Sunday, December 2, 2018

Are Business Trusts bad?

Shockwaves are still reverberating from Asian Pay TV Trust's crash down after announcing the large cut in their dividends. A lot of investors out there have steered clear of it and never bought into it in the first place; some others have bought in by acceptance of risk-for-reward either before or after the crash. I bought it in a past, and sold sometime soon after getting 1 quarter worth of dividends (net gain of $150 - I lost pocket change in capital loss).

I recalled how it was in essence Macaquire passing on debt by marketing the IPO of APTV, after unsuccessful attempt to divest. (Link here)

This incident also made me thought of Hutchinson Port Holding Trust, another counter I had been monitoring since a couple of years ago. Yield seemed nice at that point but the outlook and the share's performance just seemed abysmal.

This left a bad taste in my mouth based on observing the destruction of shareholder values. Then I had a thought, a wandering question in my mind:

"Are Business Trusts bad?"

This piqued my curiosity and of course, I have to cross-check and verify this.

There are some business trusts currently listed in SGX and I will be touching on them in my write-up.

Singapore Listed Pure Business Trust
Accordia Golf Trust
Ascendas India Trust
Asian Pay TV Trust
Dasin Retail Trust
Hutchinson Port Holdings Trust
Keppel Infrastructure Trust
Netlink NBN Trust
Religare Health Trust

There are also stapled securities that are a hybrid of Business Trust and REIT. My article will not be covering them beyond listing of the listed trusts. (3-Dec-2018 - just added CDLHT - thanks Relac 1234!)

Singapore Listed Stapled Securities (REIT + Business Trust)
Ascendas Hospitality Trust
CDL Hospitality Trust
Far East Hospitality Trust
Frasers Hospitality Trust
OUE Hospitality Trust
Viva Industrial Trust

What is the difference between REIT and Business Trust? They seem similar and they have "Trust" in their name, causing confusion in the distinction between them. I tabulated a summary of some of the key differences between them as well as share the structure of Business Trust and REIT.

Business Trust
Involved in Real Estates
Can operate in any field
Up to 45%
No borrowing limitations
Distribution of Profits
Paid from accounting profits. Min 90% of taxable income in dividends (to stay tax-exempt)
Declared out of Surplus Operations Cash flow. No minimum payout.
Management of Entity
Separate entities for:
- Ownership of Assets
- Manager running operations
Owned and Run by Trustee-Manager
Change of Trustee-Manager
Min 50% unitholders to remove manager
Min 75% unitholders in favour to remove manager
Source: SGX

Source: SGX

So have shareholders benefitted from investing in business trust in general?

At the very least, there's not many in which investors who have participated in their IPO and still held on have benefitted, and where there is, the net benefits have been marginal (to be fair, there is a couple of them like Dasin or Netlink which are still early days to be judged as good or bad). Here's a summary of their performance and charts since IPO. (Note - in my summary, this is a bit outdated; Current Price was as of 25-Nov-2018.)

* Additional Note - HPHT declares dividends in HKD and my summary has also converted them to SGD although there will be slight inaccuracies in the conversion.

Summary of Business Trust Performance

Source: Yahoo! Finance
The results are shocking (at least to myself) - I feel bad for the IPO participants who have held on.
  • RHT emerges as the only true winner if you participated in their IPO. 
  • While it is early days for Dasin Retail Trust and Netlink Trust, there is some gain to be had overall
  • APTT and HPHT are guilty as charge of wanton destruction of unitholder values
  • The remainders are generally lackluster, and only saved or partially salvaged by dividends.
Digging into the share performance and finding out the root cause to declines or raise will make for good case studies to build up one's knowledge base and improve our decision making as investors.

A closer look at the charts shows that in certain scenario, one can either average down (as investors of the business trusts who are still holding on) or enter (as investors who have not taken position yet) to benefit from investing them. Kudos to investors who managed to right-time, go in at those key points and made returns.

So what is the verdict?

Unfortunately, I feel my questioning of the benefit of investing in business trusts remains valid, although deciding to do this write-up has better built in me ability to assess the business trust on an individual basis. At the very least, the rewards most of them has got to offer do not seem in-line for the risk they expose the investors to. For APTT, I do hope this is the turning point to be worthy of being in one's portfolio.

Readers, what are your view towards Business Trusts? Feel free to share your view!

Thanks for reading.

Saturday, November 24, 2018

Cromwell European REIT - 38-for-100 Rights Issue (Part 2)

This article is a follow-up to my previous short write-up about Cromwell European REIT here.

Cromwell European REIT's proposed rights issues has been approved by ways of the EGM on 15 November 2018 (link to announcement here). (I'm kind of late to the game for this write-up).

38-for-100 rights issue at 0.373 EUR per unit.
Acquisition is Yield-accreditive (expecting about +20% to distributable income), but not DPU-accreditive (expecting about -12% DPU).

Here is the indicative time-table for the rights issue:

Last day of “cum-rights” trading for the
Rights Issue

20 November 2018
First day of “ex-rights” trading for the
Rights Issue

21 November 2018
Rights Issue Books Closure Date

23 November 2018
at 5.00 p.m.
Despatch of the Offer Information
Statement (together with the Entitlement
Letter) to Eligible Unitholders 
28 November 2018
Commencement of trading of Rights
28 November 2018 from 9.00 a.m.

Closing date

Last date and time of trading of Right Entitlements

6 December 2018 at 5.00 p.m.
Last date and time for acceptance of the Rights Entitlements and payment for Rights Units
12 December 2018 at 9.30 p.m.
Last date and time for application and
payment for Excess Rights Units

12 December 2018 at 9.30 p.m.
Last date and time for acceptance of and
payment by the renounce

12 December 2018 at 9.30 p.m.
Expected date of the issuance of the
Rights Units 

20 December 2018

Expected date for crediting of Rights

21 December 2018

Expected date for commencement of
trading of Rights Units on the SGX-ST 

21 December 2018 from 9.00 a.m.

Expected date for refund of
unsuccessful applications

21 December 2018

Other things to note
  • As of writing, EUR-to-SGD ratio is approximately 1.56. This translates to SGD 0.582 per unit for the rights issue.
  • Counter is trading XR and has last traded at EUR 0.445 thus far.
  • Fun fact: For an investor whose portfolio only included units from subscription to the IPO (about EUR 0.555 and EUR-to-SGD of about 1.609 at that time), he or she has to subscribe 153 rights units for every 100 to breakeven in capital based on current price (not for quick punt from my observation).
    • This has yet to factor in any commission charge or forex gain/loss.
    • This will cost more if the investor has decided to purchase more rights so as to guarantee  his rights subscription.

The author is vested (albeit in a small position) and intends to increase his position by means of the rights issue. This article is provided for info only and does not constitute the author's recommendation, solicitation or otherwise decision-making for any investors - DYOR/DYODD if you intend to purchase.