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4X your money with MUST! Curious AK takes another look.

Tuesday, May 16, 2023

For readers who prefer reading to watching videos, this is the transcript of a video I produced recently.

From time to time, I come across videos which claims to 10x your money.

Usually, they are pretty speculative at best, and in most cases, they are simply scams.

However, sometimes, we could get a gem or two.

Although keeping an open mind is a good idea generally, but it is only a good idea if we do not give up our own thinking process at the same time.

We want to stay critical and not outsource the thinking process.

Bloggers, Youtubers and even experts at research houses are as human as you and me.

Anyway, you did not come here to get lectured by AK.

You want to know what is this four-bagger investment?

Don't need to skip to the end of the video because you will know in a few seconds.




I have produced several videos and published a number of blogs on US commercial properties real estate investment trusts.

My view has been to avoid the entire sector as there is too much going on which could sink the ship.

Some might wonder if we could find a gem or two with blood in the streets.

This is all good and well in less treacherous circumstances.

However, what the sector is facing could be a tsunami of blood, and this could turn deadly even for those who are in the streets looking for gems.

In a report from CIMB research house, they said that they have a target price of 55 cents a unit for Manulife US REIT.

That was an eye-popping target price as Manulife US REIT trades at 14 cents a unit now.

If CIMB is right in their projection, then, Manulife US REIT is a four-bagger stock in the making.

Anyone wants to take a chance?




In their latest results, the real estate investment trust reported a lower occupancy of 86%. Businesses which are renewing their leases are downsizing or right-sizing.

Physical occupancy which is a more important measure and a forward indicator of things to come is only at a bit more than 30%.

This means that almost 70% of their buildings are not occupied although they are leased out at the moment.

To me, what is the biggest issue with Manulife US REIT is the gearing ratio of 49.5%.

The manager was growing the real estate investment trust in what I would say was an irresponsibly aggressive way.

Of course, they still got paid their fees.

Now, without borrowing another single dime, that gearing ratio could breach 50% as their assets could see valuations decline.

This is why I keep emphasizing that we want to invest in entities with strong balance sheets. 

This is especially when we have a treacherous mix of weaker economic outlook and much higher interest rates.




Manulife US REIT still has almost 20% of leases expiring by end of next year, with about half of the expiries happening for the rest of this year.

I don't know how CIMB researchers came up with a target price of 55 cents a unit for the real estate investment trust.

I say this because it is most likely that Manulife US REIT would have to do fundraising and with gearing nearly at 50%, the only option is an equity fund raising exercise.

With their current depressed unit price, it would probably have to be a very dilutive private placement plus preferential offer.

So, investors have to be prepared to cough up more money.

This makes a target price of 55 cents simply untenable.

I get the feeling that the manager of the real estate investment trust is looking a Mirae as a lifeboat now. 

And other investors might want to do the same and look for their own lifeboats.




Like I said in my blogs and videos on Eagle Hospitality Trust, insiders can sell for many reasons. 

However, when insiders decide to bail out when things are looking bad, it is probably because things are really in a bad shape.

Of course, we can choose to take a bet that things could turn out well but with so many pieces of the jigsaw puzzle in place, we can tell that the odds are not very good.

Fortune favors the brave as Matt Damon said in his ad.

What about AK?

AK is not brave and has no fortune.

AK talks to himself.

No one cares more about our money than we do.

Don't ask barbers if we need a haircut.

We don't have to make back our money the same way we lost it.

Don't throw good money after the bad.

If AK can talk to himself, so can you!

虎口拔牙.

That one, AK dare not do. 

You dare to do?



12 comments:

MSAPersonalFinance said...

Hi AK71,
Lately SG stocks are declining in price. Can you talk to yourself about Suntec REIT?

AK71 said...

Hi MSA,

I have a small legacy position in Suntec REIT which has been free of cost for some time.

So, I don't have any issue holding on to the investment to get free money regularly.

A YouTuber was recommending the REIT to his viewers, I know.

However, I have avoided adding to my investment because of the REIT's relatively high gearing ratio.

I have been saying for some time that in an environment of rapidly rising interest rates and where rates are expected to stay higher for longer, investing in entities with strong balance sheets is preferred.

