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2014 full year income from S-REITs.

Friday, December 5, 2014

For my investments in S-REITs, the biggest thing that happened this year was the reduction in exposure to Sabana REIT.

Some might remember that I first invested in Sabana REIT in March 2011 at 92.5c a unit. As its unit price declined to under 90c, I bought more. It became one of my top two investments in S-REITs for about three years, delivering a distribution yield on cost of about 10% during that time.


I actually started reducing my investment in Sabana REIT in late 2013 and not this year as I started to build a larger position in Croesus Retail Trust then. I chose to reduce my investment in Sabana REIT instead of AIMS AMP Capital Industrial REIT because I felt that the latter was doing a better job of building value for unit holders as an industrial properties S-REIT.

After the major divestment of Sabana REIT early this year, my remaining exposure to the REIT is barely 10% of what it was at its peak. Now, my top three investments in S-REITs are:

1. AIMS AMP Capital Industrial REIT.
2. First REIT.
3. Saizen REIT.


AIMS AMP Capital Industrial REIT's Mr. George Wang constantly adds to his investment in the REIT, aligning his interests with those of minority shareholders'. The management have shown themselves to be capable in creating value for unit holders in their exploitation of existing properties' plot ratios. They have also improved the financial resilience of the REIT by securing other forms of funding and in strengthening its debt maturity profile.

This year, I took part in AIMS AMP Capital Industrial REIT's rights issue and sold the rights units for a profit some time later. Although the REIT has been doing well, it is my single largest investment in the S-REITs universe and I want to keep my exposure to a level I am more comfortable with.


In January this year, I wrote a blog titled "A simple way to a double digit yielding portfolio". It was an account of my journey as an investor with First REIT, more or less. First REIT is another example of how a REIT, if properly managed, could be a very good investment for both income and growth. It is also a REIT in which the CEO constantly puts more of his own money in.

With its DPU growing while its balance sheet stays relatively strong, my blog post titled "First REIT: This one is for keeps." in March 2010 could turn out to be quite prophetic. As long as the management continues to be prudent and as long as there is stability and a gradual pace of growing prosperity in the economies of Singapore and Indonesia, the REIT should continue to deliver good results.


Saizen REIT, my third largest investment in the S-REIT universe, has been a very rewarding investment so far. It seems to be a more complicated investment in more ways than one and as an income investor, the fact that it receives income in JPY and pays its investors in S$ is something we must consider.

The weakness in the JPY is definitely a concern. Although the downside can be hedged, it is not cheap to do so. So, realistically, I would expect some decline in future income distributions in S$ terms as the BOJ continues to expand money supply. Whether Prime Minister Abe's QQE will work or not is still a matter of contention but a weaker JPY is the new reality.

However, Saizen REIT remains a strong value proposition and the fact that a substantial shareholder has been fighting to unlock its value is proof of this. I have said time and time again that patience will be rewarded for investors of Saizen REIT's. I am sure it is beginning to sound rather tired but I will say it again. Patience will be rewarded.

For both First REIT and Saizen REIT, I have not done anything to add or reduce exposure this year. I have simply sat back, relaxed and collected income from them.


So, what did I buy this year in the S-REITs universe? I nibbled at Soilbuild Business Space Trust in August. It was a nibble because I thought it was a fair price but not undervalued. I rather like the numbers and the management seem to be competent. For those who have not read my blog post on the REIT and why I decided to buy some, please see related post no. 6.

I also have investments in the following S-REITs:

A. Keppel REIT
B. Frasers Commercial Trust
C. Lippo Malls Retail Trust
D. Cambridge Industrial Trust
E. Suntec REIT
F. Cache Logistics Trust

These are largely legacy positions or what are left after I reduced my investments in these REITs in a big way. My investment in Sabana REIT should rightly join their ranks.

With income from Sabana REIT significantly reduced this year and the fact that it was one of my largest investments in S-REITs, 2014 full year income from S-REITs has reduced drastically.


