office assets. It is a sad day for all MUST unitholders as the price plunged by another -19.1% from US$0.068 per unit (last week) to US$0.055 per unit as at  noon of 6th September 2023. The only piece of news I found online dated, 29th August 2023, was that MUST is trying to sell its Michelson Tower office property at discounted price to its last year valuation which may have lead to a knee jerk reaction. For a REIT facing structural demand issue and a breach of banking covenant, MUST has no choice but is forced to sell its investment properties at a heavily discounted price at the worst possible timing. 

1. Worst Fear Confirmed- Firesales On The Way

The free fall- despite no announcement made by MUST- is most probably due to worsening expectations that the write-down in fair value of its investment properties is not over-and this is "confirmed" with the above-mentioned news coming out that MUST need to write down another 26% of Michelson Tower.

The only good news here is that the lowered down price of US$256Mil for Michelson Tower is actually already factored into its financial statements and valuation as at 30 June 2023.

However, it seems that investors further expect its office properties to fetch a fraction of its last valuation exercise at at 30 June 2023. Firesales may mean that investors may not get back a single cent after the bank loans and other creditors have been cleared. Please see below for some financial simulation using MUST financials as at 30 June 2023.

2. Financial Simulation

If we take another 26% discount off the investment properties valuation as at 30 June 2023, it will appear that its residual value per unit is still at a high of US$0.172 per unit. Based on its current market price of US$0.055 per unit, investors seems to be expecting a firesales of MUST office properties by another -39.2% (a further drop of -US$640Mil). 

I have re-taken up a small position of USD114 with 2,000 units as I think it should at most drop by one-third after the drastic cut in valuation as at 30 June 2023. My own target price of MUST is US$0.107 per unit. Saying that, for fire-sales of assets, it can drop by more than 50%. Do note that any decline of more than 45.4% in valuation of its investment properties will render MUST worthless. 

Parting Thoughts

The lack of formal SGX announcement and updates on the sales of properties to Sponsor is worrying indeed and some adverse news released recently on media such as the Michelson Tower case may have lead to a total loss of faith in MUST and its sponsor. For those who have more news or other updates on the MUST restructuring, please do help to add on.