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Tuesday, 1 October 2019

Lendlease Global Commercial REIT - Balloting Results

Lendlease Global Commercial REIT ("Lendlease REIT") announced that its placement tranche was 9.9x subscribed while its IPO was 14.5x subscribed. There was strong demand from over 100 institutional and corporate investors.

Investors who applied 50,000 units has 60% chance of being allotted 5,200 units. This is actually quite pathetic but you can see that the Issuer favoured "smaller applicants" whereby the more you apply, the lower the chances. πŸ˜€


Mr Kelvin Chow (ε‘¨ι’‚δΈš), Chief Executive Officer of the Manager, said, "The strong
support from Cornerstone, Institutional and retail investors underscores the strength
of our high quality portfolio of stable cash flow generating commercial assets
strategically located in two gateway cities with attractive retail and office markets."
"This resilient portfolio checks all the right boxes necessary to generate long-term
stable distributions for our Unitholders with visible organic growth potential through
built-in rental escalations and positive market dynamics, as well as inorganic growth
from the support of our strong Sponsor's established platform whose development
pipeline is approaching A$100 billion," he added

Trading will start tomorrow at 2pm. 

Congrats to those who were successfully allotted. Mr. IPO applied for 50,000 but did not manage to get any!

Happy Lendleasing


Sunday, 29 September 2019

Lendlease Global Commercial Reit


Lendlease Global Commercial Reit ("Lendlease Global REIT") is offering 387,474,987 Units for the IPO at $0.88 per unit. The IPO will close on 30 Sep 2019 at 12pm and start trading on 2 Oct 2019 at 2pm. The number of units for public tranche is only 22.727m (meaning just $20m in value). Based on the IPO price, the market cap will be S$1.56 billion.

About Lendlease Global REIT

Lendlease Global REIT is established to invest in a diversified portfolio of income producing real estates globally in the retail and office sectors. 

About the Sponsor - Lendlease Corporation Limited

The Sponsor is part of the Lendlease Group, a leading international property and infrastructure group listed on the ASX, with operations in Australia, Asia, Europe and Americas. Lendlease Group currently operates in 8 countries, which it believes to be most resilient and stronger performing. Lendlease Group is one of the largest developers in the world, with a global development pipeline value approaching A$100 billion.

As you can see from the snapshot below, Lendlease Group has a market cap of A$10b and is trading at a PE ratio of 21.7x. (To contrast, Capitaland has a market cap of S$17b and trading at PER of 9x)


The Lendlease Group has a portfolio of 21 urbanisation projects across 10 Gateway Cities,
some of which include: Barangaroo South (Sydney, Australia), Melbourne Quarter
(Melbourne, Australia), Paya Lebar Quarter (Singapore), The Exchange TRX (Kuala Lumpur,
Malaysia) and Milano Santa Giulia (Milan, Italy). 

If you ask me why there is such strong interest in this IPO by cornerstone investors, it is most likely due to the strong sponsorship of Lendlease, where more assets are likely to be injected into this REIT in future. I am glad they have chosen Singapore as the listing venue.

There are many pages of Right of First Refusal ("ROFR") Agreement in the prospectus. Basically it means that if conditions are met, Lendlease Global Commercial Trust will be given a ROFR on the properties owned by Lendlease Group in the office or retail sectors.



IPO Portfolio properties

There are currently two properties in the initial portfolio :
  • 99 year leasehold interest in 313@somerset in Singapore
  • Freehold interest in Sky Complex located in Milan, Italy


The Grade A office building is located in Milan Metropolitan Area. I have been to Milan several times and i like that city. According to the prospectus, Milan is Europe's 4th largest economy and has an attractive office market.

The office building is located 5km from the CBD and well connected by subway, high speed and airport. The building is 100% leased to Sky Italia, an Italian satellite TV station owned by Comcast Corporation - the second largest broadcasting and cable TV company in the world by revenue. It has a single long term (12 + 12 year) lease since 2008 with an annual rental "step-up" structure that tracks ISTAT CPI Index. You can assess the August CPI movements here. I know how the step-up feature works but i am not sure if it will adjust downwards if the index variation is downwards.

While the depreciating Euros may be a concern to some, i always feel that foreign properties cut both ways and can provide some diversification as well.  



While the mall is well connected and sitting above Somerset MRT on Orchard Road, I personally don't really like to shop at 313 Somerset and can count the number of times i visited the mall.

I also don't like the fact that it is leasehold in nature (99 years old) - old mindset but they are similar in status to buildings owned by Starhill Global (Ngee Ann and Wisma) and SPH REIT (Paragon) a few blocks away.

The lease expiry of tenant in 313@Somerset is show below with 12.2% of the existing leases expiring in FY2020 and FY2021. The occupancy rate is around 99.6%. The lease usually comprise a base rent and "turnover" rent - calculated as a % of tenant's gross turnover. 58.9% of the leases have step up structures for FY2020, with average rental escalation of 3%, providing stable and growing rental income stream.


