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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. 


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.


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.  🤣

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 🤣🤣🤣 

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.

Thursday, 9 May 2019

ARA US Hospitality Trust - Balloting Results

ARA US Hospitality Trust announced that is IPO tranche is "fully subscribed" at 1.1x and UOB is over-alloted 22.727m units for "market stabilisation".

The balloting table for the public offer is below and all valid applicants applied received some allocation.

Mr Lee Jin Yong (李镇镕), Chief Executive Officer of the Managers, said, "The support we've received from both institutional and retail investors really encourages
us. We now forge ahead, embarking on a new chapter for the Trust. We will diligently focus on organic growth opportunities through active asset management and
thoughtfully expand the portfolio through accretive investments, always keeping a clear focus on providing stable cash flows and enhancing value for our securityholders

Mr John Lim (林惠璋), Group Chief Executive Officer of ARA, said, "The successful IPO of ARA US Hospitality Trust is a reflection of the market confidence in a ARAsponsored Trust that is underpinned by a quality portfolio and an experienced management team. Given the ARA Group's strong track record in managing REITs and the Trust's unique investment proposition as the first pure-play U.S. upscale select-service hospitality trust listed on the SGX-ST, we are very excited about its future potential."

I am not sure if 1.1x is exactly a strong endorsement but the the weak sentiments caused by the renewed US-China trade wars and the USD exposure probably makes it 'less appealing' for investors.

As mentioned, i didn't apply for this IPO as i have adequate exposed to USD denominated bonds.

Good luck to those who applied! 

Happy Hyatting! 

Sunday, 5 May 2019

ARA US Hospitality Trust

ARA US Hospitality Trust ("ARAHT" or the Trust") is offering 379,776,300 Stapled Securities at US$0.88 each. The placement tranche of 328.6m excludes the Cornerstone Investors and the public offer consists of 51.136m units. Based on the IPO price, the market cap will be US$749.1m. 

The IPO will close on 7 May 2019 at 12pm and starts trading on 9 May 2019 at 2pm.
Successful applicants applying through the ATM will pay for the shares based on USD:SGD rate of 1:1.3668. There is also an over-allotment option of up to 6% or 22.7m units to help stabilise the share price. 

The Trust's principal objective is to deliver regular and stable distributions to investors and achieve long term growth in DPS and NAV, while maintaining an appropriate capital structure. 

First pure-play US Hospitality Trust

ARAHT is the first pure-play US upscale select-service hospitality trust to be listed on SGX. The portfolio comprise 38 upscale select-service hotels located in 21 states with 36 out of 38 freehold properties. All the properties are franchised under the Hyatt Place and Hyatt House brands.

The Trust intends to proactively manage the properties to achieve growth in net property income, maintain optimal occupancy rate and source hotel properties that fit with its investment strategy. 


The Sponsor is indirect wholly owned subsidiary of ARA Asset Management Limited, headquartered in Singapore but more "known" as the manager of Suntec REIT, and manages 5 other listed REITs. The Sponsor will subscribe for 53.75m Units.

Cornerstone investors

The Cornerstone investors has agreed to subscribe to 132.382m units and include Gordon and Celine Tang (of Singhaiyi) and the private banks such as Bank of Singapore, Credit Suisse. 

Initial Portfolio

The initial portfolio comprises 27 Hyatt Place Hotels and 11 Hyatt House hotels, with 4,950
rooms and appraised value of US$719.5m. 

From the picture above, you can see that the portfolio is spread throughout USA but with  more on the Northeast and Southern side (76% of the portfolio value).

Hyatt Place - upscale select service hotels. 
Hyatt House - upscale extended stay hotels. 

Structure chart

The structure chart is included above for your ease of reference. 

Projection Distribution 

Based on the above forecasts, the annualised yield for the period from listing till 31 Dec 2019 is around 8% and 8.2% for year ending Dec 2020. There is seasonality in the revenue generated where first and last quarters are quieter than the second and third quarters (April to Sep).

The occupancy for the last 3 years was around 77-79%. Average daily rate was US$122. The revenue seemed to be pretty stable, giving some comfort on the recurring nature of the revenue stream. 

Distribution Dates

The distributions will be made on semi-annual basis and the first distribution date for the period from listing date till 31 Dec 2019 will be paid by the Manager on or before 31 March 2020. 

