Federal Reserve To Increase Rates Again To Combat Inflation- Will Stock Markets Crash Again?

Now this is bad, US job data are better than expected (Non-farm payrolls increased by 517,000 for January, notably above the 187,000 additions estimated by Dow Jones) and US wage growth are at 4.4% which is higher than the inflation target of 2%. Other US economic data are also on the rise. Will the Feds reverse their recent down shift in rates increase back to giant size of 0.5% or 0.75%? The elephant in the room would be will the Singapore Stock Exchange market crash again after the recent recovery in view of higher and uncertain terminal rate? 

For Q1 of 2023, I have S$18.8K of dividends due for payment from my investment portfolios being announced by the investee companies. Currently pending for 22 Feb 2023 results announcement on the distribution that will be released by United Hampshire US REIT- this is my last major investment that has not announced its distribution. Hopefully can get up to additional S$4.2K distribution to bring it up to S$23K for re-investment in March 2023.

Another Lippo Group REIT Embroiled In Financial Crisis- Lippo Malls Indonesia Retail Trust.

On 13th February 2023, Lippo Malls Indonesia Retail Trust ("LMIRT") management announced that Moody's Investors Service has downgraded the corporate family rating of LMIRT and the senior unsecured bond issued by LMIRT to Caa1 from B3. There is unease in the whole market that LMIRT has no workable refinancing plans for its bank loan maturing in November 2023 and January 2024 and also its US dollar bond that will mature in June 2024 amid the high interest rate environment and risk conscious bankers. Not forgetting what happened during the recent COVID crisis to First REIT (another Lippo Group related REIT listed on SGX), it seems that another group of retail investors is on the verge of falling victim to the poor management by the Lippo group. 3 things to take note of with regard to LMIRT albeit the seemingly very attractive distribution yield of 11.6% per annum: 

1. Falling Indonesia rupiah strength relative to SGD and worsening property valuation double whammy on top of expiring banking facilities

LMIRT is not just facing refinancing risk of a whopping S$400Mil in bank loans and bonds due over coming 12-18mths but also a continuous weakening of Indonesian rupiah against the Singapore dollars. Its leverage ratio is already at 42.2% as at 30 September 2022. There is a real risk of LMIRT breaching its bank loan covenants if valuation worsens. 

There is only S$106.7Mil of cash and cash equivalents on hand on the balance sheet of LMIRT as at 30 September 2022.

2. Occupancy rate above industry average is just an illusion- its mall only has 80.4% occupancy rate and worse still, a significant part of tenants are related to the Lippo Group.

Occupancy rate above industry average?

While it seems that occupancy has been improving, it is still at a miserable 80.4% as at 30 September 2022. Even with this 80.4% being so called better than Indonesia's industry average, it is just a mere illusion to me. The fact is that there is a huge concentration risk of existing tenants that are related to the Lippo Group which means that if there is another similar COVID crisis or political crisis like the bribery case in its property development arm which ended up with officials targeting the entire Riady family business, the rental stream to LMIRT will be severely impacted.

As one can see, approximately 25% of the 80% occupied spaces in its shopping malls are related to the Lippo Group. this is as good as another 20% being wiped off from current occupancy rate which means only 60% of its shopping malls are occupied by external non related party brands. This concentration risk cannot be simply ignored. 

3. Lippo Group has a long track record of throwing retail investors under the bus.

I will not waste time here to write about what happened to OUE Commercial REIT (you can google it to find out more on the non-yield accretive M&A deal in 2018 on OUE Downtown acquisition and the rights issue impact on retail investors). 

For First REIT, I have written many posts previously on how retail investors were being short-changed and the massive destruction of value.

(i) First REIT's Sponsor Plan to Default on Original Rental Support Agreements- Price Collapsed By 30% Within A Day (1 Jun 2020)

(ii) 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 (28 Dec 2020)

Parting thoughts

There are various key reasons (as discussed above) on why the REIT has dropped from S$0.392 per unit to the current S$0.031 per unit and trading at 60% discount to its NAV over the last 5 years. Personally, I have seen how the Riady family run their business and took advantage of retail investors-look at how First REIT is being run to the ground with their reneging of original master lease agreement and also value destructing super lowly priced rights issue to save their own skin while throwing everyone else under the bus. I will not be surprised that Lippo will do another one onto LMIRT. So personally, I am keeping a ten foot pole away from any businesses setup by the prominent Lippo Group and the Raidy family.