The IPO Portfolio has a very strong occupancy rate - this also means that it is already operating at "maximum" capacity.



The beauty of the rental structure is the "rental escalation" clauses built into the rental agreement. This is only possible if there is pricing power by the landlord. It will also depend on the rental prices in surrounding buildings. With the lack of new supply coming up in Orchard Road, my guess will be the rental prices is likely to remain stable.



The tenant bases is well diversified with the exception of Sky Italia. On that count, Sky Italia signed a a long term contract (12 + 12) years with built in escalation based on inflation index. It is a high quality tenant with no "bad debt" issue as of now.


Forecast P&L

The forecast is presented below. You can see that the yield is rise from 5.8% to 6% in FY2019 and FY2020. However, you can also see a distribution adjustments (footnote 3) that boost the amount available for distribution. This comprise 100% of the Manager Base Fee, Performance Fee, net change in fair value that will be paid in Units.


Distribution Yield and Policy

The first period will be from Listing Date till 31 Dec 2019 and the distribution will take place in Q1 2020. The distributions will take place every 6 months thereafter.



Peers Analysis

I have chosen malls that are close to 313@somerset as peers and that includes Starhill Global and SPH REIT and Frasers Centerpoint Trust. I have also included Capitamall as they own Plaza Singapura and many malls in Singapore.



You can see that Starhill Global is pulling the average down (meaning it offers better value) than Lendlease whereas investors in Capitamall and SPH should "switch out" of their investments into Lendlease. At 5.8% and projected to grow to 6%, i believe Lendlease is attractively priced.

Assuming a fair value range of 5 to 5.5% and price to book of 1.15x to 1.25x price to book, the fair value range will be between $0.93 to $1.



What i like about Lendlease Global Commercial REIT
  • Strong Sponsor - The Sponsor is reputable and well regarded in this sector. The fact that it has set up the REIT for both retail and commercial properties bode well for investors. It means that the Sponsor is not seeking to launch multiple REITs
  • Quality Cornerstone investors - Separate from the offering, the quality list of Cornerstone Investors include Blackrock, Fullerton, Lion Global, Nikko Asset Management. They will subscribe for an aggregate 453.785m units.
  • "Fair valuation" - in a world of inflated assets, it is priced fairly in terms of both "yield" and price to book relative to its peers. If Lendlease Group makes the REIT its main REIT vehicle (as intended by the ROFR), i believe it will rival capitamall Trust one day. The projected yields are attractive in today's yield environment
Some of my concerns
  • Price to book of 1.08x - In a world of bubbling assets valuation, Lendlease "maxed out" its valuation for the IPO. The NAV per share is around 81.34 cents compared to the IPO price of 88 cents. However, if you compare the valuation against its peers, it is relatively "cheaper"
  • Environment in Europe is uncertain - The political and economic environment in Europe is uncertain, especially those in Italy. The Euro may weaken further against major currencies.
  • Trump is getting crazy - In the worst case scenario, Trump will likely escalate the trade wars and delist China companies in US and it is the uncertainties which market dislike. A global market recession is on the cards?
Mr IPO Chilli Ratings

My own view is that Lendlease Global Commercial REIT is attractively priced in terms of both yield and valuation. The low interest rate environment and volatile markets means that REITs will continue to be favored by investors seeking to invest in real hard assets.  That coupled with a strong sponsor means that this IPO is a 3 Chilli rating for me.  

It is polling time

You can do the poll here.




Tuesday, 16 July 2019

Prime US REIT - Balloting Results

Prime US REIT announced that it has allocated 40,909,000 Units for the retail offering versus the 16,761,000 units disclosed in the prospectus.


The balloting table is as presented above, where everyone who applied received a very "meaningful" number. Those who applied below 99,900 units received full allocation and only those who applied above 100,000 received a partial cut back. In any event, i think everyone got more than what they "bargained for", didn't expecting the bookrunners to increase the amount for retail offering by "re-allocating" from the placement tranche. 

It is funny why Prime US REIT never announced the results for the entire offering, including the placement tranche.... πŸ™„ The Manager also announced that over-allotment of 22,727,000 Units were exercised for "stabilisation" purposes. 

Good luck to those who applied.  

Saturday, 13 July 2019

Prime US REIT


Prime US REIT ("Prime" or "the REIT") is offering 335,203,200 units in its IPO at US$0.88 each (or S$1.20 per unit). The placement tranche of 318m and public offering of 16.761m units will be held concurrently. The offer will close on 15 July 2019 at 12pm and IPO proceeds will be used to fund the acquisition of the properties.

