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6M 2015 passive income from non-REITs.

Saturday, July 18, 2015

What did I do in the non-REIT space in the first 6 months of 2015, specifically in stocks which pay dividends?

I added to my long position in Accordia Golf Trust which I initiated in late 2014. AGT's unit price fell to a level which I felt made it a fairly good investment for income. Of course, it has fallen to a lower level by now and I have been accumulating on weakness.

I added to my long positions in Hong Leong Finance and Singapura Finance (both trading at a discount to their NAVs) as I believe that a rising interest rate environment should benefit them because their NIMs should improve. Interest income forms about 80% of their total income. So, they are not as resilient as the 3 local banks but they should benefit disproportionally when interest rates are higher.

Singapura Finance

I added to my long position in Wilmar International which, if we have been following its many developments, is a bigger and more dynamic creature now than a few years ago. There are many things to like about Wilmar, including its relatively depressed stock price which incentivises me to buy more. So, I bought more when its stock price dipped slightly below its NAV earlier this year.

I added to my long position in ST Engineering which is one of the founding members of my investment portfolio. Although they will pay only 75% of their earnings as dividends instead of 100% when I first became an investor donkey years ago at $1.55 a share, it doesn't bother me. The fact that the company has grown and enlarged their footprint in the USA over the years is good news to me now with the US$ set to strengthen against the S$.

I added to my long position in SembCorp Industries and reduced exposure, both actions within 2 or 3 months of each other. For the full story, read related post at the end of this blog post. I believe that SembCorp Industries and SembCorp Marine have both hit a speed hump but I don't think they are going kaput.

SembCorp Industries

The world will still need crude oil and other products derived from crude oil. The world will still need energy. The world will still need clean water. SembCorp Industries should be more resilient than SembCorp Marine, obviously, but since I believe that they will both do well enough given time, I am willing to wait and be paid while I wait.

I also added two dividend paying stocks to my non-REIT income portfolio as their stock prices retreated from their highs: Tai Sin Electric and Starhub. For the stories, read related posts at the end of this blog post.

For the first 6 months of 2015, I received dividends and distributions from the following non-REITs:

1. SingTel
2. APTT
3. SPH
4. Croesus Retail Trust
5. OUE Limited
6. SembCorp Industries
7. SembCorp Marine
8. Wilmar
9. NeraTel
10. Hock Lian Seng
11. ST Engineering
12. Hong Leong Finance
13. Ascendas H-Trust
14. QAF
15. Accordia Golf Trust


SPH retains majority ownership of SPH Trust.



I need to remember that that Hock Lian Seng's dividend included a special dividend and it is, therefore, extraordinary. I must not think that it is going to recur although they do have a lot of cash on hand. The sale of Skywoods condominium is chugging along well enough and it is by now almost 70% sold. With a packed order book, Hock Lian Seng should continue to deliver good results in years to come.



Oops. I almost forgot.

For the first 6 months of 2015, passive income received from non-REITs is S$38,925.57 which works out to be $6,487.59 per month.

Related posts:
1. 2014 full year income from non-REITs.
2. SembCorp Industries: Partial divestment.
3. Tai Sin Electric: Nibbling for yield.
4. Starhub: A nibble at $3.85 a share.
5. Hock Lian Seng: Robust order book.
6. 6M 2015 passive income from S-REITs.
7. AK says create your own Dividend Machines.

6M 2015 passive income from S-REITs.

Wednesday, July 15, 2015

I shared how and why I reduced my investment in Sabana REIT substantially and the much lower level of passive income received from my S-REIT portfolio last year was mostly due to this. I retain a very small position in Sabana REIT as a reminder or incentive for me to track new developments, if any. The REIT could become a good investment again in future if the management get their act together.

I feel that although the distribution yield looks relatively attractive for Sabana REIT now, investors want to be cautious and remember that there are only a few months "before the expiry of 11 master leases (and) the Manager is working towards renewing or securing new master leases for 7 of them. The remaining 4 will likely be converted into multi-tenanted buildings." Occupancy level will most likely fall and DPU will most likely take a hit, all else remaining equal.




