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2015 full year income from non-REITs.

Monday, December 28, 2015

Before I reveal the numbers, let me talk to myself about what I did in 4Q 2015, investments wise.

I re-initiated a long position in ARA as I felt that its stock price declined to a reasonably attractive level. 

ARA's rights issue which followed not long after was unexpected but I took up my entitlement and applied for excess rights as I looked at it as an opportunity to buy more on the cheap. I will probably buy more if the stock declines further in price.

Of course, those who follow my blog will also remember another rights issue and that was by Croesus Retail Trust. I too participated fully in that rights issue.

A back of the envelope calculation shows that Croesus Retail Trust is now trading at a 10% distribution yield. 

Croesus Retail Trust has rather high gearing level but if we were to take that away, Croesus Retail Trust is actually still generating more than a 5% distribution yield (i.e. non-leveraged yield) which I think is very attractive for a portfolio of mostly freehold retail properties in Japan. 


As the Trust's unit price declined, I added to my position again in the middle of December at 78c a unit.


I also increased my investment in Accordia Golf Trust as its stock price declined. The last time I did this was in mid-December at 51c a unit.


Investing in Accordia Golf Trust, we must realise that weather plays an important part in its performance. So, we have to expect its revenue to fluctuate quite a bit seasonally, much like investing in hospitality REITs.


With sentiments pretty negative, if Mr. Market were to offer me meaningfully lower prices, I would probably be buying more.




I also did a bit of trading in 4Q 2015. I reduced my long positions in Wilmar and ST Engineering as their stock prices recovered. That gave me some trading gains for the quarter.

I don't trade very much anymore as it requires a bit more work. Now, I might not even look at the stock market for several days in a row.

I added to my long position again in ST Engineering as its stock price declined by more than 10% from my recent selling price. 


ST Engineering is still one investment for income and growth. I definitely want to buy more if Mr. Market goes into a depression.



For those who do not follow my comments section, I initiated a smallish long position in DBS. Some know that I have been thinking of buying into the three local banks for a while and have been waiting for their stock prices to become cheaper.

I chose DBS first because it was trading at the smallest premium to NAV compared to OCBC and UOB. There is also consensus that DBS would be the biggest beneficiary of rising interest rates.

I also added to my investment in SingTel as its stock price declined. We invest in SingTel, Starhub and M1 because they are defensive income generators but with SingTel, there is also a nice element of growth.




Finally, I added to my long position in APTT this month after having left it alone since its inception. The rapid plunge in APTT's unit price up till middle of December seemed excessive to me even though I have mentioned before that a DPU of 8c a year is unsustainable in the longer run.


A much lower DPU of between 4c to 5c would probably be more sustainable for APTT. So, adding to my long position at 63c a unit, I am expecting a more realistic distribution yield of 6.3% to 7.9%.


A more recent development was an expression of interest by a party to acquire Ascendas Hospitality Trust which I included in my income portfolio in 3Q 2014. I have added to my investment on a few occasions since then, as and when its unit price declined.

The last time I increased exposure to Ascendas Hospitality Trust was on 24 August 2015 at 58.5c a unit. With an estimated annual DPU of 5.5c, I was looking at a distribution yield of almost 10%.

Although I hope that the offer is going to be at a fairly attractive premium to valuation, I am aware that if the Trust should be taken private, my income from non-REITs next year would take a hit.


Very safe to show hand like this.

Including my first income distribution from Religare Health Trust (RHT), dividends from my investments in non-REITs in Q4 brings my income in 2015 from them to a grand total of S$76,804.69.

This works out to be about S$6,400.00 a month.

Including the distributions from S-REITs this year, I am pretty satisfied with the total income generated by my investment portfolio.


Related post:
1. ARA: Re-initiating long position.
2. Croesus Retail Trust: Rights.
3. Trading ST Engineering.
4. Religare Health Trust: Entered at 88c.
5. 9M 2015 income from non-REITs.

30 comments:

Leonard Ng said...

AK,

I'm very skeptical about accordia golf trust's long term distributions.

The golf industry in Japan seems to be on a decline.

The working class seems to shun the game.

Many are probably saddled with the massive financial and time burden of taking care of the disproportionately large aging population.....who apparently have extremely long lifespans!

I foresee even heftier tax imposed by the govt to subsidies elderly healthcare.....which again erodes the working class's spending power.

I read some articles that an increasing number of companies who manages golf courses ran into financial problems and ended up selling the land to renewable energy companies.

The current yields are definitely tempting. But the potential capital loss from stock price drops could be overwhelming.

Is your investment approach for this stock a short term play?

Leonard

LKH said...

