2014 full year income from S-REITs.

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.

Make money at all costs or do the right thing at all costs?

It has been almost 20 years since I lived rather high up in a building. Discovering a relatively good value for money deal for a high floor unit in a newly built high rise means I am once again closer to the clouds.

I took some photos of the skies this evening from my balcony as my mood turned contemplative. What do you think I saw in the skies?

When I looked at the skies, I am reminded of how small I am and how there are forces out there that make problems in our mundane lives more mundane.

To some of us, we might also feel that there are divine forces in the skies observing everything that we do. The heavens have eyes, as the Chinese saying goes.

It is good to be reminded that although money is important in modern day life, we should be careful to do the right things to make money.

君子爱财取之有道

Be righteous and make money in righteous ways.

I try to remember this always and that is also why there are certain events or programs I would not want to be a part of. Perhaps, ignorance is bliss but I rather be aware and do the right things. I can't live without air conditioning and hell is way too warm for me.

Related posts:
1. Questions we must ask and people I detest.
2. Nobody cares about our money more than we do.
3. Make more money, do good and pay less tax.

Wisdom, wit, some vegetables and a fish.

I was chatting with my mom and she talked about looking at the skies and laughing at the follies of man. I told her she is so poetic and reminded me of 文章. Younger readers might not get the joke.

Have a listen:





I think this was more than 20 years ago. I am feeling my age. Thanks, mom.

I also decided to give myself a lunch treat today and I think it is a lunch that most people would approve of:

Price: $3.50.

Who says AK's lunch is always under $3.00? Who? Who?

Related post:
Old fashion or growing older?

Marco Polo Marine: My comment in another blog.

I stumbled upon a blog on Marco Polo Marine and I was reading the comments section and felt compelled to make a comment to correct one of the readers. This was my comment:

For readers who are interested in the blog I am referring to, you might want to follow the link here to read the rather well written article: Valuestocks.sg: Marco Polo Marine - Still waiting.

For readers who just want to know what could have compelled me to make the above comment, this was the comment responsible for my response:

It seems that AK the blogger has been gravely misunderstood. It is either that or I have misunderstood what I should be doing as a blogger or whether I should be blogging at all.

Some time off from blogging to do some serious thinking is probably in order.

Related posts:
1. Portfolio review: Unexpectedly eventful.
2. Managing exposures in AK's portfolio.
3. The matter of letters and FY 2014.

Invest in hotel projects for income?

UPDATE: 
I was chatting online with another reader on this matter. Frankly, if I were after passive income by investing in hotel rooms, I would rather invest in a hospitality Trust and there are plenty of options here in Singapore alone.

For anyone who is considering buying hotel rooms as investments for passive income, ask how well do you understand this investment product?

"The rule of thumb is that a hotel room must earn $1 per night for every $1,000 it costs to buy the unit. That means if it costs $125,000, then the room has to rent for $125 per night, on average, and be occupied 60% to 70% of the time. Examine the hotels in the area, as well as the average vacancy rates, along with average room rates. Only then can you get a true picture of whether or not you’ll earn money on rental revenue." Romana King

"...vast majority of people don’t know the full facts. They are sold on a made up ‘projected’ cash flow and a glossy brochure. That is nowhere near the due diligence that should be done on a specialised investment strategy like this." Brett Alegre-Wood
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A reader wrote to me about investing in a hotel project in Phuket recently. This was my reply:

Hi R,

I have a friend who bought into a similar program offered by a hotel group in Phuket.

There are actually plenty of risks in such investments and you have to be one with rather deep pockets. I cannot remember the full discussion I had with my friend but here are a few points off the top of my head:

1. Concentration risk. It is one property.

2. Prospects. You have to question why the developer does not want to take a bank loan or a syndicate of loans to fund the project? If it is lucrative, they should do it. Or is it more lucrative selling rooms in the project to private investors?

3. Management risk. If the project does poorly and the management is not getting paid adequately because of this, could they simply walk out?

4. Is a guaranteed 5% return adequate compensation? I am inclined to think not.
(In fact, could it be a case of "taking back our own money"? Investor could be paying an inflated price for the hotel room to get the guaranteed yearly return for X number of years.)

If you wish to invest in Phuket properties, have you looked at condominiums and apartments? For the same amount of money, if I remember correctly, you could get a bigger property and in pretty good locations too.

Best wishes,
AK

THB 1.0M = S$40,000.

There are many investment opportunities out there. Some are legitimate while some are not. Those which are legitimate, we want to ensure that we would be adequately compensated for the risks that we are being asked to undertake.

For sure, I am not an expert when it comes to investing in properties and hotel projects in Phuket. I was just voicing my concerns.

Related post:
Returns of 15% per year invested.

"Many of the hotel room investment options are fractional ownership. Fractional ownership no matter what the marketers say is Timeshare reborn. You only own a fraction of the property exactly like a timeshare. We all know what happen with the timeshare market and if you do a quick Google search, it will show you how millions of pounds were lost by investors. For me this is a deal breaker if you are offered a fractional ownership investment don’t walk away, run!"
Source: 
http://rmpproperty.com/2013/03/why-we-wont-sell-hotel-room-investments/

"An investor who only wants to be known as Mr Wang bought two units at Ibis Lymm. He had heard about the investment from a friend who had purchased two rooms at Ibis Knutsford and then went on to buy a unit at Ibis Lymm as well. The $400,000 that Wang invested in the hotel rooms had been savings put aside for his retirement and his children’s university education. “And we need the money,” he sighs. “It’s been a burden.”

"Another investor, Mr Fu, who bought two rooms at Ibis Lymm, agrees. “A lot of us had sleepless nights,” he admits. “And so, we have been communicating with each other.” The amount invested, $400,000, may not sound like a lot, but it’s not a small sum either. “We have to answer to our families,” Fu says. “We thought we could get a brighter future, but it has turned out to be something opposite.”

"Mr Koh believes he was most likely the last investor from Singapore to participate in the Ibis Lymm scheme. The whole experience has made him more vigilant, and since then, he has begun to scrutinise property advertisements, especially those offering high guaranteed returns."
Source:
http://www.theedgeproperty.com.sg/