I am still rather happy with AIMS AMP Capital Industrial REIT. They are doing the right things to add value for unitholders, especially in the way they go about re-developing their properties to max out their plot ratios. I really like how they secure pre-commitment before embarking on such projects and I like the fact that insiders have a meaningful stake in the REIT too. This REIT is definitely one up on Sabana REIT.

I haven't really made any changes to my portfolio of S-REITs (from July 2014 to June 2015) apart from initiating a long position in Soilbuild REIT. The expectation that the REIT would benefit from commercial entities moving their activities (like call centres and IT departments) to business parks should pan out nicely.

So, although industrial properties S-REITs are expected to face challenges from more supply of industrial space in the next 2 years or so, Soilbuild REIT should weather this relatively well.





What about my investment in Saizen REIT? Well, there is some talk on how residential property prices in Japan have gone up in recent times because foreigners are more enthusiastically investing in Japan again. There is also some talk about how prices have gone up too much because rentals have not gone up in tandem. So, some are saying that prices must come down and maybe they would.

Now, perhaps, it is timely to remind ourselves that Japanese residential property prices continually fell for two decades and the fall in prices had been much sharper than the fall in rental in those twenty years.


Something I blogged about in December 2009: here.


The increase in property prices since the introduction of Abenomics is just a bump in comparison to the fall off the cliff in those twenty years. Saizen REIT remains very undervalued and should be a natural beneficiary of the recovery of the Japanese housing market.

My three largest investments in S-REITs are still:

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

They account for the bulk of my passive income from S-REITs.



I also have smaller long positions in the following S-REITs:

4. Sabana REIT
5. FCOT
6. Suntec REIT
7. LMIR
8. Cambridge Industrial Trust
9. Cache Logistics Trust
10. Keppel REIT
11. Soilbuild REIT



Half year (2015) passive income from S-REITs: $45,626.80.

On a monthly basis, this works out to be $7,604.46 a month. The slight improvement compared to 2014 is probably due to the addition of Soilbuild REIT to my portfolio.

Although interest rates are expected to rise in the near future, it would be a mistake to think that S-REITs will all go the way of the Dodo. Remember that S-REITs might be bond-like but they are not bonds.

S-REITs are really property leasing businesses and they are more likely to do better compared to bonds in a rising interest rate environment. S-REITs are, generally speaking, still relevant instruments for income investors.

Related posts:
1. 2014 full year income from S-REITs.
2. AK says create your own Dividend Machines.

Looking for a way to preserve capital and enjoy dividends.

Tuesday, July 14, 2015

I always say that I don't know everything there is to know. I am not humble. I am just being honest. I am also not a very good investor. Again, I am not humble. I am just being honest.

So, when I get very difficult questions, I like to share the questions and hope that I will learn from other people who might have answers.




Here is a message from a reader:

Dear AK,
Hope all is well with you. I attended the second chit chat session that you organised. If you remember, I was the one who asked you about Malaysian Ringgit. I had some back then and eventually I remitted it out to Sg in US$ as I hope I can make some forex gain eventually.
If I were to ask any relationship managers what to invest in, they will advice that I buy products like bonds or funds that give out dividends. If I were to suggest US bank stocks, they will suggest products like structure notes which band 3 bank stocks and gets too complicating for me. My experience with relationship managers have never been good and most of the time I ended up losing or ended in positive territory after taking interest earned into account.
I am thinking of putting it in stocks and since with US$, I can only either purchase stocks listed in NYSE /Nasdaq or US$ denominated stock in SGX. I have shortlisted a few US$ counters in SGX and am of course leaning more towards the first two that give much higher dividend and perhaps GM. I would love if I can hear your view and advice especially on HPHT.
At this stage, I don't want too much risk and am more into capital preservation and hoping to get good dividends. Please feel free to make any other suggestions.
SGX Hutchinson Port Holdings Trust 9% Mandarin Oriental International 4.33% Jardine Strategic Holdings 0-89% Jardine Matheson Holdings 2.68% HongKong Land Holdings 2.36% Dairy Farm Internationals. 2,64%
NYSE General Motors 4.58% General Electrics 3.5%
Source: Bloomberg.
I had meant to write to you weeks ago but was kinda pei she to trouble you and to pick your brain but I know you have always been most generous with your sharing and so I have finally done it ! Thanks for sparing me some of your time smile emoticon

Second "Evening with AK and friends" early this year.

