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2Q 2018 passive income from S-REITs.

Saturday, June 30, 2018

Regular readers know that AK is usually pretty inactive as an investor, preferring to do nothing most of the time and just collect dividends.

Well, in 2Q 2018, in the S-REITs space, there was a bit of action.






There was the 1 for 10 rights issue by Frasers Logistics & Industrial Trust (FLT) in which I took up my entitlement and applied for a small number of excess rights.

To be honest, I did not think that the rights issue was very attractively priced. 

Perhaps, it was fairly priced.

We have to take note that the massive deal weakened the REIT's balance sheet significantly while delivering very little increase to DPU and NAV per unit.






I must say that I feel that the deal was better for the sponsor than it was for the REIT.

We shall see if the REIT's DPU grows in future, everything else remaining equal.

Having said this, the REIT should still be a fairly safe and stable investment for income that keeps me happy enough to stay invested.

Even after the rights issue, the REIT is still only one of my bigger smaller investments (under $100,000 in market value but more than $50,000).








Another thing I did in 2Q 2018 was to nibble at Starhill Global REIT as its unit price declined.

As its unit price declined by 5%, I pointed out to a friend that the drop in unit price did not really make the REIT absolutely more of a bargain than it was before.

Of course, I was not interested in adding to my investment then.


If you remember, I mentioned in an earlier blog that with the new tax levied by Malaysia, I estimated a 5% reduction to the REIT's DPU.

So, with a lower DPU, it is only logical that the REIT's unit price took a 5% hit as well.






However, when its unit price declined by much more than 5% later on, I decided that the selling was probably overdone.

In fact, unit price has declined by more than 10% compared to my initial entry price and I couldn't resist nibbling.

After all, there is reason to be hopeful that Starhill Global REIT could do better in future and that buying at a big discount to its NAV is a very tempting proposition and probably provides a decent margin of safety.







The REIT's portfolio of commercial buildings has intrinsic value.

As an investment for income right now, however, it is really nothing to shout about.


Although I feel that there is nothing fundamentally wrong with the REIT, it is really one for investors who are very patient and who are OK with being paid while waiting.

As I bought more in 2Q 2018, Starhill Global REIT has just crossed the line to become one of my larger smaller investments like Frasers Logistics & Industrial Trust (under $100,000 in market value but more than $50,000) but it is on the smaller side compared to FLT.









I like to think that all investments are good at the right price.


At such a big discount to NAV, it is just too hard for me to ignore but without a clearly stronger income investing angle here, I reminded myself not to take too big a bite.

I don't like choking.







Regular readers should not be surprised that the two largest contributors to my passive income from S-REITs are:

1. AA REIT

2. FIRST REIT






DBS recently did a piece on AA REIT, suggesting that it could be a target for takeover and suggested a target price of $1.55 to $1.65 per unit.

• Resilient industrial gem that offers above-average yield of 7.4%-7.6% over FY19-FY21

• Extraction of value from greenfield projects and addition of c.600,000 sqft of untapped GFA could drive revenues by c.16%

• Potential takeover target amid global hunt for quality assets








Frankly, I am not too enthusiastic about this, having lost quite a few good income generating investments in similar fashion already (with Saizen REIT and Croesus Retail Trust being the largest).


Quite honestly, unless there is another bear market, it is not easy to find robust replacements as more meaningful investments for income.





OK, enough grumbling.


Total passive income from S-REITs in 2Q 2018:

S$ 18,715.33

The next blog will be on my passive income from non-REITs and we will have the full picture for 2Q 2018 then.

Related post:
1Q 2018 passive income from S-REITs.

17 comments:

My Investment Machine said...

Hi ASSI,

your portfolio is massive!!!

AK71 said...

Hi MIM,

It is all relative.

Look at Warren Buffett's. ;p

Investminds said...

AK, nice passive income for 2Q18. Really inspire me. Thanks for sharing AK shifu.

AK71 said...

Hi IM,

If I have inspired more towards financial freedom, I am happy.

Thank you for the positive feedback. :)

AK71 said...

STARHILL Global Reit (SGReit) has been upgraded to a "buy" by OCBC Reseach with a fair value of S$0.74.

In a report on Friday, analyst Andy Wong said he believes that "the worst is likely over" for the retail and office Reit, noting that its committed Singapore office occupancy has moved from a low of 83.5 per cent in its fiscal first quarter ended Sept 30, 2017, to 95 per cent as at June 30, 2018.

Occupancy was buoyed after The Great Room, a co-working operator, commenced its operations in June at Ngee Ann City by taking up 15,000 square feet of space.

