Wednesday 27 December 2023

Year End Update: Purchase of Elite Commercial REIT and Ping An. Sale of 100 Shares in Sea

This is my last portfolio update for the year and might be for a few more months. This is because I am seeing less opportunites due to the run up in share prices. Only Ping An Insurance meets my crtieria but I do not want to be overly concentrated.

Purchases

With Elite Commercial REIT doing equity raising to delever and the dust settled with now a stronger balance sheet, I have purchased the REIT. My view is that the REIT is sustainable again. All in all, I expect the REIT to be a 3 GBP pence yielder and therefore buying at 28.5 cents seems fair. Its tenant base is the UK government with step up rental going at about 3% for the next full years.

Secondly, I have accumulated more Ping An Insurance because it is yielding 8% and the weak HKD against Sing Dollar is an opportunity for me to change more foreign currency to buy more foreign assets. I love our strong Sing Dollar

Sale

I have sold Sea Group because I do not view it has a strong future with the onset of Alibaba and Bytedance competing with it in South East Asia E-commerce. The rise in share prices offers a good chance to offload.

Portfolio Setup

I still have a large exposure to China. However, the composition on Alibaba has now fallen a lot because of the run up in my US holdings and that I am accumulating other China blue chips instead. The expected dividend yield for this portfolio is now 9% due to how undervalued US REITs and China blue chips are.


Friday 15 December 2023

Interest Rate Hikes End: Will PRIME and Keppacoak REIT Regain its Highs

The dust has settled on the US Central Bank's decision. While it has not yet been cast in stone, the market expects the 5.25%-5.50% rates to be the peak of this cycle with a gradual return to the 2.5% interest rates. Next year end, it is expected rates will be at 4.5%-4.75% level; the same level as it was in March 2023.

Will US REITs PRIME and KORE return to March 2023 Levels?

The stock market is a forward looking indicator. With knowledge of further rate cuts penciled in beyond 2024 and that it is taken down to 2.5% interest, I do believe that in Dec 2024, assuming 3 rate cuts do happen, PRIME and KORE will indeed return to its share price on March 2023- 36 US cents and 44 US cents for PRIME and KORE respectively.

What Makes Me Convinced

One of the key reasons why PRIME and KORE started to tank in August 2022 was the market relisation that the Fed was on a path of dramatic rate hikes to combat inflation. US REITs borrow based on the SOFR which is pegged to the US Fed announced rates. 

In August 2022 with no end in sight but multiple rate hikes and not at 25 basis points, the borrowing cost faced by both PRIME and KORE was increasing month on month. People had grounds to be afraid that eventually the interest would outweigh the property income and in turn affect DPU.

Fortunately with rate hikes now at a pause mode, we know how much interest expenses these 2 REITs have to bear. To add to that, both REITs were lucky to have hedged their SOFR options with PRIME being lucky that most expires in July 2024. In a way, just a slight misstep and PRIME could be facing a devestating interest expense when it had to renew its debt.

Future DPU

While both REITs are paying 5 US cents per year, I do not think both will continue that amount. For PRIME, because it faces an impending revaluation exercise at a higher cap rate, it will be walking a tightrope in ensuring it does not breach the 50% leverage ratio when all its properties are expected to reported a lower property value. Likely PRIME will be announcing a 90% payout ratio instead of 100%, hence I expect a 4.5 US cents dividend announcement for years to come.

At 36 US cents, a 4.5 cents dividend is still commendable (12.5 % yield). For KORE, it may reduce or maintain its 5 US cents payout, but I think Keppel has done a commendable job in ensuring its properties remain strongly tenanted. In terms of occupancy, Keppel's KORE outranks PRIME and Manulife US REIT. Hence even at 5 US cents and expected share price of 44 US cents, KORE is still a good dividend machine.

Nevertheless, this is what I expect PRIME and KORE's price to be end 2024 - 36 US cents and 44 US cents. However with knowledge that SOFR/Fed Fund rates are going to be lower beyond 2024 and if the inflation story does not change, I will not sell PRIME and KORE at these prices. This is because with lower interest rates, their profitability will increase. 

PRIME and KORE are slated to become more than 5 US cents dividend yielders, therefore, I will keep them till the price is right; higher than what I expect for end 2024.

As for Alibaba, I am maintaining my lofty expectations that the shares will be USD$160. I was about my prediction in 2023 (in fact it went lower). But I am still maintaining this price for 2024. The company is very undervalued and I understand foreign funds are still selling it.

Friday 8 December 2023

Dec 2023 Portfolio Update: Increasing Stake in Ping An and Alibaba While Divesting Others

Due to the constant bad news coming out of China, share prices of Alibaba and Ping An have taken a hit. What made it worse is that in the latest quarter financial results, Alibaba has struggled to grow its cloud business, while the communist owned companies of Huawei and China Telecom are gaining market share

Tencent, the previous no 2 in the cloud business is now in distant 4th place and have decided not to report its cloud business as a standalone. This highlights the possibility that the cloud business in China is now tilted to the communist owned companies of Huawei & China Telecom.

Personally I expect Alicloud will be allowed to participate in the China Cloud Business soon but no longer as the market leader. In a few years time, Alibaba should be ceding its position to Huawei. lExpectations of the growth of Alicloud has to be recalibrated. I personally feel Alicloud is no longer a US$55 billion worth company. This segment's fair value should only be about US$20 billion. While this lowers my counted Alibaba overall valuation to US$360 billion (Target Price US$140), the current market value of US$185 billion still values Alibaba conservatively. Hence I have decided to accumulate my stake in Alibaba.