Prime US REIT comprise investors exposure to a portfolio of prime Class A Office Properties across the United States. The objective is to achieve long-term growth in DPU (distributions per unit) and NAV (net asset value). Prime US REIT is the 3rd US Office Reit to be offered on SGX after Manulife US REIT and Keppel-KBS US REIT.

I am glad to see the REIT market in Singapore developing well although the recent US Hospitality Trusts did not perform too well. 

Portfolio

The portfolio comprises of 11 freehold Class A office buildings with high occupancy rates that are located in key business districts or urban centres. A loan was used to finance part of the portfolio and the gearing ratio at IPO is around 36%.


What i like about Prime US REIT
  • Quality portfolio - The portfolio comprised 11 Class A office buildings with freehold titles and high occupancy rates. The occupancy rate for 2018 is around 95.7% and that is expected to increase to 97.5% in FY2020. Except for 2 cities Philadelphia and St. Louis, the rest of the states where the properties are located seemed to be experiencing above average population and employment growth

  • Well diversified tenant base - Prime is not overly-reliant on any single tenant. Top 10 tenants made up 43.5% of the portfolio with weighted average lease of 6.7 years and the largest tenant is Charter Communications and contribute around 7.9% of the rental income

  • Well spread out lease expiry profile of 5.5 years - The long tenure provides income stability over the foreseeable future. That is why residential and commercial REITs command a lower interest rate than hospitality trusts.

  • Organic growth is highly likely - from both built-in rental escalation clauses of between 1-3% as well as headroom for upward rental revisions
  • Attractive distribution yield with long term debt maturity profile - The first debt of $67.2m is due in 2022.
  • Well supported cornerstone investors  - This IPO seemed to be better coordinated where the cornerstone investors have already been properly lined up. Cornerstone investors include AT Investments, Keppel Corporation, Times Properties (SPH), Trusts of Linda Bren and Schreiber, Private Banking clients of CS and DBS and Hiap Hoe Limited.

Some of my concerns
  • Tax Regulations may change - Currently US REIT investors enjoy a better yield on the basis that the distributions are not subject to withholding tax provided the largest investors holds less than 9.8% of the REIT and that certain tax regulations does not apply. If you recall, just a short while ago, Manulife US REIT and Keppel-KBS US REIT suffered from fears of 30% US withholding tax. With Donald Trump being nationalistic and antagonistic from trade to currencies to taxation, this is a risk that will surface from time to time
  • ATM Applicants should be aware that the forex rate is already fixed - Similar to other IPOs, the Issuer has fixed the USDSGD rate so that applicants will not "suffer any losses" if they are not successful in the application. As such the contracted rate of 1.3636 is higher than the current spot rate of 1.3574. IPO flippers should take note that they will suffer an immediate forex loss. For applicants like myself with USD balance, i can't use my USD to apply unless it is via the placement tranche.  As such, you should apply if you intend to hold for the longer term and do not mind the USD exposure
  • Long holding period before first pay out - Do note the first payout will only happen in on or before March 2020. As such, buying an existing REIT such as Manulife or Keppel KBS with known payout dates may be more beneficial
  • Potential conflict of interest is real  - It is probably material enough to disclose how conflict of interest, whether with Keppel KBS US REIT or internally with other strategies managed by the same advisor will be addressed. While on paper, it looks like the concerns have been addressed, it is nevertheless raised some concerns. As we all know, there are many ways to skin a cat.

  • How KBS behaved in Keppel KBS USD REIT hasn't been particularly encouraging - I invested in Keppel KBS USD REIT during its IPO and suffered through a highly dilutive rights offering. The silver lining was i took a bet and applied for more rights and in the end, came out fine as the share price recovered. Investors who did not subscribe to their pro-rata rights issue will be badly diluted. I believe this will be how they behaved going forward with regards to portfolio acquisition - except that this time, they have a bunch of higher quality cornerstone institutions and manager who may provide a better course of action than just a dilutive rights offering    
Distribution Yield

The projected yield is 7.4% for FY2019 and 7.6% for FY2020. The first distribution from listing till 31 Dec 2019 will be paid in Q1 2020.



Peer Valuation

Prime US REIT is listing at a price to book of 1.04x with a current FY19 yield of 7.4%.

According to Capital IQ, Manulife US REIT is trading at 1.05x and yield of 6.3% and Keppel KBS USD REIT is trading at 1x book and yield of 6%.

According to the latest RHB research report for both REITs, the forecasted yield is 6.8% for Manulife and 7.8% for Keppel KBS USD REIT. 

Based on the above reports, Prime US REIT seemed to be have a slight upside bias when compared to Manulife REIT and fairly priced against Keppel KBS USD REIT, although i would hazard a guess that the portfolio in the Prime IPO is a tad better than Keppel KBS USD REIT.

Other Sources of Information

A few other bloggers have done extensive research or covered more details in other aspects. You may want to refer to the postings as well.