C said...

Hi AK, borrowing this blog post title , for me " x4 peace of mind " is probably more important. In the past, paid my school fees for buying companies with weak balance sheet and at times did not size the investment properly. So sleeping well is as important as investment performing well. Cheers.:)

AK71 said...

Hi C,

I like your "x4 peace of mind" idea! :D

Paying school fees to Mr. Market is painful but something all of us do at some point if we stick around long enough.

Uncle Buffett and Uncle Munger recently paid school fees again even though they are in their 90s.

Buffett paid billions of dollars for lessons on why not to invest in airlines and Munger paid millions of dollars for lessons on why not to invest in Alibaba.

We learn different things each time we pay and each time someone else pays.

Hopefully, we become better investors over time. :)

Rellangis said...

Hi AK,

Long time no post here.. Can talk to yourself about Capitamall Integrated Commercial Trust? What is your view on this reit ? Formerly known as CapitaMall Trust.

AK71 said...

Hi Rellangis,

I was interested in CICT when it was CapitaMall Trust many years ago but I wasn't sure I wanted to pay a premium for the pedigree.

So, I went and bought CapitaMall China Retail Trust instead.

That was when interest rates were very low.

I mentioned in several blogs in the recent past that I don't think a 5% distribution yield from a REIT is attractive anymore.

REITs pay all or almost all of its operating income to investors.

CICT does this to achieve only a 5% distribution yield on the back of a relatively high gearing level of 40.9% too.

I don't find this attractive.

Still, in today's environment, investing in CapitaLand China Trust is a slightly more attractive proposition, if I must choose between the two because I am being compensated with a slightly higher distribution yield.

However, I am not adding to my investment in CapitaLand China Trust either because its gearing level is at 40% and it has its own challenges too.

Aa said...

I am holding to a lot of this share from IPO.
Don't know whether to average or cut loss.
Likewise with prime and keppel oak.
Can u talk something about this.
Thanks
Alan

AK71 said...

Hi Alan,

I am sorry to hear this. :(

You know what people like Warren Buffett say about IPOs.

It is hard to imagine the issuers would issue at terms which are unfavorable to them.

IPO = it's probably overpriced.

I don't think I have anything new to add to what I have already shared in my blog and my YouTube channel.

You have to decide if you want to hold on and hope for the best or to cut loss and deploy the money elsewhere.

ynwen said...

Hi AK,
Thank you for your blog. I enjoy reading and learning from you.

With regards to MUST, can net tangible asset value be used as gauge for liquidation value for worst case scenario? Currently the net asset value is 40 cents/share which is 5.6x more than its current share price. This appears to cushion more than enough for worst case scenario of liquidation where shareholders benefit more. With this, even if share price were to go even lower than current price of 7 cents, it wont matter as much?

Also, the major expense which caused 20231H negative net profit is due to the write down of assets which also caused gearing to increase - MAS did not consider this as a breach. Would you think this write down is just a one time event or a genuine expense in the reits industry?

I am new to investment and would appreciate your kind advice :)

regards
wendy

AK71 said...

Hi Wendy,

I am glad you have found my blog helpful. :)

In the worst case scenario, if we are thinking of liquidation, then, it would be a fire sale.

In such an instance, we could see the assets going for pennies.

This is what Mr. Market is pricing in now.

The demand for the properties MUST owns now is almost non-existent.

It doesn't matter as much what MAS thinks now but what the lenders think.

In such a situation, the question of how high the interest rate could be when their loans are refinanced has to take a back seat to whether they could even get their loans refinanced at all.

They have to be refinanced within a year now since their liabilities are all considered current liabilities now.

Credit is drying up in the USA and interest rates are at all time high too.

AK doesn't give advice.

AK is just talking to himself. ;p

ynwen said...

Thank you AK for taking time to reply.

Indeed very sound advice! I enjoy learning new things from you.

Greatly appreciate it! Thank you once again :)

regards
wendy

AK71 said...

Hi Wendy,

AK doesn't give advice.

bu yao hao wo. (TmT)

AK is just talking to himself. ;p


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