Tuesday 31 October 2023

Best World International: Highlighted by Business Times for its Poor Corporate Governance

Business Times ran a story of the poor corporate governance culture in Singapore with thoughts if it could be improved. One company was mentioned and it was none other than Best World International (which can be inferred). Truth be told, Best World has one of the worst corporate governance and is the best example for our school business univeristies to use as a case study module.

If you wish to read it, the link can be found here (except there is a need to be a paying member) so let me show where Best World was mentioned

Close to Negligence of Best World Independent Directors

It is likely the 3 Best World Independent Directors have not been active enough to help minority shareholders given how the discrepancy in pay received by the executives (which has to run through the approval of the 3 Indepedent Directors) while dividends are not given (ironically its the 3 independent directors who have a vote in this. Given their poor ability in helping minorities, these 3 directors deserve to be voted out and replaced

In all sense, while it is not yet criminal, it shows how unprofessional these 3 independent directors are. Professor Mak of NUS has covered about the failures of Best World as well; it is sad for a company to be paying each of its executives higher than the pay of even an OCBC CEO, relative to the pay of Best World against the banks; and not giving dividends to shareholders. Dividends could have been given when its shares were suspended from trading (this is allowed by listing rules, but the company refused to while granting its executives a higher pay, which became more than a local bank CEO). For context, Best World has 02 executives who are each earning more than OCBC's. 

PRIME and Keppel US REIT: No Adverse Announcement, Current Selldown is Technical

Just my fact finding. Currently there are no known reported news of new big tenants vacating either Prime or Keppel Pacific Oak REIT properties.

The selldown is likely a recalibration of the equity risk premieum investors are demanding for such REITs. Worth noting UtdHampshire US REIT faced a similar selldown where share prices moved down 10%.

All in all, the past week's selldown is a technical movement with no bearing on fundamentals. The news of "higher interest for longer" has been known for a while in the market, hence there should be no reson the repricing has only happened as of now. Nevertheless, those who traded on REITs and especially on US REITs, by betting short, is unlikely to profit and will be making losses given this is a technical price movement with no fundamentals.

Thursday 26 October 2023

Prime US REIT: Going Through the Office Oversupply and High Interest Rates

Investors have been worried about the business of Prime US REIT. Due to the oversupply of office space which has seen tenants vacating and the high gearing, the share price has taken a beating and is down 80% in a year.

Leverage of PRIME US Reit

While the latest published leverage ratio is 42.8%, I expect came year end when there is a revaluation, PRIME's leverage will exceed 45%. Here's why: Firstly, since the last valuation, the Fed has went on to raise rates 4 times (1%). This means risk free rate has increased and hence a cap rate expansion. This decreases PRIME REIT's property value. Secondly, with tenants leaving, I expect the REIT's valuation to fall as well. 

I expect the same magnitude in valuation decrease as that experienced by Manulife US REIT (15% decline). This means Prime REIT's leverage will hit 50.3%. There is no way in my view when year end valuations are revealed for Prime to stay below the leverage ratio of 45%. Prime needs to maintain the interest coverage ratio (ICR) of above 2.5 times or else it is hell.

Interest Coverage Ratio (ICR)

Latest ICR is 3.4 times. However, with a major tenant vacating (5.4% hit to income) and possibly lower passing rent, one can expect Prime's net property income to be 9% lower next year. To add to that, the effective all in interest rate is expected to rise. 

An all in effective i/r of 3.9%, I expect it to rise to about 4.5% next year. With these effects, interest will rise by about 19%. 

Using simple maths, it is expected by year end 2024; based on trailing 12 months, Prime's ICR will be 2.6 times. I expect the refinancing will add some cost and this will lower the ICR. However, Prime will be a borderline in knowing if it will pass MAS's ICR limits.

What can Prime do?

My view is Prime has only 1 option and that is to sell 1 or 2 buildings. With such a sale, the debt will be reduced by about 10% and along with it a lower interest expense which pushes its ICR up to approx 2.8 times.

I prefer Prime REIT does the sale now to secure its safety and prevent any sudden announcement like what happened to Manulife US reit. It is painful but this is needed to protect itself. A $70 million sale off its assets is sufficient. A sale is good news and secures the REIT's survival even beyond 2025; something Manulife US Reit is setting as a target with a great degree of difficulty to achieve. Sticking my neck out, but a sale of an office building should see an upside of 50% of share price due to the rapid decrease in leverage and improvement in ICR; this means safety.

Yet Another Best Offer of the Year! With $1 Deposit for 30 days, Earn USD$100-$1,000 as a New Webull Sign Up

 Webull has upgraded its sign up referral which to me is the best so far this year! However to sign up for me, you must register through this link

You can receive 10 free fractional shares worth between US$100 to US$1,000 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 "Get Free Shares Now", complete the sign up process
  3. Maintain your funds for 30 days and you will get 10 free shares worth between US$100-US$1,000
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


How to Redeem Your Free Shares

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

Every fractional share sale will incur a $0.02 Commission

Do note for every different company fractional share sold, a $0.02 commission is present due to the charges incurred by the US Stock Exchange. Example if you get Tesla, Amazon and Alphabet fractional shares and you sell all the total is $0.06 commission ( 3 multipled by $0.02 commission for each company). Feel free to sell and encash them upon the end of the 30 days you have deposited your first fund into webull.

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 25 October 2023

Early Christmas Wish: Dissolving SGX Regco, Creating An Independent and Stronger Enforcement Stock Regulator

This is just my personal opinion. But depsite the formation of SGX Regco, the regulations of listed companies in Singapore is ineffective and SGX is not doing much to protect the minorities of shareholders. Here are a few companies that have been acting poorly in governance and reporting despite the presence of a regulatory body in Singapore.