Mr Wong wrote: "For retail, challenges will likely remain, but this will be partially buffered by the long-term master lease with Toshin at Ngee Ann City Retail, with the next rent review in June 2019. Meanwhile, in Australia, its Plaza Arcade mall will see new anchor tenant Uniqlo opening its doors in the third quarter of calendar year 2018."

SGReit's share price has fallen 12.9 per cent so far this year, making it one of the worst-performing Reits in Singapore, Mr Wong noted. But he expects the Reit's distribution per unit (DPU) to start growing again over the next 12 months, at a projected growth rate of 4 per cent for the 2019 fiscal year.

The Reit traded at a 2019 forecasted distribution yield of 7 per cent and a price-to-book value of 0.74 times based on its closing price of S$0.675 at the end of Thursday, Mr Wong said.

Source:
The Business Times
AUG 17, 2018

Chris Lim said...

Thank you again for sharing your wisdom.

You stated:
"We have to take note that the massive deal weakened the REIT's balance sheet significantly while delivering very little increase to DPU and NAV per unit."

Q1) When there is a 1 for 10 rights issue, and if you own 100k units, does it mean you will get to enjoy 10k more units for free?

Q2) How does this weakened the REIT balance sheet? With more units, it simply should dilute the DPU assuming the same amount of distribution price in the following year.

Q3) Can you point me to an example of a formula of how to derive at the intrinsic value for the SGReit commercial buildings? I believe this will help me to discern and filter for other REIT or other non-REIT.

AK71 said...

Hi Chris,

1) When you are offered "rights", it is an invitation to buy more units, usually at a discount. They are not free.

2) How the balance sheet would be impacted also depends on the size of the proposed asset purchase and whether any debt is taken. If no asset is to be purchased, a rights issue would bolster a REIT's balance sheets and this has happened before. You have to evaluate rights issues and their impact on a case by case basis.

3) Real estate have intrinsic value because of the income they are able to generate. It depends on the market condition at any point in time. I simply refer to the REIT's reported valuations of the buildings. More useful is the REIT's NAV/unit.

Chris Lim said...

Referring to your comment: 'REIT reported valuation of the buildings'.

For example: Wisma is valued at $997m as at 30-Jun-17. In page 56 of the 2016-2017 Annual Report, it stated NAV per unit is $0.92. Assuming an investor was to buy per share at $0.70. Does it mean that he/she is buying at 23.91% ((0.92-0.70)/0.92) safety of margin or premium to the NAV?

AK71 said...

Hi Chris,

If something is worth 92c and you pay 70c for it, you are getting a discount.

If you are getting a discount, how can you be paying a premium? ;)

Chris Lim said...

Ahhh thank you for correcting the terminology for me.

AK said...
"However, when its unit price declined by much more than 5% later on, I decided that the selling was probably overdone."

By now, you would have realised I am learning on the go through all the exchange between your post and your visitors' comment, and there will be more from me. heee.

I also picked up some of the books you recommended in the earlier years.
I also have taken note you used Bollinger Bands, MACD, RSI, MFI, CMF commonly to double-check your decision.

When you commented "overdone", which indicators bring you to such conclusion?

AK71 said...

Hi Chris,

I am not going to give it to you on a silver platter.

The answer is there in the blog.

Read the blog again as many times as is necessary for you to find the answer.

Good luck. ;)

Chris Lim said...

Oh man....Thank you for getting back still :)

Could you at least tell me how come you didn't use all the above said indicators for every TA analysis? I noticed you used OBV mixed with MFI and RSI. Yet at other blogs, you would use Bollinger with some other indicators

AK71 said...

Hi Chris,

To explain the tools I use for TA and why in certain combination will mean conducting a TA class.

I cannot do it properly in a comment or even a blog post.

I am too lazy to do that.

There is a reason why TA books are as thick as they are. ;)

Chris Lim said...

In this case, would you recommend a TA class for me?

AK71 said...

Hi Chris,

I picked up TA from reading books and not paying $X,XXX to attend classes. ;)

Chris Lim said...

Actually the first thing I did was to check out NLB for the books you blogged about. Spent 1-2 months to re-read. Some times find myself gotten it wrong. I also don't want to pay XXXx for the classes. If I had to, it would only be for the reason that there is someone who can explain to me in areas I am stuck.

I can understand the simpler part of certain TA such as MFI, RSI but to comprehend and use it correctly is another thing, hence the reason to ask for clarification in your blog.

AK71 said...

Hi Chris,

Sounds like you are looking for a one on one (i.e. hand holding) class on TA.

That is going to cost you a bomb if you can find such a tutor.

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