Ping An too is another addition due to the news of it bailing Country Garden not yet cast in stone. Ping An is now valued at 8% dividends, hence why I have bought it. However, should Ping An start to move up, I would consider divesting a partial stake.

How the Purchases Were Financed

A portfolio rebalancing was done where 10% in my stake in Keppacoak REIT was sacrificed (25,000 shares) and Sea Group (170 shares). I see less prospects in Sea Group due to the struggles in Shopee to maintain its margins. Below is the overall portfolio composition. 

In terms of dividend yield, the current portfolio is at an expected 8.6% yield. Despite its focus not revolving around REITs, the dividends rivals any S-REIT ETF. Mainly due to the contribution from YZJ Finance, Ping An insurance and the US REITs. Sea Group and Yanlord are speculative plays with 0% expectation of dividends

Sign up as a new to Webull User, Fund $1, put it for 30 days and get US$40. Register through this link; legitimate link which ends on 26 December 2023.

Thursday 30 November 2023

What is the Value of Manulife US REIT - Magic number Value is US$0.075 cents

Manulife US REIT (MUST) has announced a plan for its survivial till beyond 2025. There is no doubt that MUST will survive given the plan. But it is a very damaging plan.

Loans and then Building Sales to Repay

Much has been written about how Manulife US has given a "loan-shark loan" of effective interest rate of 10.7% to Manulife US REIT. It is no doubt a loan shark loan because it is 5.3% + SOFR, that is a very wide spread and given that MUST occupancy is still at a healthy above 75%, Manulife is indeed taking the opportunity to attract benefits from MUST shareholders.

Personally I would have preferred a dilutive rights issue which will then let shareholders decide if they want to participate or sell off their entitlement. The current plan leaves shareholders with no choice and the possibility of incurring US withholding tax for halting distributions based on the percentage of shareholders who do not submit their tax forms. It is an inferior plan in my view which protects the stake of the sponsor Manulife Insurance and to extract a high benefit at the expense of shareholders. I have personally proposed a better plan.

Building Sales

Manulife has to sell about US$328 million in buildings over the next 2 years to ensure it goes below leverage requirements. To me, that is a big jump. Lets look at its tranche of sales it planned. In addition, the value of the buildings are found here

From the looks of it and applying a 25% discount because buyers will know MUST is desperate, the entire tranche 1 portfolio will have to be sold. Capitol might have to go as well and MUST will then be left with 05 buildings to function as a REIT. In my view, the remaining portfolio has a value of US$680 million and with 49% leverage. This means equity of US$333 million will be left in MUST. 

Taking a 0.4 times B/V in consideration that the 5 remaining buildings are the most recent completed with lower CAPEX, that leaves about US$133 million fair value. Hence the fair value of MUST is $0.075 cents (at current share price that is about 50% in upside given the crazy sell down today)

Shareholders Can Benefit More, but REIT Manager Loses Out

However, in my view, there is a better option and that is for MUST to do an equity rights raising of up to $150 (or $135) million (in lieu of the sponsor loan), while reinstating the distributions to shareholders (who then can use the dividends to fund their rights entitlement if they want).

Getting the cash from shareholders prevents the assets to be sold within a timeline at the trough of a US property downcycle and prospective office building buyers will not be able to put MUST on the line knowing that its desperate. An equity raising of 2 for 1 at US$0.05 should put the resulting fair value of MUST at about US$0.11 (which allows for MUST shareholders to gain a further 46% in upside as compared to the inferior plan proposed by MUST REIT manager)

Rights Issue

In theory, MUST can just do a rights issue. The problem is that for the REIT distributions to remain tax-free, the sponsor (Manulife) cannot own more than 10%. But any undersubscription by Manulife would cause other participating unitholders to increase their stake.


If Manulife ends up with over 10% (very easy as it is already at 9.1%) they would need to sell off their units, probably at a discount. They would lose money trying to save MUST, throwing good money after bad. T
herefore diluting their stake in MUST and enjoying less of the future upside. However, the benefits is that (i) MUST keeps most of its buildings intact, (ii) pay its debt down without being subjected to high interest rates and (iii) prevent any US withholding tax liability from halting distributions.

The current proposal put forth by MUST is not the optimal solution in my view. It is because MUST reit manager and its sponsor do not want to enjoy less of the future upside; hence it proposed the less optimal route which carries the possibility of attracting a small amount of withholding tax that hurts all stakeholders. There is a better solution but it involves Manulife being diluted or, if it has good foresight, to subscribe for a proportion of its allocated rights to maintain just below 10% stake.

2nd Alternative- Diablo + Park Place to Sponsor and Equity Raising

Alternatively, the sponsor could have volunteered to continue its planned purchase of "Park Place" and purchase 1 more building of "Diablo", plus conduct a less dilutive rights raising given these 2 buildings were the least revised downwards in the latest round of valuation. Diablo is in the tranche 1 list and likely will be sold off. I do not think it can fetch its expected valuation if buyers know it is going to have to be sold off within 2 years. Manulife US could have bought it as well while having justifications of its sale to its own parent company shareholders that it had bought at the latest valued figures of US$58.6 million. After which a US$100 million in rights would only be needed.

MUST Investor Relations could feel free to approach me to discuss and dissaude why its plan is the best approach to save the REIT and not because it does not want to be shortchanged. Given the countless times the REIT has bought properties from Manulife US, I felt it is justified for them to be diluted given the decision mistakes.