Dasin Retail Trust

The company is technically insolvent because the assets valued on the balance sheet is false while the company has produced unexpected off balance sheet liabilites which is eroding equity. While the writing has been on the card since 2022, SGX Regco has not acted in good faith for minority shareholders to investigate into the company; this has allowed the chinese management to continue running the REIT and draw a pay while it continues to lose money and spring more bad news.

In my view, this is another Eagle Hospitality Trust. A investigation and liqudation of the REIT property should be enacted immediately by SGX Regco to save whatever is left for unitholders. The valuers of Dasin Retail REIT, JLL, should be inquired in how it had derived the valuations and why it has been decreasing so drastically every year.

Best World International Independent Directors

Despite being a profitable and cash rich company, the board of independent directors (ID) of Best World somehow had voted to not issue dividends (on the premise of cash conserving) while at the same time, used a questionable HR agency report to decide that the remeuration for executives of Best World be raised and the increase closely collaborates with the amount of dividends these executives had lost in lieu of no dividends announced for their shareholdings. The resulting act is that Best World executives are the top 5 highest paid CEOs/Chairman among listed companies in Singapore while its net profits are not even 10% of what these other listed companies earn.

Even among global industry comparables of the direct selling industry, these 2 executives are the one of the highest paid in the world, eclipsing the largest 2 direct sellers, Nuskin and Herbalife. This is public information but somehow SGX Regco seems to have missed out. 


Similar to Dasin there was an inflation in property valuations which is now deflating as time goes on.  investigation and liqudation of the REIT property should be enacted immediately by SGX Regco to save whatever is left for unitholders.

While there might be more companies such as Hong Fok & Hotel Royal (issue of IDs' independence) that could be questioned; as I have not read much I do not wish to list and delve. Nevertheless, I feel SGX Regco despite its formation has been poor in its enforcement work. As an early christmas wish, pherhaps SGX Regco should be dissolved and a new independent and stronger regulator should be formed under the purview of MAS. 

Tuesday 24 October 2023

Suntec REIT CEO Clarification: Sell Office Strata Units to Ensure Leverage Remains Below 45%

 Suntec CEO has come out to clarify the decision the REIT will take to ensure its leverage ratio remains below 45%. You can read it here (a short 5 min article)

My Views

It is a sound judgement by the CEO to consider asset divesting to lower leverage ratio. What's more it is to offload office strata units which I think is indeed one of the most worthwhile asset to offload. W

As of now, Suntec's strata office is valued at a 3.5% cap rate. This is in line with the valuations used for the Singapore Office Space. If I were the CEO, I would gladly offload many of my office assets at such a generous valuation offered by Singapore valuers. An expected discount rate of 3.5% is even lower than the risk free rate of many central banks including that of Singapore's MAS, heck even DBS earns 3% placing reverse repo with MAS for no risk, why would investors consider buying office strata units when the risk is so much higher. Even T bills are giving better rates than investing in a Singapore office space. There seems to be no repricing in Singapore of such risk assets by the institute of Singapore valuers (pherhaps they are sleeping on their job and are close to criminally negligent on their duties)

To add to that, there is a WFH movement where it is not as pronounced to USA and Europe, however, it is a fact that there are surplus office spaces which companies here are considering to vacate (not announced but I know of companies who want to downsize their Singapore leased office spaces).

Hence if there are stupid buyers willing to buy my properties at such a low cap rate, I would happily offload. Globallly, risk free rates are 4.0%-5.0% and therefore, for Singapore valuers to continue using such absurb valuation cap rate of 3.4%-3.75%; I will make hay while the sun shines.

In summary, it is a good decision by Suntec REIT's CEO to offload strata office units to reduce the leverage ratio. It is the most rational and easy to execute. With so many stupid investors worldwide still thinking Singapore's office space is a good investment; while office spaces in Australia, Europe, UK, USA, Hong Kong, Thailand, Malaysia are imploding; it's a good time to pass the ticking Singapore time bomb to stupid foreigners.

"A Grade" for Suntec CEO's thinking: Offloading the right assets at their upcycle.

US Bond Yield Inversion- High Interest for Short Duration, Lower Interest for Long Duration, What It Means for Investors

An intersting thing is happening in USA. 10 years bond yields are going down. In short, for 1 year bonds and lower, interest rates are at 5.6%. However, if you are borrowing for a longer duration, the interest rate is lower at 4.85%.

The different yield for each duration is widening and the fall in 10 year bond yields is somthing important for investors to consider.

What Does This Mean?

Simply, markets are pricing that yields will fall in 2 years time. This follows the Federal Reserve Dot plot. In the short run, there will be lots of pain for highly leveraged business models such as REITs, construction, commodities companies. However, in the long run, their financing cost are likely to go down with PnL improving. (*My view is in 2 years time, the 1 year bond and shorter will be at 3.5% (2% or 200 basis points reduction from now, Fed Dot plot indicates 3.75-4.00%)

Banks on the other hand, benefit quite the opposite and when rates start to go down, they will suffer from a net interest margin compression until interest rates start to stabilise on the low end. This is something for investors to start to prepare for. 

In 1.5 years to 2 years time, interest rates will fall and one has to consider will benefit or lose. To me, the fall in interest rates will definitely hurt banks. REITs are likely the beneficary to an interest rate drop.

Vertex Holding: Making a Bad RTO and Possibly Destroying Shareholder's Value

Vertex Holding, currently a shell SGX listed company ready for ROT has announced plans to merge with a game company.

Like many other "Tech names", the live streaming company, i7life is touted as high margin with a large addressable market to break into; however, this is further than the truth.

Truth: Company is Loss Making and Cash Flow Burning

The financials says it all: In page 2 and 3, it shows the company has done a financial engineering to create a one-off gain to make it look as though it is profitable before doing the RTO with Vertex. In Page 3, it shows the company operations is cashflow burning which makes sense why it needs money from Vertex to shore up its own balance sheet. 