Total income received from S-REITs in 2014:
S$ 88,476.22

Although this gives me some $7,373.02 of income per month, this is a more than 25% reduction from what was received in 2013 last year. This is a significant reduction, no matter how we slice it.

Some might wonder what is AK the income investor to do? Well, I have been increasing my exposure to some other investments to make up for the shortfall in income. I might have to talk to myself in another blog post regarding these investments.

Related posts:
1. 2013 full year income from S-REITs.
2. Added Croesus Retail Trust and reduced Sabana REIT.
3. AIMS AMP Capital Industrial REIT: 7 for 40.
4. A simple way to a double digit yielding portfolio.
5. Saizen REIT: Rewarding patient investors.
6. Soilbuild REIT: A nibble.

49 comments:

Cory said...

In my view, REITs are your expertise.

I am not even half of yours in passive however i am positive we can do much better as long as the oil price remains low.

Out of Sabana completely many months back and have no plan to look back.

B said...

Hi AK

A 25% reduction from Sreits income but plenty of nibbling in stocks such as OUE ST SCI etf this year. A way to grow not a temporary decline ;)

RayNg said...

Congratulations. Another good harvest year.

Beside passive income, I believe your net worth also increase double digit.

REIT investment in 2015 will be more challenging as mr. Market is fearful of interest revision. Low hanging fruits season is gone. One needs to go up higher to pluck the fruit but that come with higher risk.

Chia Chin Yeh said...

I hope to achieve $2,000 monthly dividends one day in 20 years time. Assuming 5% dividend, i need a portfolio of $400,000. That would mean setting aside $20,000 a year to invest. But frankly, I dun think setting aside $20,000 a year to invest is realistic. Any comment, advice?

yeh said...

Ak.
Rich man.

talesteller said...

Hi AK, even with the decline, your passive income from S-REITs is still impressive! Plus, I notice that it doesn't include dividends from stocks you hold that aren't S-REITs ;)

I wish I had had the foresight to purchase First REIT 3 years ago when I first started investing! If only I'd been following your blog then...

I have also pared down on LMIR this year, but am thinking of adding to my position again since it appears that the management has taken concrete steps to mitigate the impact of a weaker IDR on DPU, which was a big culprit for the lower DPU this year (IIRC, 80-90% of income is hedged now, compared to only ~10-15% previously).

Lazy Cat said...

Didn't nibble Ascendas HT? Dropped to 0.685 already.

Rebel said...

Good going mr ak. I did not get much pocket money from my portfolio. Im still a major work in progress.

yeh said...

my dividend+realised profit is around 20k, but i am sitting on huge paper losses now.

so no earn no loss for this year, 白忙一场.

AK71 said...

Hi Cory,

You are very kind, as always. :)

I don't think that REITs are my expertise. I think I am a bit more comfortable with them and I know them a bit better than some. That's about it.

There could be a time when I increase my exposure to Sabana REIT again. All investments are good at the right price, I remind myself. For now, I will just wait and see. :)

AK71 said...

Hi B,

Haha... Yes, I have been moving resources to some stocks. I hope that the investments will result in some capital gains and income generation in future. :)

AK71 said...

Hi Ray,

I don't know if my net worth has increased by a double digit percentage because I have not measured it in many years. -.-"

However, if I were asked to hazard a guess, I would think not. I have quite a bit of my portfolio in cash and cash couldn't have grown much in value. Fixed deposits pay 1.08% to 1.2% per annum.

Anyway, as interest rates normalise and borrowing costs increase, we could see higher yields offered by REITs once more because Mr. Market would demand this. We could see REITs' unit prices falling then. So, it is prudent to be more cautious even as we look for pockets of opportunities. :)

AK71 said...

Hi Chia,

I think setting aside $20,000 a year for investment is not unrealistic. I know a private tutor who saved $50,000 a year, for example. Visit the blog, Bully the Bear, and read his story.

Personally, as a young working adult, I used to save $30,000 or more a year in the first few years. I didn't spend a lot of money and I held more than one job sometimes. As I grew older, I saved more money as my earned income from employment and passive income from my investments grew. :)

AK71 said...