Given that this is one of the largest IPO this year, there should be ample supply to meet the demand, especially this is right after two hospitality REITs.

As you can see in the case of Eagle Hospitality REIT, the name of the sponsor is very important. While Keppel KBS-USD REIT did not help augment the Sponsor's reputation due to the super dilutive rights issue, the saving grace is that the share price has since rebounded. In addition, i think this time round, they are "wiser" to anchor more known and reputable cornerstone investors for the IPO. If you don't trust KBS, at least you should give face to the anchor investors - Keppel, SPH, Hiap Hoe etc. These anchor investors can probably help mop up some rights offering in future so that it can be less dilutive to investors. 

When compared to its listed peers, it is priced more attractive relative to Manulife REIT but a tad worse than the yield forecasted for Keppel KBS USD REIT. This is probably right as the portfolio of Prime is better given that they are all Grade A freehold office properties. The fact that this is an "office REIT" will entice more investors than "hospitality reits" as the income is more stable. I would expect Prime US REIT to be much better received than the hospitality trusts.

Assuming a fair value range of price to book at 1.0x to 1.1x and yield of 7% to 7.4%, the fair value range will be US$0.85 to US$0.93 cents. I will give it a 1.5 chilli ratings for the IPO. 

Having said that, the IPO chilli ratings is not for short term punt as it is not intended for flipping.

Polling Time

You can take part in the poll here.


Sunday, 7 July 2019

Happy 12th Anniversary


Today is 7 of July 2019 - 07.07.2019. A whole 12 years has passed. My first post was horrible 😫 and my last anniversary post was here!

I started this blog with a very simple intent, to blog about why i decided to punt an IPO or not and this blog has actually grown to have a life of its own πŸŽ‰ 


It 's really quite heartening to see the readership base growing to 7,154  albeit the growth has slowed to a single digit 4% in 2019. πŸ€•  I will need to find some ways to improve πŸ†™ the growth rate again. 

The poor growth rate is probably a reflection of the poor IPO markets in Singapore that affects my readership bases and lack of good quality companies seeking listing in Singapore. Other than REIT sector that is still going strong, the market cap of those de-listings probably outweigh those seeking listings. This is a structural problem that require almost immediate attention but i don't think the relevant parties know where to begin.πŸ€’


Hope the 2nd half of 2019 can be a better year for Mr. IPO, he has been eating "grass" 🌡 for a long time already... and if this continues ... may end up in πŸ˜‡ 

On a lighter note, thank you all for walking this journey with me. My life would not be the same without your companion.



Wednesday, 19 June 2019

Astrea V - Balloting Results


Astrea V announced its balloting results today. Unlike equity, the bonds will only start trading on this Friday, 21 June 2019.


As stated in their press release, all applications below $50k received some allocation and 75% of the $180m shares went to them, "reflecting the Issuer's desire to allocate to smaller retail investors".

I am pleasantly surprised at the 50% chance of being allocated a meaningful amount. To apply $50,000 and have a 50% chance of receiving $16,000 worth of bonds is definitely not a bad outcome. Those who applied for $1m shares now receives $50,000 rather than $11,000. That should at least make them "happier" for now. πŸ˜† 

As for me, I am really the "salty olive" ☹️ .... couldn't even get any at 50% chance πŸ€ͺ


Congrats to those who got it! ... Make Astrea part of your bond ladder portfolio. 

Saturday, 15 June 2019

Astrea V Class A-1 PE Bonds


Astrea V is offering 3 classes of bonds of which S$180m of the Class A-1 Bonds ("the Bonds") are available to retail investors. The public offer will end on 18 June 2019 at 12 noon.

The remaining $135m Class A-1, US$230m Class A-2 and US$140m Class B Bonds were already fully placed out through a placement tranche.

Details of the 3 different classes of bonds are summarised below:

Key points to note about the Class A-1 Bonds:
  • Interest rate of 3.85% per annum
  • Interest is payable every 6 months on 20 June and 20 Dec each year
  • The Bonds will be redeemed on 20 June 2024 (5 years) if conditions are met. 
  • The Bonds are expected to be rated A by Fitch and A+ by SnP. 
  • There will be a bonus of 0.5% of the principal amount for Class A-1 if the Performance Threshold is met.
I am not going to repeat the good work done by other bloggers:

You can read Financial Horse' piece of Astrea V here
You can also read about Bondsupermart research on Astrea V here.

In addition, the Issuer has spent a of efforts to educate investors on how what is private equity and how Astrea V PE Bonds work. Go watch the Explainer Video below


and listen to the management presentation below.


You will find all the resources you need on its website here. Don't be lazy! πŸ˜†

The structure is also highly similar to Astrea IV, you can read my write up here.