The target company, i7live, while mentioned as No 1 in taiwan and Japan has limited growth. Both China and Singapore has a well built live streaming market which means that it can only grow internally within its 2 established countries. 

While i7live has touted about the aspect of live commerce, this is an existing technique used by the established e commerce platforms in the countries it operates in such as Rakuten, hence there is no unique market proposition of i7live.

My View

Overall, its a bad acquisition and why Vertex is doing this is to protect the reputation of its RTO shell management. This is because Vertex is nearing the end of its acquisition period, till now it has not found a good acquisition and if it does not do any acquiring, it will be required to close down and return the money to investors. The management is probably trying to show they have done something to prove their money and in this case, haste makes waste.

Monday 23 October 2023

Yangzijiang Financial: CEO Departure and Mass Sell Off On Monday, Signs of Debt Investment Problem?

 At the end of last week, Yangzijiang Financial (YZJ Finance) announced the resignation of its CEO. The chairman, Mr Ren has returned from retirement to take over the reins.

Signs of Difficulty in Investing in China?

Not much can be gleamed from the resignation notice because it is the cookie cutter reply that the resignation notice is to pursue other opportunities. However, if I were to venture a thought; it could be how difficult it is to invest in China. For Mr Toe, the initial plan was to move more of its investments out of China and into Singapore as a form of diversifying YZJ Finance base. 

However, 1.5 years on, no much has materialised. Instead YZJ Finance has been rolling over its debt instruments in China. This is likely due to the credit crisis in China and that China requires all the capital to save its own economy. YZJ Finance has been 'forced' to put 50% of its assets in China to help the country in distress.

Sell Down in Market

YZJ Finance was in a sharp sell down of 15% to the lows of 28.5 cents. I rebound has been seen with share prices at 31 cents. It is likely YZJ Finance conducted a share buyback. 

The share buyback by YZJ Finance has been one of the weirdest notion. While Chairman and now CEO, Mr Ren, has been emphasising that his company is undervalued, with each passing day as the share price goes lower, the amount of share buyback done by YZJ Finance gets lower. Logically, one would have thought as the share price trends lower, more buybacks will be done. Is this a sign that the cash rich company in fact does not have much cash in Singapore and the cash is indeed stuck in China doing national service? Right now, China is one big black box where cash by many of its companies are tied up somewhere, so many things are now in speculation, creating gyrations and uncertainty among China theme stocks.

Saturday 21 October 2023

6 month T-bill Tranche: Expect 3.85% Yield this Time

The previous T bill landed a real surprise where despite market valuing Singapore 6 month T-bills at around 4% yield, the resulting auction came in at 3.87%.

This was a result of many people who low balled in the competitive tranche with average yield of 3.37%. However, for this tranche I expect less of this low ballers as people would have learnt the lesson that too many low-balling cooks spoil the broth.

Current Market Yield

The current market yield for 6 months T bills is 3.86%

I expect with a few Singaporeans still going to low ball, this tranche of T bills results will be 3.85%.

Sadly, the effects of "tragedy of the commons" is in play; too many low ballers, and all who got the 6 month T-bills suffer. So to all: Stop low balling, bid 3.85% for all to benefit.

Suntec REIT: Danger of Breaching MAS's Limits for REITs in 2024

Suntec REIT has released its 3Q results which shows a definite improvement in revenue due to the improving exhibition segment. However, due to the interest rates hike, Suntec REIT is now moving close to MAS's regulatory limits.

MAS: Leverage below 45%, otherwise ICR equal to/above 2.5

That's MAS's current rule for REITs; falling afoul of it, the REIT has to delever. Below is Suntec's 3Q snapshot of where it is:

At 42.7% leverage and 2.0 times ICR, Suntec REIT has no chance of meeting the ICR threshold. It has to maintain its leverage ratio to be below 45%. This means if valuation falls by 10%, the REIT will need to do equity raising to reduce its leverage back to below 45%

How Likely Will Suntec Face a 10% Drop in Valuation?

In my view, it might not be likely for this year end due to its valuers collaborating to create a close to fraud valuation to protect the REIT. However reality wise, the REIT is tethering towards exceeding the 45% leverage ratio. Here's why:

1. Lease Decay of Suntec Building

Based on Singapore's lease decay and REIT rental reversion for Suntec, there should be about a -0.5% fall in Suntec building's value this year end. This means Suntec CIty Mall should be $2,061,000,000 and Office Towers is $3,102,526,000 (before the effects of cap rate expansion). Hence a $25 million in downward valuation.

2. Cap Rate Expansion

In page 58 of the 3Q report, it shows the cap rate used for its $4.177 billion Singapore office/retail properties is 3.4%-3.5% and retail of 4.25%-4.50% (when Singapore's SORA was 3.0057%). 

Present day, this is an unrealistic cap rate assumption when Singapore's present interbank SORA is at 3.71%. Therefore the logical step would be for 2023's valuation cap rate to be at least 4.1-4.2% for office properties. A revaluation at such a cap rate means Suntec will take a $835 million downward valuation hit

For retail, expected cap rate is 4.75%-5.0%. This will mean about $230 million in downward valuation hit 

3. Effects of the Above

Suntec's assets are valued at $7.908 billion, the effects of the above is a negative $1.090 billion. This will put its assets value at about $6.818 billion and Suntec's leverage to 47.2%. An equity raising of about SGD$200 million is needed to deleverage Suntec REIT to below 45%.

However, in my view, the cap rate used by Singapore valuers for its Singapore office properties will not be 4.1% - 4.2%. Suntec valuers will perform magic close to the act of fraud and I expect the cap rate used to be 3.8% - 3.9% for its Singapore office properties. This will push Suntec's leverage ratio to about 44.5% (just shy of MAS's regulatory limits).

Parting Thoughts

If Suntec's hired valuers are honest, the effect of cap rate expansion, in line with Singapore's SORA increase and lease decay, will put Suntec in breach of MAS's requirements for REITs. Suntec has to do equity raising or hope MAS relaxes its rules for REITs.