What I like about ARAHT

First pure play hospitality portfolio of brand and quality, from reputable sponsor and experienced Operator - The REIT segment on SGX is probably the last few sectors that are still able to attract quality listing and I am glad to see a more quality listing. The Hyatt brand managed by Aimbridge as well as a reputable sponsor in ARA bodes well for this listing.

• Positive US macroeconomic outlook - relative to the economic outlook globally, US macro remained positive and that will bode well for the hospitality sector. The US real GDP growth is expected to continue at a CAGR of 2% from 2019 to 2023. 

• Freehold properties acquired at "fair" value - Freehold properties are able to preserve value better and acts as good inflation hedge but investors are getting only a "fair" deal as the NAV per unit of 86 US cents is slightly below its IPO price of US 88 cents. The implied price-to-book is around 1.02x.

Prudent capital structure - The aggregate leverage is around 36%, indicating the balance sheet is not too overly geared and there is headroom for adding on debt for new acquisitions. The limit permitted is around 124% (page 124 of prospectus)

Reasonable remuneration package - the executive officers seemed to be reasonably paid (page 311). All will receive a remuneration less than S$250,000. 

Some of my concerns 

US Tax rules can be fickle and unpredictable - not too long back, the two US REITs listed here were sold down due to uncertainties over the tax impact from withholding. US has always been an onerous tax regime, especially those relating to income derived from real properties such as FIRPTA etc are always a big concern for overseas investors. This is something uncontrollable that may hit investors at anytime. To enjoy this tax status, one of the current requirement is that no one can own >9.8% of the Trust (Gordan and Celine Tang holds 9.5%).  The prospectus also highlighted many tax related "risks" in its risk disclosure. 

Hospitality assets always require "upgrading" - Similar to hotels, such assets require a fresh face lift from time to time termed under "asset enhancement". Such activities will require capital outlay that is needed to be set aside from its operating and distributable income from time to time. The projected capex is around US$18.7m for the next 20 months (page 264)

• Still a long way to first distribution - given this is the IPO, investors will have to wait for 6-9 months before getting the first payout. Investors who are less patient (or concern about time value of money) may want to consider other US REITs that are already in steady distribution mode or buy this counter from the open market nearer to its first payout. Example - if you buy Keppel KBS Reit now, the wait is shorter to the first payout and consequently the implied yield is higher. 

Nature of Hospitality Assets - the nature of hospitality assets are the "room
nights" are perishable assets and the hotel revenue are less predictable than longer term residential or commercial leases. It can also be impacted by unforeseen circumstances (e.g bad hurricanes or terrorist attacks on USA impacting travel demand). The mitigating factors are diversified portfolio, stable consistent revenue generated over last 3 years. Theoretically, investors should "demand" a higher yield than other types of assets.

Fair value 

How do i value ARA Hospitality Trust? I will look at it from two angles - one comparison against will be against other hospitality trusts and the other comparison will be against US REITs listed here.

Due to differential in base interest rate between SGD and USD, i would regard the rate presented by Manulife and Keppel KBS REIT as more reflective of the expected USD dividend rate required by investors. I have also taken the DPU from DBS research reports for that two counters. Manulife has better quality assets and more rental predictability, hence it has a lower implied yield than compared to Keppel KBS and ARA US Hospitality REIT.

I would regard ARA US Hospitality Trust as fairly valued but they left some room for capital appreciation post IPO.

Based on the implied yield of 7.5%-8%, the trading range will be between 88 to 94 cents. Based on the price to book of 0.95x to 1.02x, the fair value range will be 84 to 88 cents. I would expect the share price to trade between 85 to 95 cents. My own anyhow guess is that it will debut at between 88-90 cents.  

Mr IPO Chilli Ratings 

2 🌶

Please note that this IPO is not for punting and the chilli ratings reflect the longer term value for investors. I like the 8% dividend yield and relatively conservative leverage ratio but investors will have to be comfortable with the USD forex exposure.

As the timing to the first payout date is more than 9 months away, my own view is that investors could potentially be better off investing in Keppel KBS US Reit as the time to next distribution is closer with about the same yield and better predictability.

Since i am already heavily exposed to USD distributions inflows, i will likely give it a miss. However for investors who favors the hospitality sector, this IPO qualifies as one with a good brand name and sponsor. Having said that, i have to admit that i have never stayed in those hotels before. 

Polling Time! 

You can take the poll here.

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