Hi yeh,

In my opinion, I am just comfortable. Rich or not is always a subjective question, isn't it? To the bushmen of the Kalahari desert, we must look quite silly with our modern day concerns. Are the bushmen, lacking in material wealth, poor? ;)

AK71 said...

Hi talesteller,

LMIR, at one time, hedged its currency risk 100% which was very expensive. We have to remember that such a hedge could work against the REIT if the Rupiah should strengthen against the S$ instead which happened before.

Apart from this, the fact that LMIR borrows in S$ and that their properties are valued in the Rupiah also presents a tricky situation. I blogged about this before.

I feel that LMIR's fortunes will only improve if the Rupiah should strengthen which, eventually, I hope it will. :)

AK71 said...

Hi Lazy Cat,

Yes, I do have a small position in Ascendas Hospitality Trust. This is a stapled security, a REIT stapled to a business trust. As it has an element of a business trust, I decided to treat it as a non-REIT. :)

AK71 said...

Hi Rebel,

Make money. Save money. Invest money.

It takes time but it works.

Gambatte! :)

Gary said...

During Lippo Mall REIT AGM, there were furious investors who kao peh kao bu of the management not doing enough to prevent the share price of the REIT from sliding. Furthermore, they grilled the management of why buying the acquisition of the Kemang Village at that time when the property prices of Jarkarta is quite at its peak. I felt that management did not really did a good in managing the shareholder's expectations. In any case, majority still supported the acquisition of Kemang Village. I'm not so sure if the timing was good but if I put on as a businessman who runs the company, yes, I'm in total favour of this acquisition in order to grow the portfolio and essentially the net worth of the REIT. There will be risks but should be manageable. While Indonesian currency has been hit to a low, it must rebound somewhere and sometime. In my opinion, Indonesian currency should appreciate. =) Just to share as one gentleman mentioned another LMIR in the comment columns. Just had the urge to write

dorshii korshii said...

Hi AK :)

Congratulations! You like 文章 的[望天],我的年级较大,已经迈入费玉清[天外天]的境界。。。。laughing….

https://www.youtube.com/watch?v=slMOc5dqCug

jojo said...

"Well, I have been increasing my exposure to some other investments to make up for the shortfall in income. I might have to talk to myself in another blog post regarding these investments."

Yes please, AK, your readers would like to read about these other investments :)
Better than a riveting bestselling novel??!! ;)

qook said...

Wow, this is so inspiring. Would you also do a blog post of how you saved and invested consistently over the years, sonething like a blueprint for young investors to follow? I started out strong in my younger years and saved invested hard, but didn't persevere. So, after so many years, my net position hasn't really improved much from those first few years :(

Chua Poh Huat said...

Ak,

Congratulation that you had already reached your financial freedom ( can choose not work if u want to). Just wonder how you manage to accumulate so much $$$ during your 18 to 20 years of working, saving & investing. Please enlighten us!!!

AK71 said...

Hi Gary,

The main reason for a major reduction of my exposure to LMIR in 2013 was my disenchantment with the management. There was no way I could have foreseen the unit price plunging to what it is today, of course, but that partial divestment has turned out to be very rewarding.

If or when the Rupiah strengthens, LMIR could become a very good investment again. In such an instance, I hope that the management will have the foresight not to practice a full currency hedge. :)

AK71 said...

Hi dorshii,

Hahaha.. The singer with the expressive eyebrows. ;p

Thanks for the link. :)

AK71 said...

Hi jojo,

Aiyoh. So exciting meh? Makes me feel like some best selling author like that. LOL. ;p

Well, frankly, there isn't much to say because I almost always blog about my investment decisions. So, if I do blog about what I did in the non-REIT space, it would be more like a summary. It wouldn't be saying anything new, really.

OK, I am working on it. ;)

AK71 said...

Hi qook,

Since you started out strong in your younger years, saving and investing, you know that there isn't any mystery as to how it is done. :)

If you have been following my blog from its early days, you know that my message is always quite consistent.