Is ComfortDelGro Severely Undervalued Or Is It Facing Shift In Demand For Its Transportation Services?

It has been painful to watch one of the most well known and iconic blue chip fall from grace. ComfortDelgro was once trading at S$2.80 per share during the pre-COVID lockdown days of 2019. It has since languished to S$1.13 per share as at 19 January 2023 which is a colossal decline of 59.6%. In 2018, I still recalled purchasing ComfortDelgro slightly below S$2 during the then recent market low point and then selling off when its price recover a little a few months later- I am just glad that I did not hold it long term otherwise I will now be staring at a huge capital loss. The key question that everyone is wondering seems to be at S$1.20 per share as at 10 February 2023, is comfortDelgro finally a good buy after coming off the trough of 52 weeks all time low of S$1.13 per share in January 2023? 

1. View by some investors that Taxi business facing strong competition from GRAB hence leading to huge decline in ComfortDelgro revenue and profits.

First and foremost, we need to address this strange perception by certain retail investors that the entire ComfortDelgro's share price is being punished due to poor performance of its taxi business against GRAB competition. From 2021 annual report extraction of Group Business Segment revenue, the taxi business consists only 12% of total consolidated revenue. If we look at operating profit level in 2021, the taxi business only contributed  8.8% of total group operating profit which is a remarkable turnaround from the lockdown 2020 of operating losses. With the worldwide lockdown (including China) coming to an end, there will be a gradual recovery from tourists coming to Singapore which should give a much needed boost to Public Transport as well as the Taxi segments in 2023- this is evident already in the 1st half results for 2022 and I think even more so for the results of 2nd half of 2022 that is yet to be announced. Overall, I do not think that GRAB still poses a major threat, they are in fact struggling to raise fresh capital in the current high interest rate environment and the era of using cheap financing to fund losses for marketing and market share expansion is over. 

2021 Extract of Segment Results

Another point to note is that even if we were to go back to pre-COVID days, 2018 annual report extraction of Group Business Segment revenue, the taxi business consists only 19% of total consolidated revenue. For 2018 operating profit level, the taxi business contributed a significant 29% of total group operating profit which in terms of quantum is around a S$100Mil differences to 2021 due mainly to a double whammy of a decline in revenue generation from lesser demand and a substantial increase in operating costs. 

2018 Extract of Segment Results

Trending of Segment Revenue 2017 to 2021

Trending of Segment Operating Profit 2017 to 2021

Using a hasty mental projection, pre-COVID period price range at end of 2021 and mid 2022 is around S$2.42 per share on average while operating profit has dropped by around 50%. So S$1.21 per share seems to be a reasonable hair cut that has some additional upsides like further recovery in transport demand built in. 

2. PE ratio 17.46 using 5 years historical data.
From earnings of S$0.0548 per share during the 1st half of 2022, annualised impact is S$0.1096 per share. This gives a projected future price of S$1.90 per share based on historical PE ratio.

Parting thoughts

Personally, I have started initiating bite size positions into ComfortDelGro at prices of S$1.19 per share to S$1.20 per share as I think that the worst is over for ComfortDelGro. The dividend yield (as per StockCafe) is around 5.3%. Perhaps more importantly, I need to diversify my dividend portfolio away from holding on to more REITs. 

Selling Away All Stocks On Hand To Buy Second Property In Singapore For Investment.

Singapore property market earth defying stance is simply incredulous. It is so incredulous that many folks are telling me that it is best to sell away all stocks on hand to buy a 2nd investment property in Singapore.  Look at Tanah Merah, the latest integrated development Seneca Residences is selling at a whopping S$2,072psf on average on launch day itself. AMO Residences in Ang Mo Kio also over S$2,000psf.

