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Thursday, 12 March 2020

United Hampshire - Balloting Table


The public offering of United Hampshire was 1.4x subscribed and everyone who applied received something.

The debut came at a time where the market is correcting badly, hence I would expect a poor debut at 2pm later.

Good luck to those who applied.

Sunday, 8 March 2020

United Hampshire US REIT


United Hampshire US REIT ("UH REIT" or the "REIT") is offering 87,829,600 units at US$0.80 per unit. 80,329,600 units are via placement with only 7.5m units available to the retail investors. If you apply through the ATM, the subscription exchange rate has already been fixed at S$1.12. The market cap based on the IPO price is US$614.2 million. 

The IPO will close on 10 March 2020 at 12pm and start trading on 12 March 2020 at 2pm.

About the mall industry in the US

The retail industry in US has gone through much duress. Many US retailers have either went bust or needed to reinvent themselves from the onslaught of Amazon and the changing habits of its consumers. The reason why Amazon was so successful was because it offered consumers choices and speedy delivery. As such, many pure brick and mortar retailers have gone out of businesses. The empty space left vacant have now been taken over by "stores with experiences" such as dining or fitness centers. Personally, i don't think the tenant composition is by design, it is how the market in US has evolved. If the properties had not been re-designed, the malls will be empty!   

How the REIT is positioning itself

The REIT is touted as "Asia's First US grocery-anchored shopping center and self-storage" REIT. According to the prospectus, the tenants targeted by UH are resilient to the impact of e-commerce such as restaurants, home improvements stores, fitness centers and warehouse clubs. The Issuer spent much effort to tell you that its portfolio sector is "least affected" by e-commerce (i.e. Amazon).


Portfolio


You can see that the properties are located on the East Coast. There are 18 Grocery & Necessity and 4 Self Storage centers. The appraised value is around US$599.2 million with 95.2% occupancy rate. 97% of the assets are freehold. 

Key Investment Highlights


Key Financials

UH REIT has built in escalation and no break clauses. This provided some comfort that the income will be sustained, at least for the next few years.

Distribution Yield

The first distribution will be for the period from Listing till 30 June 2020, on or before 30 Sep 2020.


As you can see from the chart above, the interest rate for FY2020 and FY2021 will be 7.4% and 7.6% respectively. The top up arrangements allow time for some of the assets to “stabilize”.

Shareholders list

You can see from the shareholders list below that the Cornerstone investors took up 60.8% of the issuance. This issuance is very “hot” among the ultra high net worths and some institutional investors. According to the Edge article, the placement tranche is >3x subscribed. The public offering comprise only 20.8% (assuming over-allotment is exercised).

What I like about the REIT
  • Stable cash flow from long leases - The REIT has WALE of 8.4 years based on Base Rental Income. Around 60% of the leases expires beyond 2025. This means the rental income is pretty stable for the foreseeable future

  • Top tenants base - You can see from the list below that the top 10 tenants include BJ Wholesale, Ahold, Lowe's, Walmart, LA Fitness and Home Depot.
  • Known local sponsor - UOB has acted as co-investor and provided seed capital. The Manager is also 50:50 held by UOB Global Capital and Hampshire. The presence of a local and known sponsor would provide some comfort to investors as UOB would not want to have any repercussions to tarnish its UOB branding.
  • First distribution is not too far away - At least the first distribution period is in Q3 2020. You don’t have to wait for too long!  
  • Yield cut in the US - The US treasury cuts it yield by 50 bps when the IPO offering was underway. This will probably provide another boost to REITs, especially those denominated in the US.
Some of my concerns
  • Complicated top up arrangements - The REIT has entered into some top up and earn-out arrangements using the IPO proceeds. As you can see from above, without the top up, the yield for 2020 would have been 6.4% instead of 7.4%.  While the intent may be good, i personally dislike such arrangements as it doesn’t reflect the true picture
  • Premium over NAV - Investors are paying a price to book of 1.07x. Given that such assets are not “sought” after, investors are probably paying a fair value for these assets.
  • USD exposure - Investors should be aware that they are taking on USD exposure, hence the income for local investors will fluctuate along with the forex rates
  • COVID 19 - the virus is taking a toll globally and will likely impact the retail sector in the US as well, with most investors likely to go out to the malls less. There is no certainty when this will blow over but if it drags on, it may impact some of the tenants at the mall
Conclusion

As in all REITs, this is not for short term speculation. Invest only if you like the “grocery-mall” sector and the yield. I will give it a 1.5 Chilli for the reasons above.

Happy grocery shopping in the US!

Sunday, 1 March 2020

Memiontec Holdings Ltd


Memiontec Holdings Ltd ("Memiontec" or the "Company") is offering 33,485,000 Placement Shares at $0.225 each for a listing on Catalist. There is no public offering, as such, I am not going to spend too much time diving into the details. The offer will close on 3 March 2020 at 12pm. The market cap will be around $49.6 million.

Principal Business

The Company is a one-stop integrated total solution provider in the water treatment industry with over 20 years of track record. 

If you look at the description in the gatefold of the prospectus, they should really learn how to tell the story better. It is a mouth-full with all the TOOT and the BOOT acronyms. I almost wanted to say "toot" ... The Company could have made better use of the real estate in the gatefold to tell the story better and make it more concise, visually appealing and easy to read, sometimes, less is more.


Businesses include engineering and construction, operations and maintenance, sale of systems and equipment and the sale of water.

Competitive Strengths


Prospects


Financial Highlights


The post placement EPS for FY2018 is around 2.09 cents. Based on the IPO price of 22.5 cents, the PER is around 10.76x. Looking at 1H 2019, seemed like revenue has increased significantly to $14m but the profit fell to $355k. I am not privy to the forecasts but i would be concern if i am investing in this Company.


Dividend Policy

The Company intends to pay at least some of its profits as dividends for the next two years.


Shareholdings

The Company is tightly controlled by Mr. Tay and Ms Dewi.


What i like about the Company

I like the water sector as Indonesia is a big market with needs of clean water. It is like doing an ESG investment if this company can bring water to the community (perhaps the Company need to refocus on its branding angle). I also like the fact that company has a long track record with a dividend paying mindset.

Some of my concerns

Some of my concerns will be the forex exposure in Indonesia Rupiahs given some of its projects. In addition, the unpredictable income from EPC contracts as well as declining profitability would be something i need to further diligence on before committing.

Mr IPO Chilli Ratings

I am not going to spend much time on the chilli ratings as there is no public offering. As such, i have not shared my views on the company extensively as well. The Company has my sympathy as it could not have chosen a “worse” timing to list, with market sentiments badly hit by the market rout during the course of this week. The coronavirus is like a “black swan” event hitting all companies coming and no one could have predicted it coming. Having said that, given the small placement, share price movement may be well controlled but I would expect short term weaknesses as the pricing was done pre the market crash.

Good luck to those who were allotted the placement . . . 

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