I am not an investor of Manulife US REIT, therefore I would not be able to participate in the SIAS dialogue nor the EGM and hence why I have penned my thoughts online.

Wednesday 29 November 2023

Clarification Required by Manulife US REIT Management and its Board On its Recapitalisation Plan

 Manulife US REIT(MUST) has announced its recapitalisation plan. There are 3 parts to it:

(i) The sale of Park Place at US$98.7 Million to the sponsor;

(ii) A sponsor granted 6 year US$137 million loan of 7.25% interest + exit fee (total equivalent of 10.7% eir)

(iii) Halting of Distribution until 2025

Clarification

I have a few clarifications that MUST Management and Board could clarify.

(A) Will the halting of distribution for 2023 and 2024 attract a withholding tax on MUST?

(B) If (A) is true, why has the board decided to forego 30% of profits each year which creates a permanent loss to shareholders. The board could instead opt for the following scenario:

(B1) Announce a 90% payout ratio as dividends;                                                                        (B2) Concurrently announce a non-underwriting rights issue for the amount of US$150 million, pricing Manulife US REIT rights at a large discount; 2 rights for every 1 share at US$0.05;        (B3) Any shortfall south of US$137 Million will then be covered by the sponsor loan according to the terms as stated in (ii).

My Thoughts

Everything hinges if (A) is true. 

If (A) is true, the current proposal issued by MUST creates a loss via taxes to all unitholders and is not the optimal solution. 

If (A) is false and no tax has to be paid due to the halting of distribution for 2023 and 2024, the current proposal by MUST is optimal.

If (A) is true, my proposed solution from B1 to B3 sidesteps the need to pay a 30% tax and unitholders get a chance to participate in the recapitalisaion. The stock market's function is to act as a conduit to raise funds if needed. Companies in need of money can always do a corporate action of issuing rights giving shareholders the chance to decide if they want to participate or encash their rights to allow non shareholders to participate. Pricing the rights at a large discount to the price of US$0.05 will attract a high subscription rate which meets the cash needs of US$137 million. The REIT manager need not underwrite it and will be able to subscribe to its allocated rights to maintain a 9.8% shareholding.

I am a non-investor of MUST. Hence, I will not be able to participate in the EGM. Neverthless, I will be forwarding the above to SIAS for their attention and hopefully MUST can clarify. 

Sunday 26 November 2023

How DBS Takes Advantage of Naive Singapore Consumers to Earn the Largest Profits

Looking at the first half of each of our local bank's financial statements, one thing stands out and that is DBS gives the lowest deposit rates to its depositers. This explains why DBS has been able to generate the largest annual profits each year among the 3 local banks. Evidence as below:

DBS Pays Depositers Average of 1.92%

OCBC Pays Depositers Average of 2.51%

UOB Pays Depositers Average of 2.51%

DBS Pays Depositors 0.59% less in Interest

Based on the above, it is obvious DBS pays about 0.6% less in deposit rates compared to OCBC and UOB. It is common knowledge that both OCBC's 360 account and UOB one account gives a better effective interest rate than DBS's multipler account as well. Somehow both OCBC and UOB pay the same amount of 2.51% interest rate while DBS is paying 1.92% interest rate.

Hence, it baffles me to why so many consumers still choose to bank their money with DBS, that is giving inferior deposit rates.

How Much is DBS Profitting more from Consumers?

This is not a made up number; DBS has $517 billion in customer's deposits. Giving 0.59% less in deposit means DBS saves $3.05 billion in interest to be paid.

That is equivalent to 4 months of its net profits. Partly due to its low deposit rates, DBS has been able to provide the lowest loan rates among loans. 

Sensible Financial Move- Shift your money to Minimally OCBC and UOB

If you still prefer your money to be kept in a local bank, the financially wise move is to move your deposits to OCBC and UOB. Both banks are giving better rates than DBS. Even among the high yield saving accounts, OCBC and UOB is better than DBS.

For individuals who are depositing large amounts with DBS - Have fun Staying Poor

DBS is giving the worst rates among the local banks (and people know it). DBS shareholders and people who are taking low interest loan from DBS are profitting well from your lack of financial knowledge. I will like to take this opportunity to thank those who are banking a large chunk of money with DBS for contributing to DBS's dividends and building our Temasek's reserve!

Monday 20 November 2023

Sea Group: Prepare for Another Quarter of Large Losses in Shopee

Despite the terrible results in Shopee, Sea Group has maintained the attractivness of Shopee by continuing its incentives to consumers. As of now, the games are generating $0.15 in free cash for shopee users per day. To add to that, cashback vouchers are still attractive going at 10% cashback.

Shopee- Low Margin Segment, Discount Abound

We all know the e commerce segment is a low margin high volume model averaging at about 1-2% of GMV as profits. Hence with shopee dishing out incentive such as 10% cashback or huge amount of shopee coins which can be used for 33% discount etc, it is definite Shopee is going to post another loss making quarter for Oct- Dec 2023.

I do not doubt this will stop. Sea Group plans to ensure self sufficiency and losses at Shopee will be offset by gains at its digital finance group and Garena. In summary, Shopee is likely going be loss making and cash burning for a few more quarters. This will drag the entire group profits

Garena- Growth Slowing

Garena is now clocking profits in the US$250-US$300 million per quarter. However what worries me is that some of this revenue clocked were from its "Deferred revenue". Basically, these are pre paid game items which may have expired or been utilised by Garena users. All this means cash flow wise, Garena result is lower than expected.