 

Then look at the lackluster performance of equities over the past 3 years, no wonder many folks are lamenting that buying and holding property is way better than holding stocks. Even the rising interest rate environment to combat inflation is unable to contain the exuberance of the property bulls of Singapore.

Personally, I am not joining the fray. The only time I will consider property as an alternative investment is when our government removes the Additional Buyer's Stamp Duty ("ABSD") which will be a clear signal that the property market is finally in the doldrums. Or even better, if you are one of the three lucky winners of the S$12Mil Toto Hong Bao Draw last week, then the current out of the world property selling price does not matter anymore. 😅   

United Hampshire US REIT Finally Having Some Signs of Life?

United Hampshire US REIT ("UHREIT") has been one of my lacklustre US REIT investment holdings inside my portfolios despite no apparent bad news like those facing US Manulife REIT. While most REITs such as Keppel DC REIT, DigiCore REIT and Mapletree Industrial Trust sprang back to life and shot up vivaciously over the past few days, UHREIT just went up a tiny bit and laggard far behind. It has tumbled 28% from US$0.625 per unit as at 31 August 2022 to US$0.45 per unit at one point in time during early January 2023. I was beginning to get worried that there maybe some extreme bad news like fraud that has not been officially released.

1.What happened to UHREIT?

I thought that there maybe certain news that I have missed out on UHREIT. So I reached out to a fellow investment blogger, Happy REIT Investor, whom I recalled is similarly vested in UHREIT. For those interested, please refer to the comments section for the insights shared by Happy REIT Investor in his recent portfolio posting. You can see our discussion there on UHREIT.

(Fyi: Happy REIT Investor is one of the few bloggers who has already attained the sacred financial independence with a sizeable investment portfolio built up through his astute investment skills). 

2.UHREIT Distribution Yield

The current distribution yield of UHREIT is 11.75% based on its unit price of US$0.495 per unit and annualised 5.82 cents of payout. Its upcoming year end results will be released on 22 February 2023.

For those like me who pursues an income investing strategy, the ups and downs in terms of the pricing of a stock does not really matter if one adopts a long term view. As long as there are no frauds or major bankruptcy of the major tenants, I think that one can always wait it out while collecting the dividend payout. 

Parting thoughts

I am actually thinking of whether to add on to UHREIT. However, it is currently already taking up 10% of my overall equity portfolios and thus will increase my concentration risk. For 2023, I intend to diversify and build up more investment holdings in non-REITs sector assets. 

For those vested in UHREIT, will you still be holding on to it despite the lackluster price performance since IPO? What are your thoughts?

Dasin Retail Trust In Deep Trouble- Letter of Demand Received From Banker For Default of Loan.

Dasin Retail Trust ("DRT") found itself currently in hot soup when one of its bankers, through its lawyers, issued a statutory demand letter to its management. The demand letter dated 10 January 2023 declared that DRT is openly in default of the facility agreement entered into on 15 December 2022 for USD13.1Mil. This first firing of shot by Luso International Banking Limited may complicate the syndicated loan extension by other banks (yes, DRT has already applied for numerous extension of its syndicated loans as it has been unable to repay the debt) and sent DRT into an upcoming forced liquidation and fire-sales of all its investment properties. 

What on earth is happening to DRT with its endless pleas to bankers for loan extension?
The syndicated bankers are not willing to continue lending to DRT unless they do a partial repayment of the total sum to pare down on debt level. DRT management thus have been struggling to find a way to raise capital to reduce part of its debt in order to keep their bankers happy and ink a deal for long term loan renewal instead of the current knives being dangled at its neck with a short 3 months to 6 months of extension.

The recent trouble with Luso Bank seems to suggest that the actual cashflow of DRT is not as healthy as it seems. Back during the half year results release, DRT did not declare any distributions by giving the reason that it needs to be prudent on cashflow in view of continued uncertainties arising from COVID-19 situation in China. Apparently, its business operations situation must have worsened in its 2nd half of the financial year.