As such, in this post, i will not repeat what the management has already said but will touch on 5 key points that investors will likely want to know.

1.  How was the 3.85% Interest Rate Set and is it relatively attractive?

According to management, the interest rates for all the 3 tranches were priced by institutions and the same rate for Class A-1 was then offered to retail investors, meaning that the interest rate was set by a proper book building process.

The placement tranche was 7.3x subscribed (around US$3.4 billion received) and 70% were placed out to high quality institutions such as Insurance, Endowment and Foundations. The remaining 30% were placed out to high net worth individuals. If you recall, Astrea IV was "only" 4.5x subscribed.

There was a significant step up in orders from Institutional Investors, meaning that the PE Bonds has now gained wider acceptance since its first launch in 2016. This led to more participants for the offering and thereby lowering the rate (sadly for us).

According to my friend working in the fixed income department of one of the leading insurance company here, the Class A-1 book was very very hot investors, with over 10x demand for the S$135m bonds. Many investors were cut back drastically. In his words

Issuer could have tighten the Class A-1 pricing all the way down but have decided to leave "some money on the table", probably to benefit retail investors.

Investment Moat has done some analysis on the current trading levels of Astrea IV. However, he has used the yield to maturity to 10 years which is actually not right as Astrea IV PE Bond for Class A-1 is most likely (99%) going to be redeemed at end of Year 5. According to the same bondsupermart website, the yield to call for Astrea IV Class A-1 is around 2.124%. Including the 0.5% interest rate, the yield to call is around 2.27% based on the last traded price of 1.065.

In this regard, the Astrea V Class A-1 Bonds of 3.85% is actually quite attractive compared to the current trading levels of Astrea IV Class A-1 Bonds even when you add in a one year extension premium.

If I look at where the trading levels of Astrea IV Class A-1 Bond is currently, there is probably some upside but do note that this "upside" is meaningless if one buys at IPO and hold till maturity as the returns are fixed at 3.85%.


If I compare against the risk free Singapore Savings Bonds, the 5 year average interest is now 1.98%. As such, at 3.85%, the spread is around 187 bps. If you intend to hold till maturity, you will have to judge for yourself whether you are better off earning a lower interest of 1.98% in the SSB or earn the 3.85%


2. Is Astrea V portfolio better than Astrea III and Astrea IV?

The Astrea V portfolio is 5.4 years compared to around 7 years for Astrea III and Astrea IV. According to the SnP report (page 3), the younger portfolio is actually a "strength" as it has higher upside potential over the remaining life
We also see similar comments from Fitch whereby its says that 84% of the funds in the Astrea V portfolio are in the top 3 quartiles and 54% of the funds exposure are in the top 2 quartiles. If you superimposed the funds quartile on the historical performance of the funds in the different region, you will know that this portfolio is a "solid" one with great potential to outperform the median cases. 


My conclusion is that this portfolio is even better than that of Astrea III and Astrea IV as a younger portfolio has more upside potential. The cash flow will become generative over the next 5 years and this will be able to meet the cash flow needs of Astrea V.

3. How has Astrea III and Astrea IV performed? Does it has any bearing on Astrea V?

The answer is no and yes. 

Astrea III has performed well and the bonds have been upgraded. The LTV has also fallen to around 31% in Jan 2019. In addition, the Class A-1 bonds of 3 years (3.9%) will be fully redeemed in July this year.

Astrea IV has done well as well with Fitch upgrading the Class A-1 to A+ in May this year. In addition, it has just paid out the second distribution date interest rates. You can see the report here. In fact, the reserves is on schedule at US$79m and the Performance Threshold is at 46% (145m out of 313m) after one year. Meaning there is a high chance that the bonus of 0.5% will be triggered once it hits 100%.

No - Each Astrea is different and unique and the assets are ring-fenced. Past performance is also not an indicative of future performance.

Yes - You can see that the Manager has established a strong track record. I guess that is part of the reason why we see more institutional participants in Astrea V as track record do mean something. 

4. Will we likely see a default similar to Hyfliux or Swiber? Is there a possibility that i will lose my capital? 

The answer is that default risk is very remote. While the schedule call is on year 5, the legal maturity is 10 years. In the event that investors get extended, then Class A-1 bonds holders are compensated with a step up in interest rate. 

Let's analyse what the default risk is for Class A-1. The Issuer has done some severe stress testing using historical data. (Read page 141 onwards). You can see from the table that under severe stress testing, Class A-1 will be paid on year 5.5 and Class A-2 in year 7 (due to the timing priority in redeeming Class A-1 ahead of Class A-2). 

In addition, that was validated by an independent 3rd party research consultant from Harvard. You can see from the probability table below that Class A-1 will at most be delayed till year 6 (12th period) but 99.3% chance that they will be redeemed in year 5. 