Eventually Sea Group will burn through its entire pile of Deferred Revenue and we will see an increased decline of revenue and profit. Stripping the accounting tricks, Garena is likely a US$600 million per year profit machine. Barely enough to cover 2 quarters of Shopee losses.

Prediction for Q4 results

Given the performance of the 3 segments, I am predicting an overall loss of US$30 million for Sea. The group will report a small accounting profit for the full year. But the question is it's current high market cap justifiable?

Shopee is fighting tiktok shop aggressively and Bytedance has a high amount of cash to burn. As consumers, it is a definite benefit; but those who own and invest in Sea (including I), it is painful and cash burning. I feel a US$21 billion market cap (US$37) fully values Sea at the moment. 

However, for it to justify a higher market cap, it has to beat Bytedance. That is going to be a very long and ardous battle. For me, I am contemplating selling off Sea should it hit US$50, my view is that the business has no more moat. The alternative is that Sea adopts the same approach as Lazada by ignoring tik tok price cutting tactics 

Lazada has been quietly not giving incentives while seeing the No 1 and No 3 fight. Its a benefit to Alibaba but not to Sea

Friday 17 November 2023

What Can Alibaba Do to Improve Its Share Price

Long term Alibaba shareholders have suffered. Those who had bought it 3 years ago have seen the value shrank by 70%, while those who have held since its IPO are up 10% after holding for 9 years (a paltry 1% return). It was not fundamentals that destroyed because Alibaba's earnings have went up many folds since its IPO

So what went wrong with Alibaba? Knowing this could be the root to solving the problem.

Problem: Negative Investor Perception

Before 2020, investors were keenly aware of how much Alibaba grew its earnings and abscribed a fair value to it in the region of US$200 for about 30-40 times P/E. That was fair considering Alibaba was growing its profits at a CAGR in its teens annually. 

We knew what happened next - President Xi imposed tough regulations and clip Alibaba Wings. End state today, Alibaba is now only valued at 10 times its GAAP earnings, this despite growing earnings by 5-8% annually. Investors are wary of Alibaba's prospects and value it at very cheap valuations. The answer is simple, Alibaba is earning money but investors are scared of investing because they run the risk of Alibaba being hampered by more regulations. They may not be getting their capital back

Returning Value to Shareholders

After the regulatory crackdown on Chinese Tech, many including Alibaba announced a share buyback program, which seems revolutionary because they were following the Berkshire Hathaway playbook, buy back shares at below book value and it will improve the value for all shareholders. Berkshire Hathaway successfully did it and has since gained good investor sentiments. Chinese Tech unforuntately were not. There were 2 reasons why Alibaba didnt succeed

Share Buyback Was Painfully Small

Alibaba sharebuyback was grand with plans to buy back US$1.5-US$2 billion per quarter. While the figure looks big, Alibaba was a US$300 billion company when the buybacks were announced. Relative to its market cap, this meant only planning to buy 2-3% of its share base then. In the grand scheme of things, that was paltry. Berkshire's share buyback was limitless as long as share prices went below 140% of its reported NAV, Alibaba restricted the amount of buybacks authorised.

In Singapore, blue chip companies had authorised themselves to buy back 10% of their company share base and when executing, they bought back 4-6% of their share base per year to show they were undervalued. Seen in this light, Alibaba Management is downright stingy. 

Alibaba is a cash cow which generates US$26 billion in cash annually. With a growing cash pile, the investing community felt Alibaba was not treating shareholders well. If the Chinese Government was affecting sentiments, Alibaba management was not returning a fair amount of shareholder value; that could only mean a downward trajectory of Alibaba's share price to match perceptions.

It is not as if Alibaba had used its free cash generated for investments and acquistions. From end of FY20201 (March 2021) to present day, its cash hoard and short term investments grew from US$72 billion to US$85 billion; it showed an inefficient deployment of capital. Alibaba could have deployed another US$8 billion per year as returns to shareholders.

Well They Listened (partly)

Sensing they are generating too much cash, Alibaba announced a US$2.5 billion in dividends for FY23 in its most recent November results. It was a backdated dividends to reward shareholders for its good work done from April 2022 to March 2023. This looks like a good start; but frankly, i felt this is only "them listening 1/3". Based on their excess cash generated, Alibaba could have returned USD$3/share as dividends and still add cash to its growing cash hoard.

This demonstrates the investor unfriendliness of Alibaba. Yes it earns big money but is unwilling to share its riches with shareholders.

What Should Alibaba Do (the solution)?

Taking on the hat of "Investor Relations", given the situation where it has a large cash hoard, great cashflow generating ability even after accounting for CAPEX, Alibaba should announce a fixed dividend/share buyback policy.

Companies with good investor relations announce such policies and stick to them. Given how much it generates, Alibaba can announce a 50% payout ratio as dividends on top of its current share buyback policy, This is remotely fair (borderlining on unfairness). At its current earnings, this means a USD$4 dividend per share (USD$10 billion/46% of free cash generated) at current earnings. Even then, Alibaba will still grow its cash hoard annually. Should Alibaba earnings deflate, it should be fair then that dividends fall as well in line with the dividend policy.

In my view, an outright 50% payout ratio on GAAP earnings is the solution. Existing investors get the money and decide for themselves if they wish to buy more shares for income or deploy it for other uses. Secondly, with the knowledge of an annual dividend, investors are assured they will not lose 100% of their capital should the communist govenrment turns evil and strangle Alibaba; after all they had been receving annual dividends. This simple action of a dividend policy will improve investor perception of Alibaba.