Parting Thoughts

I am glad that I have sold off all my DRT units by end of August 2022 as I had enough of the poor management as well as a lack of transparency and timely release of pertinent information. Personally, I am very skeptical of the Net Asset Value of S$1.25 per unit reported by DRT as at 30 June 2022 in consideration of worsening future cashflow from its business operations and higher present value discount rate in view of higher interest rate environment. As at 20 January 2023, its price has declined 6% from a day earlier and is trading at S$0.230 per unit after the release of the news.

For all we know, DRT units may well be already worthless especially in the event that its investment properties fair value needs to be adjusted by more than 50%. An upcoming fire-sales is the perfect storm that DRT need to watch out.

(P.S: Please also see my previous post: "Dasin Retail Trust And Investors In Trouble- Loss of S$56.4 Mil for 1st Half of 2022 And No Distribution Being Paid Out Red Flag")

Lost S$20,000 Due To Phone Scam- Good Deed Became Sheep For Slaughter.

This incident happened last week which left me totally flabbergasted. I have a close colleague (let's call him "Mr Bro") at work who called me to warn me to be careful if I received any phone call claiming to be our colleague at our workplace who needs to borrow money for emergency. Mr Bro further told me that he fell for this scam and was lodging a police report at police station for a whopping loss of S$20,000. I was shocked and perplexed as Mr Bro was extremely street smart and an experienced Senior Manager who had dealt with many challenging situations in the commercial sector.

1. What exactly happened?

Well, this was what Mr Bro recounted on that fateful day:

1.1 Mr Bro received a call from our colleague (let's call him "Sam") based at another work site. Mr Bro and Sam knows each other very well and often meet up for drinks and meals outside work. 

1.2 The voice in the phone sounded exactly like Sam as per asserted by Mr Bro, hence he did not suspect anything amiss despite a weird number flashing on his caller ID. Sam went on to ask Mr Bro for a bridging loan of S$20K as he was starting a F&B business in Malaysia and need the money urgently to complete the deal. Sam further told Mr Bro that he is just waiting for his own money from liquidation of his own investments to come in by the next day and he will return the S$20K to Mr Bro by "tomorrow".

1.3 Apparently, Sam knows a lot of details about our company and even mentioned the exact projects that we are all working on at the moment and the peak period that all of us are going through which clouded Mr Bro's judgement. What sealed the transfer of money was this by Sam to Mr Bro: "兄弟，我们认识了这么多年，我几时有这样低声下气求过你帮忙地?" The English translation goes like this: "Brother, we have known each other for so many years, when did I ever humbly beg you for help?" 

Mr Bro who values utmost loyalty to his friends and brotherly love thus caved in and transferred the S$20K to the local bank account number furnished by Sam.

 

The scam finally unraveled the next day when Mr Bro called up Sam directly to enquire on whether he has received his funds to return back the bridging loan. The real Sam was utterly clueless when Mr Bro called him to return the money he had "borrowed" the day before. The real Sam also received a lot of calls at the time whereby Mr Bro and the fake scammer were on the phone probably to prevent Mr Bro from calling him. This was also the juncture whereby Mr Bro realised poignantly that he had fell for the scammer's plot. 

2. Can you recover your money upon noticing the scam?

Well, this appears to be tough. Even though the bank account number belongs to one of our local bank, the bank officer will tell you that they are powerless to do anything and cannot freeze the bank account whereby your money is being transferred to. The advice given was for you to quickly lodge a police report. Mr Bro has since made a provision of the full S$20K as he has doubts on whether he will ever see his money again.

Parting thoughts

It is unfortunate that an act of a Good Samaritan ends up in financial losses for Mr Bro. Scams seems to be rampant these days. I got another colleague who lost S$8K to a scammer (masquerading as a property agent) who disappeared after collecting rental deposits from her for rental flat. Chances of recovery are low as once the money went into the other party's designated account, the scammers will quickly transfer it to another overseas bank account or withdraw it. 

The only good thing that resulted from the above scam is that the real Sam is very touched that Mr Bro actually value him a lot as a "brother" and is willing to loan S$20K in times of crisis to him. I am sure that their brotherly love deepens in the aftermath of this incident.