Thks for sharing. What is RHT?

Sweet Retirement said...

Hi AK, is ARA still a good long term investment? Recent rights issue has caused falling prices.

AK71 said...

Hi Leonard,

I can only see what is in the present and, at present, I feel that the unit price of AGT undervalues the business. I could speculate as to what might happen in the future since the future is anyone's guess but I don't have the inclination.

It could be the case that golfing would continue to decline in popularity in Japan (or, indeed, around the world) but this would probably be a slow decline. I doubt that golfers would stop golfing forever the next day.

In a fragmented industry, size matters and Accordia is the largest in Japan. I doubt that it would go the way of the Dodo like some of the smaller operators. Crossing fingers.

AK71 said...

Hi LKH,

You might want to refer to related post no. 5. ;)

AK71 said...

Hi SR,

I believe ARA is a well managed company and should be a good investment in the long term.

Falling prices would, therefore, present opportunities to accumulate on the cheap as valuation becomes more compelling.

iwimsasl said...

Hello Ak,

Thx for sharing... with Singtel's buy believe you are shareholders of all 3 telco here(SPH hold significant M1 shares). So what's your long term plan, I mean which one is better? Can reveal your entry price range for ST & DBS as I'm planning a buy too.

Best regards.

AK71 said...

Hi iwimsasl,

We invest in these Telcos because they are defensive income generators. So, if that is what we are after, all three will do the job. If we want more of a growth angle, SingTel seems like a better choice. I won't say which one is better.

Alamak, it does not matter what my entry prices are lah. As long as the stock prices make sense to you, you could consider buying. Don't mind me.

AK71 said...

In another blow to embattled Noble Group, Moody’s Investors Service has downgraded the commodity trader’s credit rating to "junk" status over concerns about the company’s liquidity amid a persistent downturn in the commodity sector.

In response, the Singapore-listed company said the pending sale of its stake in Noble Agri would "substantially" improve its rating metrics.

Despite that, the company's stock tumbled 5.7 per cent to S$0.415 at the market open on Wednesday (Dec 30).


Source:
http://www.channelnewsasia.com/news/business/international/noble-group-cut-to-junk/2386112.html

ron ron said...

if the dividend income is $70K +/- but the share price drop by $100K (although paper loss) , do you call it a good investment as it would require 1.3 yrs to recoup the paper loss.

Pls comment.

Thanks

Ron

AK71 said...

Hi Ron,

You might want to read this:
Invest for income and ignore the two Ms.

TP said...

Hi AK,

Would you comment on the estimated offer price that the buyer would offer to shareholders for Ascendas Hospitality Reit based on a NAV of 72cents?

Thanks and regards
Roger

AK71 said...

Hi TP,

I am waiting patiently to see what the offer price might be although for shareholders to accept any offer, it would probably have to be at some premium to NAV. AHT is not in any distress. There is definitely no need to accept a less attractive offer.

TP said...

Hi AK,

After looking at APTT last quarter result, I noticed the cash & cash equivalent has been reduced and the reason was primarily due to payments of dpu to unitholders.
On the longer run would it be a sustainable business that we can invest in? Your
thoughts and comments would help!

Regards
TP

AK71 said...

Hi TP,

I already talked to myself about what I think a more sustainable DPU would be for APTT in this blog post. Nothing new to say. :)

JY said...

Hi AK
Wishing you and all readers a happy and profitable year ahead.

I am a new visitor to your post just seen the blog in end Dec 2015. I will be retiring in a few months time and will live on my 2nd stream of income. Looking ahead, I would like to set up a portfolio for my child and after NS/U, let him carry on the investments. So this portfolio will be passive in nature, and I hope to achieve a modest 3-5% rise in 4 years time. I hope to achieve this by setting 40% on REITS, 40% on ETFs, and 30% 2-3 blue chips via RSP.
Of course, before I start, I will do some research on various REITS (one way, is to go through your previous blogs). However, I notice you do not seems to have any ETFs write-ups. Are you not a strong advocate of ETFs?
Thank you for your time reading this and I hope to have some advice on the portfolio set up.

Thank You
JY

AK71 said...

Hi JY,

Welcome to my blog. :)

If you are interested in buying into ETFs, you could read blogs by one of ASSI's guest bloggers, Matthew Seah.

Here is an example:
Tea with Matthew Seah: Blue Chip Investment Plan.

redponza said...

Hi AK and fellow investors,
Are you aware of any site which can provide 10-15 year total return for Singapore stocks?
Thanks.

AK71 said...

There is likely going to be more than one bid for Ascendas Hospitality Trust (A-HTRUST) as managers of the investment trust have begun inviting other interested bidders.