In conclusion, a 50% payout ratio would boost share price because it manages and improves investor perception. It is fiscally sustainable for Alibaba to do it, but the question is will the mangement change its stingy ways. Alibaba is now a matured company and should act like it.  

Portfolio Update: Adding of Alibaba to Boost my Dividend Payout.

A simple update of all my transactions since my last update this month. Alibaba threw a spanner in its spin off works and as a result, there was a 10% sell down and I added 500 HK shares to my portfolio. The decision to pick HK over US ADS is because Hk has a lower withholding tax and Alibaba has recently started to announce annual dividends. So holding in HK makes it a more ideal dividend stock. Earnings wise, there was nothing much surprising. The surprise was the shelving of Alicloud IPO which explained why a 10% selldown in share price occurred.

At current earnings per ADS of 8 times and strong cashflow, Alibaba should be able to dish out at least US$2 per ADS dividends. Management could consider raising its dividends to reward shareholders. The conglomerate is now a matured state company and returning value to shareholder should be one of its priority. Its cash rich and cash generative, hence even a 40% payout ratio (USD$3.20/share) is justified.

Due to the dramatic sell down and increase in US REIT, Alibaba has drop to less than 50% of my portfolio.

Thursday 16 November 2023

Manulife, PRIME, Keppel US: Run Up in Share Price

With the likelihood of no further interest rates hiks, the 3 US Office REITs have risen in prices. Below were the magnitude in their price rise:

Manulife: 95% gain
Prime: 68% gain
Keppel US: 40% gain

Interestingly the magnitude of the rise in stock prices mirrored how dire the balance sheet situation was for each REIT. Manulife carried the highest risk. This no doubt shows the ageless adege "High Risk High Gains"

Will the Share Price Increase Continue?

I had avoided Manulife because it carried the highest risk among the 3 and was the weakest; I am not a hardcore gambler. However, in my view, now that we know the status of each REIT's Interest Rate Coverage ratio in addiiton to their tenancy, their future is much clearer.

So I would say "yes" that these 3 REITs would continue to rise but I am not able to vouch for the magnitude in increase. I believe until end June 2024 and including their dividends, all 3 REITs would nett a positive return. For Keppel US (KORE), I would say the REIT is on the strongest footing with a balance sheet that is even stronger than Suntec REIT and Keppel Singapore REIT. The market will take time to discover this, but I am confident KORE can re-rate to be a 50-60 US cent stocks. 

PRIME too should see an upward rating with a 40-60% chance of it needing a small capital raising. A 22.5 cent share price + 2.4 cents dividend is where I expect it to be by end June 2024.

Of course, all the above depends on no further sudden rate hikes. A rising interest rates affect both the expected cap rate and the required rate of returns. In a way, REITs behave like bonds. Higher interest rates means lower prices and vice versa

Webull New Account Sign up, hurry limited time left! With $1 Deposit for 30 days, Earn USD$100-$5,000

 Webull has upgraded its sign up referral whichis the best so far this year! However to get the reward, you must register through this link. Reminder for a few readers who have signed up but not yet funded or fully completed the application to  do so, you are missing out on this awesome reward!

You can receive 10 free fractional shares worth between US$100 to US$5,000 when (i) sign up a new account (via Singpass), (ii) make a deposit of any amount and (iii) keep the amount in webull for 30 days. It is better than many fixed deposits out there because putting in $1 or a few dollars will nett you at least US$100! That's better than any FD. The new fractional shares can be found under the "My rewards" tab

The offer is extended and now valid until 30 November 1559hrs. Again, please remember to maintain the amount that you had first deposited for 30 days, then your free shares entitlment will appear under the "rewards tab" on day 30. 

Steps to Sign Up and How to Get the Free Gifts

To qualify for the promotion:

  1. Register through this link
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How to Deposit Funds into your new Webull Account:

After your account is approved, it’s time to make a deposit. Inside Webull mobile app, select “menu" at the bottom left of the screen, then clock on the "more" word icon boxed red


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There are a few ways to make a deposit: eDDA, Fast or Telegraphic Transfer. 

The eDDA Deposit method is the easiest, where you will authorise Webull to transfer money from your bank account into your Webull account. To use this method, you can select the “eDDA Deposit” option, as a first time deposit, login to your internet banking, and set the transfer limit. 

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How to Redeem Your Free Shares

On the homepage, click "My Rewards" which is boxed green and then claim your free shares there



Disclaimer: I may receive an affiliate/referral fee when you sign up for services/products on this site. I only recommend services/products I am personally using to readers, however I do not provide any warranty or guarantee for the quality of these services/products

Wednesday 15 November 2023

USA Reports Lower Inflation. Higher for Longer Interest Rates remain but close to no chance of Rate Hikes

 As of the time of writing, US has reported a "cooled down" inflation standing at 3.3%. If such a figure persists, the Fed will not raise prices but instead let rates remain at 5.25-5.50% while its QT effects continue in the background

What It Means To Investors (and my portfolio)

27% of my portfolio is in US REITs so I am naturally sensitive to how SOFR moves. Given the latest set of data, high chance SOFR will remain at its 5.3% level and I expect it to remain at this level until the Nov 2024 Fed meeting. "That's my higher for longer".