Work hard. Work smart. Earn more money. Take on a second job that pays well. Be frugal. Save as much money as we can.

There will always be opportunities to make a lot of money but without money, we won't be able to take advantage of such opportunities.

Stay grounded. Stay away from wealth destruction (i.e. vices).

Most millionaires did not become millionaires because they did something sensational. It is usually because they stick to age old wisdom. :)

There are many examples out there:
STE's story: Personal finance.

When we do the right things, the right things have a higher chance of happening for us. We just have to persevere. :)

AK71 said...

Hi PH,

Refer to my reply to qook. ;p

You might be interested in this blog post too:

STE's story: The Millionaire Next Door.

Apart from some age old wisdom in personal finance, we also need a dash of luck and plenty of patience.

I made no secret that I bought a property during SARS when the market was quite dead. I made no secret that the GFC was an event that allowed me to make a lot of money too. When we buy good assets at low prices, we tend to make more than a fair bit of money.

However, without any savings, we would not be able to take advantage of any opportunities. So, although it is important to make as much money as we can, we must also save as much of this money as we can.

Sometimes, people will tell me that they only have, for example, $10,000 and if they invest that for a 5% yield, they will only get $500 a year. They think it is no big deal. To me, every dollar is a big deal. Every dollar adds up.

There is a magic that is called compounding. Albert Einstein says that compound interest is the 8th wonder of the world. Remember?

It is always hardest at the beginning but it gets easier over time. :)

You might be interested in this blog post which is somewhat unrealistic but you will get the idea:

Save 100% of our take home pay.

In fact, I think most of us can do better as long as we make the choices required. ;)

Chua Poh Huat said...

AK,

Thanks for sharing....My investment journey is still stop at stage 1 since 2008. Win some lose some. Final results "breakeven". Still wondering/finding my way whether my investmentmethod/style/strategy is wrong?????

PH

AK71 said...

Hi PH,

Well, my way is only one of the many ways out there. I like my way because it works for me. :)

If we choose a school to follow, we must follow its rules and embrace its philosophy.

I don't know which school you follow or if you have been trying out different schools, either knowingly or not.

Some people are better traders and some are better investors. Some do a mix of trading and investing. Within trading and investing, there are different approaches too.

You might want to take a break and do some meditation. The pyramid that is my framework might be useful to you:

Motivations and methods in investing.

The right way is the way that works for you. :)

qook said...

Hi AK, thanks for sharing STE's story. However it was a bit discouraging to me that both you and his stories include a bit of luck in having the right market timing. I too was lucky and invested during the GFC, but I can't really take any credit as it was just dumb luck. But I didn't have much then, and I have not managed to add anything to my investments since then, so my net position is still very little. I also completely missed the property cycle. Now, I don't know when both markets would be in my favour again? I know some of my peers who were extremely lucky to have cashed in on the first property cycle from 2005-2006, and then doubled or tripled that in the next property cycle, as well as the run up in stocks after GFC. They can basically retire already, while I may have to plug away for another 10, 20, or 30 years. Sigh. P.S I also have a second weekend job to try to earn more. But it is so physically tiring that my regular day job is suffering...

Recruit Ong said...

AK, how much is your cash allocation now? got 50%?

AK71 said...

Hi qook,

I know that missing an opportunity to buy at the lows might be discouraging but bull markets don't last forever. :)

I missed accumulating many stocks at much lower prices during the early years of my life as a working adult too. Well, how much could I have bought, anyway? I didn't have as much savings during the Asian Financial Crisis in the late 90s, for example.

However, through the years, what has not changed is my habit to accumulate cash. When opportunities presented themselves again, I had the cash to take advantage of them.

Having cash is important and you might be interested in this blog post:

If we want peace, be prepared for war.

Don't be discouraged. Don't give up.

All in good time. :)

AK71 said...

Hi Ong,

Although I have divested a big chunk of Sabana REIT and sold a few other stocks, I have been nibbling quite a bit in recent months:

Soilbuild REIT
Ascendas HT
SATS
ST Engineering
SCI
SMM

So, cash is probably around 35% to 40% of my portfolio, not 50%. -.-"

nil said...