SnP  also concluded that its modeling results gave Astrea V Class A-1 a "AAA (sf)" rating but was unable to give it such a rating due to its rating constraints. "AAA sf" rating is actually quite close to a "Temasek" rating and pretty rare in today's world. I would venture to say that the risk of low for Class A-1 is very very remote. If you think about it, given that the reserves is on a straight line basis over 5 years, we only need 2.5 years of scheduled reserves to fully de-risk Class A-1 Bonds as they have a timing priority in the redemption at end of year 5! 



I was trying to tie the portfolio value to the loans issued and was looking at the financial statements and cash flow of Astrea V. Given that the portfolio is newly acquired, i noted that there is a $70m cash in the balance sheet. This is probably the "leftover" cash from the portfolio acquisition. In other words, the real "Loan to Value" of Astrea V is actually much lower, at 43% if we include the beginning cash balances. 

In prior Astreas, the structure always keep the cash received from 1 April to the Issuance date. See the first distribution report for Astrea IV page 6, where $14m was from beginning cash balances. In other words, the first period of cash flows are already well covered unless all the cash are drawn for capital calls from the underlying funds (which are unlikely).  

Finally, the last question that you want to know:

5. What is your IPO Chilli ratings and how do I get some shares?

As you are aware, my chilli ratings are designed for equity IPOs and bonds are not meant for "flipping". If you force me to use the same ratings on Bonds, i will give it a 3 Chilli for the very very low likelihood of default and a 2 chilli rating for the interest rate. While it is priced attractively relatively to the current trading levels of Astrea IV, i would nevertheless prefer to see the bonds paying a more attractive coupon of at least a 4% handle. 

However, beggars cannot be choosers and i truly appreciated the work done in bringing such innovative products to the market.  There is hardly any rated bonds out there and I would buy this bond at 3.85% anytime over the unrated 3.03% Singapore Airlines Retail Bond as my risk is diversified over 862 companies.  

So coming back to allocation, this is the paradox we are facing. Nobody "wants" the SQ bond and you could have gotten close to what you asked for as Company can easily upsize the issuance. In Astrea V, you can't. The bonds are fixed at S$180m and this will have to be shared with all the applicants.

So what is the application strategy?

In the gatefold, the Company actually stated its allocation policy. This is the first time i ever see that an allotment policy being mentioned. This means that the Issuer probably know that based on prior subscription of 7.4x, Astrea V is going to be similarly over-subscribed and would like to let investors know about this "allocation policy".


I have no issue with such an allocation policy, in fact, i am truly glad to see that they are being upfront about it and listen to feedback from investors. I am just not sure if all the applicants who applied for $50,000 or more will know that they are subject to ballot as they may have wrongly assumed that the allocation policy will be the same as Astrea IV. 


So my prediction is this (assuming same subscription rate as Astrea IV):

If you apply for less than $50,000, you are going to be allotted $5,000 or less. (maybe slightly more due to the bigger issuance this time)
If you apply for more than $50,000, you should get at least "double" of what you got last time in each band. 

If you control many CDP accounts (wife, kid, grandfather, grandmother) and you intend to hold till maturity, then it is better to spread your applications (say $20k per application) around to as many applications as you can. If you don't have the luxury and you trust only your own CDP and yet still want to get more shares, then I would encourage you to just go for it.  πŸ˜‚ 

Using the example of applying $20,000 each using 5 accounts, you will likely get 5 x $5,000 = $25,000 bonds. If you apply for $100,000, then you are subject to ballot and if the lucky stars shine on you, then you may get $14,000 worth of bonds. 

Do you want to bao tiok (100% get allocated) or do you want to tikam (ballot) in exchange for a more meaningful allocation? This is the vote for today!

Polling Time - Are you going to apply for Astrea V Class A-1 Bond?

You can assess the poll here or click on the picture below.






Tuesday, 28 May 2019

Alliance Healthcare Group Limited


This will be a quick report as I am traveling for work this week. I am not going to spend too much time given the small public offering. 

Alliance Healthcare Group Limited ("Alliance" or "AHG") is offering 32m shares at S$0.20 each for its IPO on Catalist - for which 31m shares will be through the placement tranche and the balance 1m through the public offer. The offer will close on 29 May at 12pm and starts trading on 31 May 2019 at 9am. The market cap based on 207.888m shares is around S$41.6m

Principal Business

The Company is in four key businesses and uses technology to provide a broad suite of healthcare services primarily in Singapore:
  • Managed Healthcare Solutions
  • GP Clinic services
  • Specialist Care services
  • Pharmaceutical Services
The Company owns 17 GP clinics across Singapore under the "My Family Clinic (16)" brand and "Lee Clinic (1)" name  and 5 specialist clinics.