Otherwise, it has to turn to the dishonesty of its valuers to help it survive 2024. I will not be surprised Cushman, JLL and especially Colliers will perform excel magic to save Suntec REIT.

Thursday 19 October 2023

Keppel Pacific REIT 3Q Results: Tenancy Rate Still Above 90%, 21% Dividend Yield

Keppel Pacific REIT announced its 3Q results yesterday.


- Quarterly US$13 million in income available for distribution to shareholders. Expected US$52 million for full year;


- Interest expense for debt has increased and this resulted in income available for distributions to reduce;

- Leverage Ratio of 39.1% and Interest Coverage Ratio is 3.3 times (all within MAS's limit);

- Occupancy grew from 90.8% to 91.4% in this quarter, but down from the start of year at 91.9%

Forecasted Dividends

With an expectation of US$50-$52 million available for distribution to unitholders, I expect Keppel Pacific to give 4.5 US cents of dividends. This amounts to about 21.9% in dividend yield.

Its expected rental will grow by about 1% and occupancy seems not to be hit due to its blue chip properties. So as of now, it looks like a good REIT to me.

Tuesday 17 October 2023

October 2023 Portfolio Update: Realised Losses on Country Garden

An update: Given the worsening in China's real estate and especially for Country Garden, I have decided to take realised losses on half of my Country Garden stake. 

It has turned to be a poor decision, thinking that the repayment of August's debt meant things was resolved. It seems Country Garden will be hanging on month to month given the worsening economic condition in the real estate sector with declining home sales to augument its cash inflow.

Added only 2,000 Kep Pacific Oak REIT shares which experienced had a drop in price (due to the presence of low cost stock brokers with no minimum commission, small time investors are able to purchase or sell small lots, a shout out to thank Tiger Brokers for this).

Next, I purchased 200 Alibaba HK shares given there is another movement down in share prices due to news of more chip restrictions by USA on China. Nevertheless, these 200 shares are more for trading purposes and will be sold off when Alibaba hits HK$95-100. There is a trend where Alibaba shares are trading range bound between HK$80-HK$100.

Meanwhile I too have sold off a portion of my Sea shares to lock in gains. However, the investment thesis of Sea remains and it is on its way of turning its e commerce into a cash cow just like what Taobao and Tmall is to Alibaba. The current situtation where Tiktok shop is banned in Indonesia is a chance for Sea Group to grow GMV and convert it into generated cash to add to its growing cash hoard. Below is a snapshot of my current portfolio position:

PRIME US REIT and Keppel Pacific are Unlikely to do Cash Call from now to June 2024, unlike ManuLife US REIT

Following from my previous post which said the main threat REIT faces is the Interest Coverage Ratio, it is likely both PRIME US REIT and Keppel Pacific will not go the route of raising cash from now until June 2024.

Here's why

While devaluation of their US properties will occur, the magnitude of the decrease are unlikely to cause a breach above the 60% leverage mark which would trigger an increase in financing. This is what happened to Manulife US REIT where a massive devaluation caused the REIT to fall afoul of its debt conditions which resulted in marked up interest rates.

For PRIME and Keppel Pacific to go to the above scenario, their properties value must be devalued by 28% and 35% respectively. Given that there have been no sudden news of tenants vacating, I find such a magnitude in devaluation unlikely to happen. Therefore, these 2 US REITs are safe for now

What Happens after July 2024

For PRIME US REIT, 64% of its debt will be due in July 2024. Given it is in the US commercial space which is viewed as a terrible state, it is likely PRIME US's loan will be reset and  renewed at a higher spread from the SOFR rate. This mean it's interest coverage ratio may go below 2.5 times or new debt conditions may be imposed which will make the REIT operations difficult.

Therefore, in my view, the REIT should start to be prudent and reduce its payout ratio from 100% to 90%. It should start accumulating cash to renew its debt facilites at a lower amount. This way, even if the interest rates increase, the loan quantum is smaller and thus it does not breach below the 2.5 times interest coverage ratio. 

For Keppel Pacific, it seems to be in a very strong financial standing with a staggered debt profile. Hence, my view a cash call on Keppel Pacific end is unlikely. Keppel REIT seems to have been unfairly hit down and I do feel it is going to keep paying out US 3-4 cents dividends per year. This will make it a 15% dividend yielder for investors.

Monday 16 October 2023

What Threatens REITs is not Leverage Ratio but the Interest Coverage Ratio

Many of us investors would be aware of the rule where REITs have to maintain a leverage ratio of 50%. However,REITs are in fact able to exceed its leverage ratio to above 50% in cases where it is due to its properties being valued lower or circumstances it can't control with the condition they are not to take on more debts. This means even if a REIT exceeds 50% leverage, it is not in breach of any regulatory requirments.

The key regulatory requirement that investors have to be wary of is the "Interest Coverage Ratio" (ICR).

What is the "Interest Coverage Ratio"

MAS's defines the ICR as "Earnings before interest, depreciation, tax and amoritisation" divided by "the interest expense plus borrowing related fees".

For Singapore listed REITs, the ICR should not be below 2.5 times. 

The equation is simple, either a fall in revenue (which affects the earnings) or a rise in interest expense will adversely affect the ICR ratio. The lower the ICR, the more worried investors will be. In a way, ICR tells us how much of the REITs income is used to service the interest of its debt. An ICR of 5.0 means 80% of the REITs earnings is given to shareholders and 20% of it is channeled towards servicing its debt; on the other hand, an ICR of 2.5 means 60% of the earnings are left for shareholders while 40% is for servicing the REIT’s debt.

How Will REITs improve its ICR?

Revenue is an item that REITs have no control of. Businesses can cease to exist, terminate, or downsize its tenanted spaces. The only variable within the REITs sphere of control is how much it pays its interest. The most efficient method is to reduce its debt which will reduce interest expense.