Hi AK,

I would like to wish you early happy birthday in advance (as I do not know the actual day)!
Hope you do not stop blogging as some other good bloggers have. You have been offering good advice over the years and many more people will continue to benefit.

AK71 said...

Hi nil,

Thanks for the birthday wishes. :)

You must remember that I am not giving any advice in my blog. Just talking to myself. ;p

I guess I will continue to talk to myself until I get tired of it.

Dividend Warrior said...

Hi AK,

I have also divested Sabana last year.

Looking forward to more REIT-related articles from u.

Cheers!^^

AK71 said...

Hi DW,

Good to hear from you. :)

I might be blogging more about food, philosophy and personal finance matters instead of investments in future. ;p

yeh said...

Hi ak
I keep minimum cash, about 5%.
but me and my hubby, we make sure we have a high 5 figure amount of emergency fund.

Or you think better to keep more cash?

AK71 said...

Hi yeh,

We need an emergency fund but we also don't want to lock up too much money in our emergency funds. I think if we have put aside enough money to pay for 12 to 24 months worth of routine expenses, that would be good enough.

So, check to see if your high 5 figures emergency fund is excessive or not. If it is excessive, you could release some of the money into your war chest. :)

We have to remember that stocks which look cheap could become cheaper. So, if we do not have more money in our war chests, we won't be able to take advantage of the lower prices.

imdna said...

May I ask why you don't own Frasers Centrepoint Trust?

I'm considering adding...your POV would be invaluable.

Thanks in advance/

AK71 said...

Hi imdna,

It is for the same reason as why I don't have any CMT. I have been waiting for lower prices because I don't think current prices are attractive enough for me. A 10% correction in price will probably do the trick. ;)

LOL said...

Hi AK,

I am a relatively new investor in my early twenties and currently vested in some S-REITS.

Your blog posts are very inspiring and helpful when it comes to motivating and giving me advice.

Just like to ask since you are like an expert in S-Reits and are vested plenty in it, what do you think will the interest rate hikes result to and what will you do in response to the hike?

Thank you!

AK71 said...

Hi LOL,

I have several blog posts that would address your concerns but they are scattered everywhere. I know, I am not very organised as a blogger. :(

I have some blog posts which I picked and provided links to in my right side bar. One of them is:
How should we approach REITs as investments for income now?

Hope this will give you an easy start. ;)

loveandy said...

Hi AK,

I have been your blog reader for some time. Really like it. :)

In this post, I notice you mention about interest alignment between managers and minority investors. Could you tell me where I could find out information about insider transaction?

Andy

AK71 said...

Hi Andy,

You can find the information usually in the Investor Relations section of each REIT's website. You could also see the announcements published in SGX. :)

AK71 said...

REIT investors were pleased that the Budget's bad news was outweighed by the good.

While the stamp duty waiver will end on March 31, other measures like tax exemptions on qualifying foreign sourced income were extended for another 5 years till March 2020.

Stamp duties will be imposed on REIT purchases of properties from 1 April. That will lead to an increase in cost of about 3%. Impact will not be significant although there could be a slowdown in acquisition of new properties.


Source:
The Straits Times, 25 Feb 2015.

Rebel said...

Hi Mr AK71,

I cannot buy First REIT. I do not understand enough about the Indonesian Healthcare System & Hospitals.

Elliott said...

Hi AK,

May I know can still buy sabana reit as now 0.605 giving about 8% dividend or I should be look at first reit or aims reit?

Thank you.

AK71 said...

Hi Elliott,

I can only say that I am not adding to my investment in Sabana REIT. If you are attracted by the distribution yield, you want to ask if it is sustainable. Look at the schedule of expiring leases, for example. I haven't been impressed by the REIT's management and will temper my expectations.

First REIT and AIMS AMP Capital Industrial REIT are both large investments in my portfolio. They are well managed and are likely to continue performing satisfactorily. I don't think their current prices are cheap but, as an income investor, I might nibble if I didn't yet have a position in these REITs.

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