Online shopping is gaining strength rapidly and even an IT dinosaur like AK buys stuff online. From my own experience, I would say that online shopping is attractive because of two factors:
1. Convenience. Delivered to my home with either very competitively priced delivery fee or free delivery.
2. Cheaper. For the same item, I have saved as much as 30% buying online than buying in a brick and mortar shop.
So, if a shop in a mall is selling stuff that could be found online, unless the mall is conveniently located and unless they are priced competitively, that shop is going the way of the Dodo. It is just a matter of time.
Shopping malls must fill themselves more with shops that offer goods and services which cannot be found online for one reason or another. After all, there are things which online shops cannot do or cannot do well.
Therefore, despite the growing reach of online vendors, I believe that some shopping malls will continue to do reasonably well and some readers might remember that I have been waiting to invest in CapitaMall Trust (CMT).
However, I have not been able to get in at a price which I am comfortable with because Mr. Market likes pedigree and, just like Frasers Centrepoint Trust (FCT), even now, CMT is trading at around its Net Asset Value (NAV) and both are offering very similar distribution yields in the mid 5%.
REITs, unlike companies, pay out most of their cash flow from operations to their investors. They do not pay dividends from their earnings. They distribute income. They do not have retained earnings.
One way REITs grow, without placing too much demand on shareholders (think rights issue) or diluting minority shareholders (think private placements) is to ensure that there is genuine growth in the value of their assets which would in turn give them more leeway to fund more growth through using debt. It is a virtuous cycle, one that hinges on the growing value of assets. I think we can agree that CMT and FCT have done rather well in this area.
However, given the uncertain retail environment for some time now, although well run, I would like to invest in CMT and FCT at a meaningful discount to NAV and if they offered higher distribution yields.
Asset values in good times would appreciate but in bad times they could come under pressure. So, buying at a discount to NAV makes sense to me unless we feel that asset values can only go up and never go down.
Although I have been mostly looking at CMT, I have also looked at FCT and Starhill Global REIT (SGR).
I like CMT and FCT. I am more familiar with their malls. However, I am not comfortable with getting in at current prices.
I am not as familiar with SGR's malls (i.e. Wisma Atria and Ngee Ann City) and not all their malls are in Singapore which, by the way, is a good thing.
However, trading at a meaningful discount to NAV and offering a distribution yield closer to 7%, to me, SGR is priced more attractively.
There are a few more factors which pushed me towards investing in SGR:
1. More than a third of SGR is owned by the sponsor, YTL Group. This helps to ensure a greater degree of alignment of interest with minority unit holders.
2. The management is looking to sell the REIT's Chinese and Japanese assets to concentrate on what they consider the REIT's core markets of Singapore, Australia and Malaysia. Now, reducing concentration risk is good but having a handful of assets in China and Japan probably isn't beneficial and would, in fact, add disproportionately to operating costs.
3. The relative weakness in SGR's performance is probably going to be temporary because of redevelopment works in an asset in Australia and a delay in a new tenant moving into its asset in China.
Looking at SGR's DPU for the last quarter, annual DPU, all else remaining equal is about 5c which gives us a 6.85% distribution yield based on 73c per unit.
However, if there were to be more hiccups, income could be affected negatively and I am knocking off 5% from DPU to 4.75c to take this into consideration. 6.5% distribution yield is good enough for me while I wait for an improvement in performance.
I am not buying into SGR because I think its outlook is fantastic. For sure, they will face challenges.
I am buying into SGR because, taking advantage of its recent price weakness, I feel that there is some margin of safety.
SGR is an investment that is likely to generate a fairly good yield for the price that I paid.
1. CRCT added to my portfolio.
2. CMT and when am I nibbing?
"Is early retirement the right financial choice?" Jim Ellis discusses long-term financial growth strategies. I have blogged ab...
Past blog posts now load week by week. The old style created a problem for some as the system would load 50 blog posts each time. Hope the new style is better. Search archives in box below.
FOLLOWING MY BLOG
Get this Recent Comments Widget
ASSI's Guest bloggers
- 5 cents 10 cents
- Bf Gf Money Blog
- Bully the Bear
- Clueless Punter
- Consumer Alerts
- Dividend simpleton
- Financial Freedom
- Forever Financial Freedom
- GH Chua Investments
- Heartland Boy
- Help your own money.
- Ideas on investing in SG.
- Invest Properly Leh
- Investment Moats
- JK Fund
- MoneySense (MAS)
- Next Insight
- Oddball teen's mind.
- Propwise.sg - Property
- Rolf Suey
- Scg8866t Stockinvesting
- SG Man of Leisure
- SG Stocks Investing
- SG Young Investment
- Singapore Exchange
- Singapore IPOs
- STE's Investing Journey
- STI - Stocks Info
- T.U.B. Investing
- The Tale of Azrael
- UOB Gold & Silver
- Wealth Buch
- Wealth Journey
- What's behind the numbers?
- Yaruzi's Learn 2 Live
Monthly Popular Posts
I am going to pre-empt a response to this blog and say that although I am known more as an investor for income, I also invest in stocks whic...
I always say that I have been mostly lucky as an investor. The operative word is "mostly". Long time readers would remember the ...
I think there are quite a few readers who are confused about the difference between contributing to their CPF account and topping up their ...
"There were no worries. It was easy money." Dear AK, Morgan Stanley thinks that property prices in Singapore will double by 2...
Japan is rising from recession. Produced by NHK Int'l. In my last blog, we saw that I made some changes in my S-REITs portfolio in ...
I met three friends for lunch a few days ago. They are all financially free, having sufficient passive income to meet their expenses in li...
Reader says: Good morning AK! I am your avid follower since I attended the Tea with AK session some time back. Have started my retiremen...
30 & 32 Tuas West Road This was a recent chat with a reader: Reader: http://www.commercialguru.com.sg/property-management-news/20...
"What is the interest rate risk of REIT investments? Interest rates only represent a portion of the overall equation." Time fl...
Hi AK: I am currently 37 years old. I am working towards the target of hitting my CPF mininum sum by the age of 40. The current b...