In the current climate of reduced demand of property spaces and of high interest rates, shareholders are worried. A bear scenario is that REITs do a cash call on existing shareholders in order to reduce its debts and maintain an ICR of 2.5. In my view, US REITs realistically are facing this bear scenario of breaching the ICR of 2.5. US interest rates are stubbornly high, in addition, as these commercial properties are now viewed of a much riskier profile, the spread from the SOFR rate when their loans are refinanced will be at a larger spread. All these will increase interest expense.

As an investor of US REITs, I am cognizant of this risk and have set aside money in the event that I am forced to participate in a rights issue.

Ranking by which REIT will need to do a cash call, my bet is Manulife US REIT, followed by Prime, then Elite Commercial, Utd Hampshire and lastly Keppel Pacific Oak. Manulife US REIT is in a damned position because its sponsor (Manulife) holds a 9.8% stake and will not be able to subscribe to excess rights. This means support for the REIT rights (if it happens) is extremely low.

What I think MAS will do

I foresee in a few months’ time; MAS will announce a temporary reduction of ICR from 2.5, likely the ICR will be reduced to 2.0 to protect REITs. Without any amendment by MAS, a few REITs will face a downward spiral of fortunes. In the worst case, REITs like Manulife US REIT will be forced down the path of a fire sale which will destroy the wealth of Singapore investors but benefit US buyers of distressed assets. Therefore, my bet is MAS will relax the ICR ratio.

Sunday 15 October 2023

Why AK71 Rant About Grab Holdings Being a Bad Investment Makes Sense

Recently, AK71 commented on Grab Holdings to why it has a flawed business which burns cash with Temasek Holdings continuing to invest money into this loss making venture. This in addition to other comments on the poor ennvironment stance on Grab

AK Made Sense, But Unfortunately People Won't Listen

One coment of his was how Grab has been engaging in destructive competition in Singapore hurting its competitors in the taxi industry and in order to grow itself larger, burnt more cash to continue growting and then asking for more money from investors like Temasek. 

Secondly, Grab's model has resulted in the addition of more cars which defeats the purpose of being environmentally green an that is to encourage people to take the public transport such as bus and trains. Grab is doing "green washing" and is not with the true spirit of the sharing economy. 

AK's word makes sense. Since incorporation, Grab indeed has been burning cash and while efforts has been done to narrow its cash burning, the company still burns cash. In a true sense, investments in a cash burning company should always be avoided until they start to turn cash flow accretive (case in point, Sea Group and how it has turned Shopee into a cash cow). Furthermore, AK has further stressed Grab's founder Anthony is taking a salary and does not have much skin in the game of Grab's profitability with only a small stake. This is why he takes the action of being willing to burn a large amount of cash in expansion because he is behaving like an employee instead of a founder-like manner who has fortune/wealth tied to the company.

One commonality for many past successful companies which became cash cows is how the founders had much skin in the game where a large portion of their wealth is tied to the profitability of the company. I do not see this in Grab. Unfortunately, such aspects of investing is difficult and people will listen to the brand name "Grab" and the fact that Temasek has continously thrown in cash as investment with close to zero expectations of getting their money back (meanwhile Temasek hopes its 100% subsidary SP Powers continue to extract more money from Singaporeans in the distribution of electicity to housholds while announcing annual profits as dividends to go into Temasek coffers).

Grab is fast becoming a company which has little value. It definitely needs to raise prices to become a viable investment, otherwise it will be a cash burning venture which places it into the penny stock segment of the NYSE.

Wednesday 11 October 2023

China's Stupidity to Not Use Immigration to Solve the Property and Job Crisis

In yet another epsiode of the unfolding China Property Crisis, Country Garden has warned that it might not be able to meet all its debt obligations. This is due to Country Garden experiencing slowing home sales which means it does not have enough cash receipts (inflow) to meet debt repayments (outflow)

Sales to Generate the Cash flow for Repaying Debts

As China developers have disclosed, there is a lack of sales and this is due to the destruction of speculative demand  especially in Tier 3 and 4 cities. This means only real demand based on population needs is left and the truth is these cities do not need these excess apartments based on their population numbers.

Immigration is the Solution

If there is insufficient demand, the solution is to increase the population to generate more demand. Following the example of Singapore, Singapore opened the immigration floodgate which led to an increase in rental demand for both its private and public housing markets. This helped the Singapore economy to propel itself forward. It's economic composition is similar to China where 35% of the economy is tied to property, however the continued openess to foreigners has ensured property demand is ever present in this small island.

On the contrary, the closeness of the commuist government's stance to foreigners has resulted in the population relying on the growth of the citizernery population. However, with a declining birth rate in China, the lack of growth means there is a depressed real housing demand. If China opens up to foreigners, it will definitely boost rental demand and help solve its property crisis.

The contrast in immigration policy has turned China into the sick man of Asia while Singapore remains the rising kid in Asia. Ironic considering that both population's majority are ethnic chinese just with differing capabilites in government leadership and policies.

Immigration Helps Create Jobs

China faces another problem where it has to create jobs to meet about 20 million new graduates who enter the market each year. Right now, China is unable to meet this wave and youth unemployment has hit above 20%.

The Singapore government has always said that the presence of foreigners helps to create jobs. China should consider the Singapore model because it will help solve the youth unemployment crisis it is facing.

No doubt, the entry of foreigners will erode a national identity but the economy is important. The current government led by Xi Jinping has become close minded and is no longer prirotising the country's economy. As a result, the Chinese Citizens are suffering because Xi Jinping is no longer thinking for the economy but instead to consolidate his political power. This has worried investors who are now realising how the Chinese President has stifled economic growth. With falling confidence in the communist government, private sector money is leaving China which has propelled the economy downwards.