With this parameter and knowledge that US Office loans would be pegged to the SOFR + 1.6% range based on KORE's annual reports. I expect my investments in both PRIME and KORE to survive the current ordeal. For KORE it has no refinancing risk as well. I would dare say that at least a dividend of 2.3 US cents per half a year (4.6 US cents full year). With such a strong balance sheet, diversified blue chip tenant base, KORE should snap back to a 9% dividend yield. It's a 51 cent dividend stock to me.

For PRIME, with the renewal of a significant chunk of its loan next year, I expect its ICR to be 2.7 times. The second thing I think is that at end 2023, PRIME would survive the revaluation. The Sodexo vacancy will push the value of One Washington down by 20%. All in all, I expect a 11% downward revaluation. Near term the REIT would go above 20 cents due to much less risk 

Generally I feel the US REIT space is now a much safer space to buy and with more capital I will deploy it to Keppel Pacific Oak (KORE) and UnitedHampshire REIT due to the strength of their balance sheet and with little debt maturing. Ping An insurance is now out of the running due to the improvement in the US environment. Do caveat like a certain blogger I am talking to myself and writing out my general views. More digging and fact finding is needed by readers.

Tuesday 14 November 2023

Sea Group: Foolishness in Fighting for E Commerce Market Share With Lower Margins

Sea's 3rd Quarter results showed it swung back to losses. Its smaller 2 segments in digital financial services and digital entertainment were profitable (on accounting basis). However, its e commerce (shopee) swung back to huge losses, clocking USD$428 million in losses on a back of 20 billion in GMV.

While Shopee has moved a larger amount of products in terms of GMV, the highest in the quarter; there is just one problem, it sacrificed margin for volume. Last quarter, shopee clocked USD$65 million in profits from 17 billion in GMV. A larger GMV should have meant scale and with it higher profits; however in 3Q it was not.

The answer was simple: Shopee dangled more rewards for its consumers. There were promotions such as "$2 off no min spend" which allowed them to churn GMV but totally ignored margins (i bought 3 in 1 USB charges and spectacles cleaning cloth at zero cost). Sales & marketing expenses for shopee grew by 49.7% as evident by its 3Q results publication.


How to Improve Share Price?

Shopee is the main problem, due to the volume of products it moves, its movement in margins will dwarf the profit/losses of its other 2 segments. Therefore, improving the margin of Shopee is important. Tik Tok shop may be fighting in South East Asia, however, I think it just burning cash and would not be able to cement a no 1 or no 2 position once it removes its incentive.

Until then Sea Group on a whole may be going down. It needs to make its e commerce profitable again and that means reducing the vouchers it is giving out to consumers. The current management is very foolish in trying to fight Tik Tok in a battle of attrition. 

For now, the conglomerate is worth about US$18 billion to account for its ability to generate USD 500 million as profits (20 times P/E) and USD$8 billion in cash. That values it at US$33 share price.

Creating a $100,000 Dividend Per Year Portfolio, Webull Reminder

Firstly a reminder for those who had signed up via my webull invitation link, there is a need to deposit at least SGD$1 into your webull account, keep it there for 30 days in order to be eligible for the US$100 gift. Based on my masked records, there are a few invitees who had opened an account but did not deposit at least $1, the deposit is essential to ensure you are on your way to getting the free gift. For those who have not signed up yet, the referral link is found at the bottom of this article and the promotion ends on 15 Nov, 1559hrs. So sign up by then to get it approved and then deposit.

The $100,000 Dividend Portfolio

I would say at current moment, building up a $100,000 dividend portfolio is the easiest in a decade. Firstly, in US, UK & Europe, interest rates are at an all time high; this translates to a expectations of higher returns in either dividends or future capital gains. As a result, in SGX, overseas REITs which carry a lower risk of balance sheet stress are at 11%-19% yields.

Secondly, due to the fear of a weakening Chinese economy and large scale slowdown in property, China stocks across all industries have been beaten down. The stronger and well run companies are now valued at 6-10% yields. For China's case, I am not talking just about REITs, but high dividends is seen across all industries from the defensive insurance industry (Ping An) to its 4 banking giants (ICBC, CCB, ABC, BOC) which are the largest in the world.

In 2018, yields from these 2 countries were much lower. Fast forward 2023, we are now seeing such yields and therefore building a portfolio for a $100,000 dividend with lesser capital avaliable is possible. Of course, investors have to assume the risk stated above for each sector.

Why It's a Struggle For Me

If readers notice, my actions now are to build up my dividends due to this trend. With the selldown in China Tech, I had earlier deployed capital to this sector in 2022 and as a result, I have less capital to build a dividend portfolio now.

My plan is to continue accumulating dividend stocks because they have been greatly sold down in the past few months, in addition to my large stake in Alibaba which will remain my core position. My target is a $100,000 dividends, hopefully markets remains depressed as I continue looking for stronger balance sheet companies with dividends.

Congratulations you made it to the end of the article. As a reward sign up as a new to Webull User, Fund $1, put it for 30 days and get US$100. Register only through this link; legitimate link which ends on 30 November 2023, 1559hrs.

Monday 13 November 2023

Keppel Pacific Oak Annual Report: Providing Insights into the Interest Cost of US REIT

Unlike most other US REITs which declare their loans as "SOFR + Margin", KepPacOak (KORE) does an investor friendly option of publishing the exact spread they pay their lenders for loans (before factoring hedging) based on SOFR. Below is KORE's debt interest profile:


Transparency of KORE and Its Use

For investors knowing the interest margin of a company's debt gives a lot more clarity for our projection and the effects to the interest coverage ratio. From the above data, we can gleam that for commercial REITs and pherhaps even Utdhampshire, debts are borrowed at least 1.5% spread from SOFR.