My reply:

I am sure you gave the matter much thought before converting your Ringgit to US$. I am happy for you.


With regards to your question on what to invest in, I believe you are right to avoid bond funds.


I don't know about the other stuff you asked about apart from HPH Trust. You could do a search in my blog for this and you will see what I think of it.


If you like, I could extract some bits of your message to me and share them on my blog to see what others have to say. I don't know everything there is to know, for sure.
If you are interested in dividends and you want to make sure you are doing it properly so as not to put your capital in jeopardy, you might want to consider signing up for Dividend Machines. See: A second chance to create your own Dividend Machines.

So, if anyone has any good ideas to share, please feel free to do so in the comments section.

Related posts:
1. Second "Evening with AK and friends".
2. Nobody cares more about our money than we do.
3. HPH Trust: Storm clouds over a safe harbour?

Should I sell my HDB flat to fund my condo purchase?

Monday, July 13, 2015

All of us aspire to a better life, to give our families a better life. 

This is only normal.

In Singapore, part of this aspiration to a better life for many is characterised by a desire to live in a condominium with full facilities and security.

For HDB upgraders, they might wonder if they should sell their HDB flats or hold on to them as income properties. 

The case to keep their HDB flats for rental income has been quite strong in recent years due to the buoyant rental market and the very low interest rate environment. 

It would be prudent to ask if such a scenario is going to last?

I replied to a reader who has the same question:







AK said...

You have rightly identified the two main considerations which will help you in making a decision.

1. Interest rates have been very low for many years. 


They could stay low for a while more but they cannot stay so low forever. 

The very low interest rates of the last few years are abnormal. 

When interest rates normalise in future, the logical direction they will go is up.
...




...
2. How much we get in rental income, if any, like many things is a function of supply and demand. 


The oversupply situation in residential properties is not getting any better in Singapore and it will take years to correct (and we are assuming that they would). 

The slower growth in the foreign working population is not going to drive rental demand for residential properties like it did in recent times.

Would you be able to rent out your 4rm flat in Sengkang for $2.2K a month (if you could find a renter at all) in 2017? 


I do know it has been getting harder to find renters in recent months. 

I don't think anyone knows for sure what it is going to be like in 2017.
...




...

In life, I like to go for low hanging fruits. 


I try not to climb trees and if I do, I try not to climb too high up into the trees. 

I go for the benefits which I know I will be able to secure with greater certainty.
...






 Leverage is able to deliver benefits to investors if used correctly and if the conditions are favourable. 


The last few years saw households in Singapore leveraging more liberally because of the very low interest rates. 

Things still look OK now but a recent study showed that if interest rates were to normalise and rise by only 2%, 15% to 20% of households in Singapore could become over-leveraged.
...




...
An over-leveraged individual uses more than 60% of his income to service his debt burden. 


So, someone could be using just under 60% of his income now to service his debt burden but when interest rates rise, which they will sooner than later, all else remaining equal, he could end up using more than 60% of his income to service his debt burden.

Reading your email, I get the feeling that your preference is to sell your HDB flat when your condo is ready in 2017 so as to avoid paying a 7% ABSD (and also end up servicing a bigger home loan). 


Well, I would say to keep your ear to the ground and see how things develop in the next two years.

If the residential real estate market worsens and if interest rates go up much more, the case for keeping your HDB flat as an income property will weaken. 







We cannot project current day rates into 2017 and think that things will not change.

Leveraging to fund prudent investments is a good idea. 


Leveraging to fund consumption is generally a bad idea. 







Interest rates have been too low for too long and many people have grown a bit too adventurous.

Best wishes,
AK


Related posts:
1. Buy that second property and pay the ABSD?
2. Should we buy a shoebox unit in NE Singapore?


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