Source:
http://www.businesstimes.com.sg/companies-markets/ascendas-hospitality-may-attract-more-than-one-offeror

AK71 said...

Ascendas owns a majority stake of 26.6 per cent in A-HTRUST, followed by Chinese tycoon Tong Jinquan (5.7 per cent), Aberdeen (5 per cent), Accor subsidiary AHDF (4.1 per cent), and Aberdeen Asset Management (1.2 per cent), according to Bloomberg.

AK71 said...

Overnight BUY order for DBS at $16.14 a share filled.

ho2786 said...

UOB is the better buy.
because UOB have boss.The boss very shrewd.
DBS no boss only employees.
Deposit money in UOB and borrow money from DBS.

AK71 said...

BUY order for DBS at $15.79 a share filled.

Siew Mun said...

Initiated a nibble on DBS at $15.70 at STI 2751. Blood on street in first 4 days trading days

Siew Mun said...

Correction* Initiated a nibble on DBS at $15.80 at STI 2751. Blood on street in first 4 days trading days

AK71 said...

A number of differences among Singapore's three biggest lenders - DBS Bank, Oversea-Chinese Banking Corp and United Overseas Bank Ltd - could lead to their different credit ratings over time.

Differences among the three banks include factors such as:
(1) their geographic mix
(2) their varying appetites for capital market activities
(3) their funding structures
(4) challenges related to the introduction of Basel III rules.

1. Geographic mix

While all three banks are expanding their cross-border transactions, UOB's proportionately larger exposure to Singapore and lower share of loans in banking markets that Moody's considers riskier than Singapore - such as China, Thailand and Indonesia - lowers its exposure to country-related risks when compared to OCBC and DBS.

2. Capital market activities

The three banks generally exhibit a low appetite for capital market activities. However, of the three, DBS' market risk appetite is the largest and its earnings exhibit a slightly higher share of trading gains when compared to OCBC and UOB.

3. Funding structures

Higher interest rates in the US and Singapore will have a greater positive effect on DBS' earnings, owing to its superior funding structure. Moody's report notes that DBS' cost of funding is lowest, owing to its higher share of low-yielding customer deposits.

As for OCBC in particular, Moody's report notes that the bank's profits are somewhat dependent on the volatile financial performance of its insurance arm, Great Eastern Holdings. Despite this volatility, higher interest rates will be generally positive for the financial performance of Great Eastern.

Moody's report says that while life insurance involves low-risks, profits for the sector are associated with some degree of volatility, partly because of complex accounting rules. The contribution of the insurance segment to OCBC's quarterly profits, for instance, has been volatile and ranged from 5 to 32 per cent over the last eight quarters.

4. Impact of Basel III rules

The rules will introduce a greater challenge for OCBC's capital adequacy in the coming years, because OCBC faces large deductions from the CET1 capital of its investments in Great Eastern, while DBS and UOB face much smaller deductions.

Under Basel III rules adopted in Singapore, banks that own non-consolidated insurance subsidiaries have to fully deduct these investments from their CET1 capital on Jan 1, 2018.


Source:
Moody's Investors Service

ho2786 said...

queuing to buy UOB at $18 for 100 lots.feeling lucky today.

ho2786 said...

queuing to buy DBS at $14 for 100 lots. feeling lucky again.

AK71 said...

ARA Asset Management has announced that a group of investors including the Straits Trading Company, Cheung Kong Property Holdings, American private equity firm Warburg Pincus and AVIC Trust Co, as well as ARA founder and group chief executive John Lim have launched an offer to privatise the company.

The group is offering S$1.78 in cash for each share of ARA, in a deal valuing the company at S$1.775 billion.

The offer price represents a premium of 43.9 per cent over the 12-month volume-weighted average price up to and including November 2.


Source:
http://www.straitstimes.com/business/controlling-shareholders-make-178-per-share-buyout-offer-for-ara-asset-management

Based on my entry prices, that gives me capital gains of between 35% to 78% over a period of around one year or less. I am contented.

AK71 said...

ARA Asset Management's buyout will be carried out by way of a scheme of arrangement.

This means that the offeror will hold a scheme meeting where it needs more than 50 per cent of shareholders present in person or by proxy to vote "yes" to the scheme.

These shareholders will also have to hold at least 75 per cent of the value of total shares held by all at the meeting. Members of the acquiring consortium will not vote.

The scheme is expected to be completed in the first half of next year, and will not trigger any takeover offer for any publicly-listed Reits managed or owned by ARA.


Source:
http://www.straitstimes.com/business/companies-markets/ara-founder-leads-consortium-in-18b-buyout

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