China has to urgently restart its economy or otherwise it will become a repeat of Japan 2.0 with its citizens suffering from decades of stagnating wages. Immigration is the simple answer to solving its two main economic problems of property and jobs. Singapore has proven that it works, and replicating it in China will definitely reap economic rewards.

The tools are there to save the day, what remains is the willingness of the man.

Monday 9 October 2023

BTO Flats for Couples Undersubscribed, Sign of Home Prices to Fall

As of 9 October, 11am, the results stand that HDB BTO application for couples is undersubscribed. Only 0.8 times of the available supply has been applied for and as it stands most will get a flat (only the 5 room flats are over subscribed). My sense is that when applications close on 10 October 2359hrs, it should be just about 1 time only


First this is due to a change in HDB application rules where less genuine buyers, such as those who queue with the whimsical hope to obtain the choicest flats to flip BTO for reason of profits and will reject other flats that are in the best location of the building, will be penalised. 

The current cycle of flat applicants are individuals who genuinely need a HDB flat, along with a proportion who are still obtaining a BTO flat to flip for profits 5 years after receiving the keys. However, the number of individuals in this group is now less than the supply avaliable, as evident by the application rate.

BTO Flat Applicants To Benefit

Given this unique scenario, there could be a prospect of HDB reducing BTO flat prices from the next cycle so as reward Singaporeans who are willing to wait for a flat and to match the flat supplies. 

Personally, I hope HDB will reduce BTO prices by about 10% to incentivise Singaporeans who can wait for a flat and to manage the high housing cost Singaporeans suffer from. Hence, I expect (and wish) BTO prices can be reduced to help Singaporeans given the scenario where BTO flats are now reaching an over supplied state.

HDB Resale Prices Will Fall

Given the laclustre demand for BTOs and with HDB likely to maintain its flat supply for the next few quarterly cycles, this will lead to a second order of effect in decrease of demand for resale HDB because individuals know they can get a BTO flat easily. 

Hence HDB resale prices will start to fall. It may be a good time for individuals to start offloading HDB resale flats they do not need because we should be at the current cycle peak for HDB flat prices, a downcycle of HDB prices should happen for the next few years. For those who can still wait and want a resale, do wait for a year where prices should be lower than where we are at now (despite inflation).

Sunday 8 October 2023

Will US Office Commercial REITs Run Into Trouble with Its Bankers?

Was talking about investing in the US Office Commercial REITs. The risk highlighted was how US office REITs could breach their financial convenant and become a Manulife US REIT. The reply I was given is as follows:

"The big issue / unknown are the banks financing. They will have financial covenants in place. In particular, the "loan to value" covenant could be triggered as office space is being marked down across the US. That could trigger a default. Under such a scenario, the banks are likely to insist that dividends be stopped and cash diverted to repay loans."

This could be what is deterring investors from investing in US Office REITs. To me, the worries faced by investors is valid and can be classified as two types of worries:

1. Banks Loan Recall as Loan to Value Ratio Falls

As described in the above quote, the value of office spaces could get marked down due to an increasing risk free/interest rate globally or due to a fall in demand for ''ready to be leased" office space, the loan-to-value ratio rises till it breaches the contractual agreed value between the REITs and its bankers. This results in the dividend being stopped.

Investors are now holding a 0% yielder. Do we have a real world example? Yes, it is Manulife US REIT. Its downward revaluation of its property assets caused it to breach above the agreed 60% ratio it had with its bankers which caused a stop in dividends.

2, Banks Loan Recall as Loan to Interest Ratio Falls Dangerously

With the rising vacancy in office spaces (not just in USA but across the world as well), the other worry is that the property revenue earned from these REITs ends up below the agreed ratio between the REIT and its bankers. The banks may force dividends to be stopped (which they have the legal right to do so) and the REIT no longer gives dividends. 

Personally I am starting to be worried about this second scenario. Interest rates are still rising on the global scene. While many REITs have hedged their floating interest rates, there would be a time when their hedge ends and they have to pay a higher effective interest rate. To add to that, they are now facing a declining property revenue because tenants realise they don't need that much office space due to hybrid working arrangements. 

For those who are not well tuned to words, I have done a mathematical example:

A 30% drop in property revenue mixed with a 50% rise in interest expense can result in dividends falling by multiple of times.

As the situation worsens, it can deteriorate to a situation where all of the REIT's income is used to service the loan. What was once a high dividend yielding REIT becomes a no dividend yielding REIT. The second type of worry is definitely the more damaging of the 2.

Saturday 7 October 2023

Bid 4% T bills in the next tranche

With global interest rates at higher levels, the expectation is that T bills rate will remain high

Europe and USA are now above 4.50% in interest, I expect global investors will demand about 4% from Singapore. Too low a rate they won't bid.

If Singaporeans play it right, it's possible to extract 4% interest from the government because we might be the remaining few parties interested in the low yield T bill because our cash is stuck here.

In the open market, MAS T bill are trading at 3.96% - 4.03% interest. This is the rate the big boys and foreign investors are paying for our T bills.

REITs that have IPO since 2019 have lost money for IPO Investors

Here is an interesting insight. Since 2019, all REITs IPO reits have not made money for investors who subscribed for it. That includes even the dividends received.

Ironically all REITs IPO'd with the number "8", but it didn't turn out to be auspicious.

What Went Inauspiciously Wrong?

To be exact, it was auspicious to the sponsors such as UOB, Keppel, Lendlease, ARA which profitted from the spinoff while it is the shareholders who were left holding the bag.

2019-2021 was when global interest rates were at its lowest, this meant the risk free and capitalisation rates which valued properties were at its lowest too. Therefore, sponsors could value their assets at a high and IPO as a new REIT. The REIT could be priced at a low dividend yield as well because investors expected dividend was low.

Fast forward to 2023, interest rates are at its peak; due to it property valuations now at its low and a higher diviend yield demanded to compensate for the high risk free rate. With lower property asset prices and higher dividend yield demanded for REITs, as a result, these REIT prices have gone down miserably since its IPO days.