Financial Highlights

Revenue for FY 2019 was S$33.8m with profits of S$3.1m. Using 3M2019 figures, it seems that 2019 revenue and profit will be down. In addition, it is quite "counter-intuitive" to see Specialist Care having the lowest profit margin versus GP clinic services. Probably it means that the docs are paid more as Specialist and wouldn't share their profits with the group vis-a-vis the more generalists. It is also more common to see the investment holding and admin and management services costs being "pro-rated' against the different business units rather than having a "negative" profit margin there. 

Valuation

According to the prospectus, the PER (assuming service agreement is in place) for FY2018 is around 12.1x. There will be 207,888,352 shares and at 20c per share, a market cap of $41.6m.

Dividend

The Company intends to pay at least 30% of its net profits after tax for FY2020 and FY2021 as dividends.

Peer Valuation (Source CapIQ)

 You can see that the valuation of peers is quite ridiculous at 22x PER for Talkmed.

Assuming it trades to 12-15x for Alliance, then the 'fair value' range will be 20 to 25 cents.

My Chilli Ratings

For a short term flip, the tight number of shares, the low quantum of 20c and relatively cheaper valuation seemed to be catalyst for a good debut above 20c. However, the weak IPO and market sentiments will weigh down the counter. In any case, the public offering is pretty small at 1m. 

I will give it a 1.5 chilli rating for the short term flip and 1 chilli rating for the longer term fundamentals. I will not be participating in this IPO. 

Saturday, 25 May 2019

Five things you want to know about the upcoming Astrea V PE Bonds


I believe there will be a lot of interest for the upcoming Astrea V Class A-1 PE Bond looking at how oversubscribed it was in Astrea IV (7.4x). 

I will do a "sneak" preview first before I do a more detailed analysis when the public offering starts since some of you may be keen to get your hands on the placement tranche. 

Here are 5 things that you may want to know about the offering. 

1. Interest rate (Pricing) for the bonds will be determined by a book building process

I think this is the question on everyone's mind. What will the interest rate be? 

The interest rate environment in June last year was much more "bullish" where FED was expected to keep raising the treasury rate. That stance has changed quite dramatically over the last 9 months. As such, the pricing expectations of institutional investors have became more realistic. 

In addition, retail investors are not "helping themselves" by pushing the price of Astrea IV Class A-1 to 107.  πŸ€£

As such, it is highly unlikely that the interest rate for Class A-1 will be similar to Astrea IV. My own gut feel is that the 5 year bond will at around 4%. As in Astrea IV, there will be a little "bonus" of 0.5% of the principal amount of Class A-1 should the underlying portfolio performs well. 

My "prediction" on the likely interest rates for Astrea V below based on current secondary trading levels, institutional demand and gut feel. 
Class A-1 : 3.9% to 4.1%
Class A-2 : 4.8% to 5%
Class B : 5.9% to 6.1%

2. The public tranche of Class A-1 is going to be larger and the interest rate is set by the institutional investors 

In Astrea IV, the retail tranche was S$121m with another $121m for placement. 

In Astrea V, the Class A-1 tranche is $315m. Assuming half goes to public, the offer will be at least $158m in size. Based on the oversubscribed levels in Astrea IV, I hope more will be set aside for the public and i would expect $160-190m be set aside for retail investors. 

The interest rate for the retail offering will be set by the institutional investors during the book building process 


3. Prior Astreas has done very well. Class A-1 for Astrea IV was upgraded by Fitch in May 2019. Class A-1 was rated a notch higher by S&P in Astrea V as compared to Astrea IV

In case you didn't read the press releases, the Class A-2 and Class B bonds in Astrea III were upgraded by a notch.  In addition, Class A-1 of Astrea IV was also upgraded by Fitch to its "cap" of A+ within 9 months of its launch. 

I have to say the upgrade of Class A-1 in Astrea IV was "timed to perfection" for the upcoming Astrea V. It inevitably drives the pricing of Astrea V downwards as investors form their views (rightly or wrongly) using the performance of Astrea IV.  

In addition, S&P issued a "A+" rating for Class A-1 in Astrea V. This is a notch higher vis-a-vis their own rating of Astrea IV. In the corporate bond world, it is usually quite rare for S&P to give a higher rating than Fitch for the same class credit. 

4. Demand will be very hot and allocation will likely be very bad. I hope there is a rethink of how the bonds are allocated 

If you looked at the balloting table in Astrea IV where it was 7.4x subscribed, the issuer adopted a "everyone gets some bonds" approach. Given that they are unable to "upsize" the issuance, the allocation was really bad. The more you apply the "lesser" you get. 

Since the issuance this time round is larger, i hope the Issuer will continue to favour retail investors and improve the allocation rate. 

Some of my friends applied for $50-$100k last time and were allotted $5k. Being allotted $5k is "neither here nor there". You don't know whether to hold on to them or to sell them... Sometimes, under such circumstances, it might be better to do some balloting to ensure a more meaningful allocation can be made (i.e. instead of $5k, maybe $15-20k for the "lucky" applicants). 