KORE has been excellent in its disclosure and I look forward to other REITs disclosing their borrowings with the same level of clarity. It allows us investors to quantify the risk we are taking when investing in each REIT

What Can Investors Learn from The Above Data

From the above, I can confidently say that if a US REIT does not hedge its debts, the likelihood is that its all in interest rate will be 6.9%.

For KORE, it has about 77% of its debts hedged to fixed rates and as a result reports an all in financing rate of 4.06%.

For REITs like Utdhampshire which has just renewed its debts and hedges, using KORE's data provides us an approximation of how high the interest on its debts would go post renewal. US REITs borrow in "SOFR+Margin". With 75% debts hedged, therefore we can expect the latter's REIT all in financing to be about 4.1%-4.2%; hence my revision to Utdhampshire's ICR would be 2.6 times at end 2023.

For PRIME, post its July 2024 renewal of loan and with 63% of debts hedged, I am expecting an eventual all in financing rate of 4.6%. ICR will likely decrease to a reported 2.7 times by end 2024.

Congratulations you made it to the end of the article. As a reward sign up as a new to Webull User, Fund $1, put it for 30 days and get US$100. Register only through this link; legitimate link which ends on 27 December 2023.

Webull New Account Sign up, few days left! With $1 Deposit for 30 days, Earn USD$100-$5,000

Webull has upgraded its sign up referral whichis the best so far this year! However to get the reward, you must register through this link. Reminder for a few readers who have signed up but not yet funded or fully completed the application to  do so, you are missing out on this awesome reward!

You can receive 10 free fractional shares worth between US$100 to US$5,000 when (i) sign up a new account (via Singpass), (ii) make a deposit of any amount and (iii) keep the amount in webull for 30 days. It is better than many fixed deposits out there because putting in $1 or a few dollars will nett you at least US$100! That's better than any FD. The new fractional shares can be found under the "My rewards" tab

The offer is valid until 15 November 1559hrs. Again, please remember to maintain the amount that you had first deposited for 30 days, then your free shares entitlment will appear under the "rewards tab" on day 30. 

Steps to Sign Up and How to Get the Free Gifts

To qualify for the promotion:

  1. Register through this link
  2. Click on the "5x your reward....", complete the sign up process
  3. Maintain your funds for 30 days and you will get 10 free shares worth between US$100-US$5,000. Confirmed will get at least US$100.
How to Deposit Funds into your new Webull Account:

After your account is approved, it’s time to make a deposit. Inside Webull mobile app, select “menu" at the bottom left of the screen, then clock on the "more" word icon boxed red


Next click "Deposit", boxed red.


There are a few ways to make a deposit: eDDA, Fast or Telegraphic Transfer. 

The eDDA Deposit method is the easiest, where you will authorise Webull to transfer money from your bank account into your Webull account. To use this method, you can select the “eDDA Deposit” option, as a first time deposit, login to your internet banking, and set the transfer limit. 

If you'd prefer to manually transfer funds from your bank account, then you can use the FAST method. However, do note that this option is applicable only for SGD deposits, and you'll need to remember to notify Webull that the transfer has been completed. So the eDDA deposit option is the easiest

IMG_4979.jpg

How to Redeem Your Free Shares

On the homepage, click "My Rewards" which is boxed green and then claim your free shares there



Disclaimer: I may receive an affiliate/referral fee when you sign up for services/products on this site. I only recommend services/products I am personally using to readers, however I do not provide any warranty or guarantee for the quality of these services/products

Sunday 12 November 2023

Yen at all time-low against Singapore (111 Yen to 1 SGD), What to Do?

For avid traveller to Japan, one of the best things to happen this week is the depreciation of Yen to SGD such that it is now 1SGD to 111 Yen


Why Did It Happen

This is due to Bank of Japan's insistence to keep its interest rates at 0% with long term 10 year bond yields only allowed to go up to 1%. Globally, interest rates are at all time high, so Japanese money is leaving Japan and investing elsewhere. There is an economic movement within Japan where Japanese housewives dabble in foreign currency by putting their wealth in foreign currency deposits which are earning more interest overseas than in Japan bank accounts. 

Google "Mrs Watanabe Foreign Currency" and you will learn that Japanese households are holding a huge amount of their assets in Foreign Currency and not in JPY, reason being foreign currencies earn a higher interest now and the constant depreciation of JPY means its better to hold foreign currency.

My view

As a Singaporean, I have an addition item to thank for and that is Singapore uses currency appreciation to protect us from inflation. The result, Japanese Yen has depreciated 34% against us in 5 years.

I do an travel to Japan and my view is that it is difficult for Japanese Yen to constantly depreciate and Sing Dollar to constantly appreciate. In all likelihood, it is darn difficult for the Bank of Japan to forever be at monetary accomodative policy stance. Eventually, they have to follow suit and I do think the JPY will appreciate back to 1 SGD to 90 Yen levels (that is still at all time highs)

Mrs Watanabe Effect

Economist are aware of this and are factoring that should bank of Japan change stance, a large inflow of money will return to Japan. There are economic literature on this. Should money start to return to Japan, the Yen will appreciate and investors should not doubt the magnitude of capital returning to Japan. Japanese housewives control the finances of the household and I am sure the amount of capital inflow will be huge.