Lesson learnt for long term investors is to never subscribe for REIT IPOs during a low interest rate environment. Keep the money aside and wait till global interest rates reach its high before deploying your cash. In a high interest rate environment, this is when REITs are undervalued; during low interest rate environment, the ones who profit are the companies trying to offload to you like Keppel and ARA.

When companies IPO out their properties as a REIT, it is not because they are charitable, instead they find it is a good time to realise the value of their investments and are trying to offload for most of the gains for themselves.

Friday 6 October 2023

A 30% Dividend US REIT- Right here in Singapore!

There is a REIT in Singapore which is currently priced at 32% dividend yield with a "regulatory safe" debt ratio of 42.8%.

Yes no kidding, it is forecasted to give US 4 cents in dividends and at its current share price of 12.3 cents, it gives a 32% dividend yield. This is the highest US dividend REIT in the whole world! The name of the REIT is Prime US which has Keppel Corporation as one of its main shareholders.

What is the Danger?

While it seems to pass all of MAS's requirements based on current ratio ((1) Leverage ratio of 42.8%, below 45%, (2) Interest Coverage ratio of 3.4 times, above the 2.5 times requirement), there seems to be a reason that the market is pricing the REIT at the same distressed levels of Manulife US REIT.

Possibility of Tenants Vacating

What caused Manulife US REIT to breach MAS's regulatory requirements was due to a few of its big tenants (such as The Children's place) terminating its leasing contract early or not continuing its lease. This resulted in a revaluation which pushed down its asset prices and in turn making it breach the regulatory 50% leverage ratio

PRIME has been silent but the recent share price decline indicates something has happened. Is there a possibility that PRIME's REIT manager are not honest and been hiding news which a few market participants know?

Valuation of Properties Falling such that it Breaches above the 50% Leverage Ratio

The other possibility is that the value of PRIME properties are going to be massively impaired (more than 15%) which will result in it breaching above the 50% leverage ratio. However, for it to be impaired so severely, a large percentage of its tenants must have decided to renew its leases or prematurely terminate contracts. Both of these are issues PRIME should have announced.

In my opinion, PRIME's REIT manager should come clean and give a public announcement that the REIT has no material information (such as a tenant moving out/not renewing its contract/downsizing its leases). It is perplexing that the REIT has been sold down by 10% in just a single week. Hopefully, the REIT manager makes an announcement soon to clear the air.

Thursday 5 October 2023

Sheng Siong- 4% Dividend Growing Machine at a 52-Week Low

Sheng Siong has trended lower in recent weeks and is now at $1.53 (Market Cap: S$2.3 billion). While it is at a 52-week low, do note this was due to Sheng Siong staying at $1.60-$1.70 levels before a decline since August 2023 brought it lower. 

In my view, this could be due to the higher dividend yield demanded from Sheng Siong as risk free level rates went slightly higher. After all, the company is considered a defensive play and is often bought as a defensive dividend stock

TLDR Summary

- 4% Dividend Machine, with potential increase

- Defensive Model priced at the low end of the supermarket spectrum

- Beneficiary of Singapore's Importing of Foreigner Immigration Policy

Business Model and Growth

Sheng Siong operates supermarkets in both Singapore and China. Singapore is where Sheng Siong derives 95% of its revenue. Pricing strategy wise, Sheng Siong positions itself on the low-price spectrum on supermarket branding, thus avoiding Fairprice Finest or Jason (part of Dairy Farm Group). 

Its competitors are NTUC Fairprice and Giant (Dairy Farm Group).

In Singapore, Sheng Siong has been able to grow the number of stores it operates (up 5 stores within the last 6 months). This is due to Singapore increasing its population by bringing in more foreigners, Sheng Siong has been a beneficiary of Singapore's policy of importing more foreigners. As a demand derived business, with each growth in population, a higher level of demand results for Sheng Siong's supermarket.

This has been shown in Sheng Siong's reported revenue which has been growing. In addition, as Sheng Siong has been pricing itself well, sometimes even cheaper than NTUC for a few products, customers has continued to patronise it. Singapore has a tendency to import low wages foreigners to augment its population and this has helped Sheng Siong as it is positioned as a low priced/discount supermarket.

In addition, like most supermarkets, the cash conversion cycle of Sheng Siong is low (it has a negative cash conversion cycle). This shows the business model does not need a lot of money to operate and Sheng Siong itself is lowly geared with virtually no debt. Hence it has a 70% payout ratio which is sustainable.


The company has a payout ratio of 70%. Due to its business model with little cash needs and being lowly geared, Sheng Siong is definitely able to sustain the 70% payout ratio.The question is on its earnings.

Earnings wise, other than its spike in FY2020 profits due to improvement in margins, profits have remained at the S$130 million level. For FY2023, despite a revenue increase, Sheng Siong's margin has fallen, however, it was still able to clock in S$65 million for the first 6 months.

Hence a s$130 million profit for FY2023 is definitely achievable. Using a 70% payout ratio, this means s$91 million in dividends. At its current share price, this points to Sheng Shiong as a 4% dividend machine. With improvement in margins and growing Singapore population, Sheng Siong's profits are poised to rise and in the future, it will give more dividends. A 4% dividend today could be 5% in a few years time.

My Thoughts

With Singapore's growing population due to its immigration policy, Shen Siong's 4% dividend yielding capability is indeed good. In my view, buying the company now is not just buying a 4% dividend machine but into the future, it will be a 5% dividend machines (due to growing earnings)

While I won't advise using cash to invest in Sheng Shiong, unless you are an old investor or one who is aiming for dividends investing, Sheng Siong is a good stock to own under the CPF Investment Scheme where individuals can use their CPF OA money to buy stocks. A 4% dividend company like Sheng Siong is definitely better than keeping money in CPF OA. 