I always wonder why there is a need to adopt such "egalitarian" allocation approach. You can see that in the Temasek 2.7% bonds allocation as well.

Trying to please everyone sometimes make everyone upset instead πŸ€£πŸ€£πŸ€£ 

5. The IPO is likely to be launched in mid June

I guess the final thing that you want to know other than pricing is when will the IPO be launched? 

Based on Astrea IV's time table, the offering was made in mid June. Since the preliminary prospectus of Astrea V was also done around the same time, it is pretty easy to predict when the launch will be. 

Unless MAS receives "poison pen" letters on why the allocation was so bad last time, the IPO is likely to happen along the same timeline - in middle of June. 

Now is polling time - The question for today.... If you can decide, how would you allocate the Astrea V bonds? Every vote counts!! Take the poll here.

Monday, 20 May 2019

Eagle Hospitality Trust


Eagle Hospitality Trust ("EHT" or the "Trust") is offering 580,558,000 Stapled Securities at 78 US cents, of which 44,871,000 units will be via the Public Offer with the balance already distributed through the Placement Tranche. Investors applying through the ATM will be paying based on the exchange rate of USD/SGD of S$1.3731. The IPO will close on 22 May at 12 noon and start trading at 2pm on 24 May.

Principal Business

EHT is established to invest in income producing real estate used primarily for hospitality-related purposes with initial focus in the United States. 



Key Investment Highlights




Initial Portfolio



The initial portfolio comprise 18 full service hotel properties in the mid to upper upscale hotels. There are 5,420 rooms with a value of US$1.27 billion. The average daily room rate for the Forecast Period and Projection Year is around US$137-$144.


Key Financial Highlights



Dividend Yield

The yield for the forecast period is 8.2% and projected to increase to 8.4% in Year 2020 (1 Jan 2020 to 31 Dec 2020). The distribution will be paid semi-annually, with the first distribution period from listing date till 31 Dec 2019 and the first payout in Q1 2020.


What I like about EHT
  • Freehold properties linked to major hotel brands - The portfolio is freehold and diversified across different global hotel chains. 94% of the rooms are associated with Marriott, Hilton and IHG
  • Strong US Macros and hospitality fundamentals - Baring any Global Financial Crisis, the US economy likely to stay stable and resilient in the next few years. The USD outlook is also favourable. Investors who subscribe at the ATM will get in at a "slightly better" rate should the current USDSGD rate holds up. 
  • Sponsor has skin in the game and has established a track record of building up the Initial Portfolio - The Sponsor rolled over 100% of its equity and the current portfolio is "evidence" of its own track record. If you look at the financials on page 65, the revenue has also increased steadily from FY2016 to FY2018.  

Some of my concerns
  • Sponsor is new - The Sponsor is new to the local market and owned by two individuals, Howard Wu and Taylor Woods. They are based in Los Angeles. The mitigant is that the Sponsor is not "cashing out" at the IPO but will retain a 15.2% stake in EHT. This will however, drop to 10.9% if the over-allotment is exercised 
  • US Taxation Rules and USD exposure - The US taxation rules on real estate has always been a concern, so investors will have to deal with this by making sure that they are not US Persons and submit all the necessary documents to enjoy a lower tax rate. In addition, investors must be comfortable with the USD exposure although it looked rosy currently. Personally i have no concern with such exposure as it is a form of diversification for me.   
  • Recurring income for hospitality assets can be unpredictable - Unlike office or retail malls, hospitality assets are more cyclical and not "long term" in nature, hence the daily rooms are considered 'perishable' assets. It is also highly dependent on the state of economy, whether it is consumer spending or business travel. As such, investors demand a higher yield for such assets. 
Peer Comparison



Note: I have edited the Manulife US REIT and Keppel KBS Reit to follow that from Capital IQ to be consistent with the rest.

EHT is issued at a metrics that is favorable vis-a-vis its peers

Chilli Ratings

Once again, the chilli ratings (for short term flip) does not apply. This is not intended for a short term flip. Buy only if you like this asset class as well as the projected yield of 8.2%. I think the yield is attractive enough but the weak performances of US related REITs and the IPO market means that there could be a chance that investors can buy at a cheaper price post listing. 

This is the second US hospitality trust right after ARA US Hospitality Trust. EHT offers a slightly higher yield and the portfolio that is diversified by different global hotel brands seemed a tad better. The seasonality of the revenue also seemed more stable. I also like the fact that the Sponsor has skin in the game. Thus between the two, EHT will get my vote if i have to choose between the two.

I will give it the same 2 Chilli Ratings for the reasons above. As for myself, i will not subscribe as i already have a significant amount of USD exposure. 

Polling Time

You can vote here.



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