Keep Yen For Travels, Sticking My Neck Out

1 SGD to 111 Yen is very tempting. As mentioned, I feel there is a possibility of yen appreciating and the magnitude will be large should the reverse trend occur. The question is when. 

For me, the exchange of SGD to Yen is in the pipleines and it will be done way before my next Japan holiday. One thoughts is how to maximise the returns of my idle Yen then; putting in fixed deposits but it is difficult. Japan Share prices has already experienced a run up so I do not want to be holding to assets which may face a decline in share price while the currency appreciates. Net-net becomes zero to me. 

I may change a few thousand in Sing Dollar to Yen and hold it my revolut account while earning 0% interest. Maybe revolut can start offer Yen Fixed Deposits, trust me if that happens, I will be changing my sing dollars to yen.

Danger Facing Overseas SGX-Listed REITs- Higher for Longer Interest Rates

 Like China's 3 Red Line Policy, Singapore has its 2 Red Line Policy for REITs. I have been saying it many times so let me repeat it.

If Leverage is more than 45.0%, ICR has to be above 2.5 times

These are the two red lines. In truth, even when REITs exceed 45% leverage and have not taken additional debt, they are able to continue operating without falling foul of MAS's regulations. However, the key is the ICR of 2.5 times (ICR= Interest Coverage Ratio)

Why Overseas REIT Struggle

I do not know if it is risk management or stubborness of REIT managers, but there is a trend where a REIT manager will take loans in the same country where its properties are (the only exception is Capitaland who takes almost everything based on Singapore's SORA).

Both USA, London and Europe have been hiking interest rates to stem inflation. Inflation has remained sticky and because of these, SOFR, LIBOR, EURIBOR have reached highs and will be staying there longer. The problem for many overseas REITs is that many of their loans have not felt the full effect of interest rate hikes yet due of their loan maturity, the time lag effect for it to be reported or that they had done hedging which expires each passing year. 

Secondly, MAS's ICR is calculated by the trailing 12 months. As time passes by, the trailing 12 months interest expense gets higher and higher. The result is what we are seeing for many overseas listed REITs financials: ICR keeps going lower and lower. Elitecommercial, PRIME US and UtdHampshire have been reporting higher effective trailing 12 month interest cost while reporting a lower interest coverage ratio. These 3 REITs have reported ICR in the range of 2.7 - 3.3 times.

The Last Red Line- 2.5 times ICR

As narrated, the full effects of higher interest rates have not been reported by most overseas REITs. End 2Q2023 was when most of the rate hikes kick in. With most loans pegged to SOFR and LIBOR, it will take until 2Q2024 for us to know which REITs are drowning.

Overseas REIT are expected to breach the first red line of 45% due to how properties are valued (aka Cap rate expansion). Meeting the 2.5 times ICR is their key concern. REITs have been enquiring with MAS to relax the ICR rules; however MAS has not budged. Without MAS's grace, overseas REITs face the danger of breaching "2.5 times ICR". The alternative would have been switching to Singapore SORA loans where interest are 1.5% or about 20% cheaper; however these REITs have locked themselves into SOFR and LIBOR loans.

Congratulations you made it to the end of the article. As a reward sign up as a new to Webull User, Fund $1, put it for 30 days and get US$100. Register only through this link; legitimate link which ends on 27 December 2023.

Saturday 11 November 2023

Webull New Account Sign up, few days left! With $1 Deposit for 30 days, Earn USD$100-$5,000

 Webull has upgraded its sign up referral whichis the best so far this year! However to get the reward, you must register through this link. Reminder for a few readers who have signed up but not yet funded or fully completed the application to  do so, you are missing out on this awesome reward!

You can receive 10 free fractional shares worth between US$100 to US$5,000 when (i) sign up a new account (via Singpass), (ii) make a deposit of any amount and (iii) keep the amount in webull for 30 days. It is better than many fixed deposits out there because putting in $1 or a few dollars will nett you at least US$100! That's better than any FD. The new fractional shares can be found under the "My rewards" tab

The offer is valid until 15 November 1559hrs. Again, please remember to maintain the amount that you had first deposited for 30 days, then your free shares entitlment will appear under the "rewards tab" on day 30. 

Steps to Sign Up and How to Get the Free Gifts

To qualify for the promotion:

  1. Register through this link
  2. Click on the "5x your reward....", complete the sign up process
  3. Maintain your funds for 30 days and you will get 10 free shares worth between US$100-US$5,000. Confirmed will get at least US$100.
How to Deposit Funds into your new Webull Account:

After your account is approved, it’s time to make a deposit. Inside Webull mobile app, select “menu" at the bottom left of the screen, then clock on the "more" word icon boxed red


Next click "Deposit", boxed red.


There are a few ways to make a deposit: eDDA, Fast or Telegraphic Transfer. 

The eDDA Deposit method is the easiest, where you will authorise Webull to transfer money from your bank account into your Webull account. To use this method, you can select the “eDDA Deposit” option, as a first time deposit, login to your internet banking, and set the transfer limit. 

If you'd prefer to manually transfer funds from your bank account, then you can use the FAST method. However, do note that this option is applicable only for SGD deposits, and you'll need to remember to notify Webull that the transfer has been completed. So the eDDA deposit option is the easiest

IMG_4979.jpg

How to Redeem Your Free Shares

On the homepage, click "My Rewards" which is boxed green and then claim your free shares there



Disclaimer: I may receive an affiliate/referral fee when you sign up for services/products on this site. I only recommend services/products I am personally using to readers, however I do not provide any warranty or guarantee for the quality of these services/products