With that in mind, I will start considering investing my CPF OA money in Sheng Siong to take advantage of its growth prospects, negative cash conversion cycle and impressive dividends.

The publication of my posts is solely for informational purposes and is not to be construed as a solicitation or financial advice as I am not a certified financial adviser. My analysis on companies covered are not an offer to buy or sell any stocks and I encourage readers to do your own "due diligence" before investing.

Why It's a Good Time to Buy REITs such as the US REITs

Singapore REITs are at their 52 weeks low. This too is observed for the foreign SGX-listed REIT.

Why are They at Lows?

REIT share prices have an inverse relationship with global interest rates- the higher the global interest rates, the lower the share prices of REITs are. This is because investors will demand a higher dividend yield. Hence prices have to go down for REITs to be priced at a higher dividend yield

Secondly in a high interest rate environment, REITs have to pay more for their interest expense. Hence even if their property revenue grows, it is unlikely their net profits will grow fast enough, therefore dividends stagnate or even fall, hence share prices fall.

Higher for Longer

Central bankers have said interest rates will remain higher for a long time (until end 2024). While interest rates are high, 1-2 more rate hikes are expected from now until end 2024. With rates not going up much, I am of the view that REITs are starting to become a value proposition.

With the inverse relationship of REIT share prices and global interest rates, once 2025 comes, we can expect REIT share prices to go up when interest rates go down. This is why I think REITs are now a good investment class to look in.

Which REITs will Survive until 2025?

Of course, presently a few REITs such as Manulife and EC reit have gone under. However, I would like to caution using the word "go under" or "bankrupt". This is because it is difficult for REITs to go bankrupt. What actually happens is that as they breach leverage and/or interest coverage ratios and then raises money to improve their balance sheet. Therefore the REIT survives but shareholders are severely diluted and will not benefit much from future upside of the REITs. Its only in the REIT occasions where the REITs property value falls 40-50% where property value exceeds loans.This is where the REIT does go bankrupt and shareholders loses everything.

Take for example, Manulife US REIT, it has breached all its financial borrowing ratios. The REIT has not become bankrupt yet, its assets are still higher than its debts; instead it is now looking at cash raising which will dilute shareholders or is selling its properties to protect itself. Shareholders are not going to benefit much from the upcycle.

So which REITs are now good to buy with lesser downside of shareholders being diluted? In my view, it is definitely the Singapore REITs such as Keppel or Capitaland or Mapletree REITs. However, the future upside of these REITs are low as they have not fallen much.

For those considering high risk/high gains, I would say the US Sector is an interesting sector. Unitedhampshire, PRIME, Keppel Pacific US (KORE), Digitalcore REITs have a higher upside along with a higher risk scenario of breaching its financial ratios and need shareholders to fork out cash or sell properties to shore up their balance sheet.

Many of these US listed REITs have leverage ratio above 40% and it is likely they will breach the 45% rule and move towards 50%. The other benefit of US listed REITs is that their properties are freehold which prevents them from suffering of the effects of decaying lease like what Singapore and China REITs suffer from. I have written in the past, where I view Keppel Pacific (KORE) has one of the strongest financial footing and will survive the 1 year plus interest rate storm. I do think a doubling of their share price is possible. 

PRIME on the other hand is more speculative and a minor cash raising is needed to improve the balance sheet. The REIT manager of PRIME is not the best in their class and have a large loan maturing in a 9 months time at the peak of the interest cycle. 

The publication of my posts is solely for informational purposes and is not to be construed as a solicitation or financial advice as I am not a certified financial adviser. My analysis on companies covered are not an offer to buy or sell any stocks and I encourage readers to do your own "due diligence" before investing.

Tuesday 3 October 2023

Higher Interest Rates In Most Countries, But Surprisingly Singapore's Lending Rates Remain Unchanged. There could be a Reason Why

While news of US Fed & Europe Central Bank rate hikes have occurred (up 0.25%), strangely in Singapore, the key lending rate has not risen. The official lending benchmark Singapore uses is the 'Singapore Overnight Rate Average' (SORA) and this is how it looks pre and post announcements of rate hikes announced by other countries' central banks.

MAS's SORA (daily)

Does Singapore Interest Rates Follow Global Interest Rates

Contrary to what our school teaches that Singapore has an open economy with floating exchange rates etc, Singapore does not seem to conform to the unholy trinity of economics; in fact Singapore has been able to keep interest rates low while the rest of the world hikes interest rates.

The 3 month SORA rate has not moved up/down since July 2023.

Will it Last?

In my opinion, the suppressing of lending rates in Singapore is due to the high leverage of households owning properties. Most property loans are tied to the 3 month SORA rate and should SORA rates move up to the level's of US SOFR rate (5.25%) or Europe's (4.50%), the debt burden on Singapore household is tremendous. Magnitude wise, interest financing of Singapore properties could go up by 25% and this will impact both REITs and property speculators.

Hence my suspicion is that Singapore lending rates will continue to remain artificially low due to economic sorcery. 

The secondary effect is that the continuous low interest rates will ensure Singapore REITs are able to report low capitalisation rates (cap rates). As recap, a higher interest rates means REITs have to report lower property valuation. The US REITs suffered from this fate where the high interest rates caused their leverage ratio to go from low 30% to 45% level. 

Singapore REITs too face the danger of facing an elevated leverage ratios when Singapore interest rate rises, which could pull down the entire Singapore stock market as well as cause a credit crunch.

Personally, I am using this economic anomaly to borrow some loan in Singapore dollar and invest in overseas assets because the overseas risk free rate is so much higher than Singapore's. While this is not an adviced approach, it begs the question of why Singapore somehow keeps its interest rate low. My suspicion is that MAS seeks to protect overleveraged property speculators.

I have came across a blogger who mentioned we should not be a frog in the well and start to worry about high interest rates. However, in the well this frog lives in, it seems to be written as a fairytale by a pineapple god with lightning abilities.