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9M 2015 passive income from S-REITs.

Monday, September 28, 2015

The stock market has declined a fair bit in the last three months. For a while, there was some panic. Even now, there is probably a lingering sense of unease in the air.

We must know what to do when presented with a situation. Knowing what to do depends on our own set of circumstances and also motivations. 

Recently, a reader asked me if she should sell a stock which she said she bought at a much higher price some time ago. 

I asked her to consider if she would buy that stock now at the current price if she didn't buy it at a much higher price earlier.

We want to buy at a price we would not sell at and to sell at a price we would not buy at.

There isn't a universal right or wrong answer. At least I do not believe there is. We could each have an opinion on something's value or the lack of it.

Anyway, what have I done in the last three months?

In the last three months, in the S-REIT space, I added IREIT Global to my portfolio as its unit price declined. I like the properties the REIT holds but I thought its IPO price unattractive.

To own freehold office buildings in Germany, arguably the strongest economy in Europe, is an attractive idea. At the current unit price, an 8% distribution yield is achievable.

My initial investment in the REIT is not a big one. In fact, it is relatively small and probably gives me only a toehold.

IREIT Global's relatively high gearing level and the weak Euro are pertinent concerns. 

However, IREIT Global's loans are in Euros. So, they do have a natural currency hedge. This is unlike LMIR's situation. 

Having said this, I feel that the largest decline in the Euro against the S$ could well be behind us. The S$ has weakened considerably as well. 

My reasoning here is really similar to my earlier reasoning on how we shouldn't see much more weakness in the JPY against the S$ when considering whether to invest in Saizen REIT or Croesus Retail Trust.

I also added to my long position in Soilbuild REIT at the end of August, paying 75c per unit, having avoided adding to my position as the REIT's unit price rose to the mid 80s earlier.

I like the fact that the REIT benefits from the shifting of certain commercial activities from office buildings to business parks which form a relatively big percentage of its assets.

I believe that Soilbuild REIT and AIMS AMP Capital Industrial REIT are well managed industrial properties S-REITs. They will face challenges as the economy soften but they should be more resilient than office REITs which predominantly have office space in Singapore's CBD.

Next, I think it is probably timely to comment on a development which has been gaining momentum in the S-REIT space.

Many S-REITs have DRPs (or DRIPs), Distribution Re-investment Plan. Some readers asked me if I would take part in these plans. 

My answer is that I invest in S-REITs for income. So, I would usually take the cash distributions unless there is a chance to benefit from arbitrage which happened once before for AIMS AMP Capital Industrial REIT and some might remember that I blogged about it.

We must stay realistic. Remember that S-REITs' unit prices could come under pressure in the short term. What is short term? Maybe, the next one or two years.

Many S-REITs' unit prices have already declined somewhat in recent months. This is probably in response to interest rates which have risen because the S$ has weakened quite significantly against the US$.

When the US Fed finally moves to increase interest rate by, say, 0.25%, before the end of the year we might see a knee jerk reaction which could send S-REITs' unit prices lower as risk free rate rises.

Taking distributions in cash would give us more resources to take advantage of such a situation if it should come to pass.

I do not think that S-REITs' distribution yields would rise to the levels seen a few years ago during the Global Financial Crisis but the possibility that we could see yield expansion happening exists.

To be sure, there is really no need to be pessimistic. S-REITs remain relevant tools for income investors. They are not going to go kaput. We should try to stay pragmatic.

How much? Oh, sorry, I have been rambling.

Total income from S-REITs for first 9 months in 2015: 

This works out to be S$8,126.59 per month.

Related post:


JJ said...

Hi AK,

What about Cache? Is the current price not attractive for you to add?

AK71 said...

Hi JJ,

I do have a relatively small investment in Cache Logistics Trust. The management has not impressed me like AIMS AMP Capital Industrial REIT's. Many share placements for acquisitions and we didn't see any increase in DPU.

Cache Logistics Trust and AIMS AMP Capital Industrial REIT have similar assets as both have logistics warehouse properties. However, the former is more a pure logistics warehouse owner while less than half of the latter's rental income is from logistics warehouse properties and, thus, has less concentration risk.

AIMS AMP Capital Industrial REIT also has interests in business parks, one of which is in Singapore. Business park ownership is a reason why I like Soilbuild REIT too.

If I were to choose, there are also other reasons to like AIMS AMP Capital Industrial REIT more, such as a stronger balance sheet and also the fact that it is now trading at a bigger discount to its NAV. :)

Anonymous said...

That is a really impressive return. In terms of percentage yield, how much is that?

AK71 said...

Hi BP,

I have been asked this question before but I won't reveal the answer because I don't want people to know the size of my portfolio. Readers who have been following my blog would have an inkling what the distribution yields might be from my various investments in S-REITs. For new readers who are curious to find out, they could search my blog and do a bit of investigative work. ;p

Betta man said...

IReit Global last traded at $0.65. Good entry price got an estimated 8% yield ?

AK71 said...

Hi betta man,

You could search my blog for past blog posts on IREIT Global. Just me talking to myself, as usual. I won't tell anyone what is a good entry price. ;)

AK71 said...

Cache Logistics Trust posted an unchanged distribution per unit (DPU) of 2.14 Singapore cents for the third quarter ended September 30, 2015.

Gross revenue rose 11.3 per cent to S$23.1 million, while net property income fell 3.6 per cent to S$18.8 million.

Compared to Q3 2014, this quarter's net performance was impacted by conversions of four properties from single-tenanted master leases to multi-tenancies during the year in a soft rental market, leading to a slight increase in vacancy.

Also, Cache assumed direct obligation for property expenses including land rent, property tax and leasing expenses for the new multi-tenanted premises.


AK71 said...

Suntec REIT reported a 20.4% YoY increase in its 3Q15 gross revenue to S$86.1m, while DPU grew 8.3% to 2.522 S cents, of which 0.182 S cents per unit (S$4.6m) was contributed by distribution from capital.

The larger available space at Suntec City mall following the completion of its AEI has coincided with the soft leasing environment, making rental negotiations more challenging, in our view.

Overall committed passing rent for Suntec City continues to soften, while management has to deal with lease expiries totalling 21.4% and 27.7% of its total office and retail NLA in FY16, respectively.

Source: OCBC Research, 23 Oct 15

AK71 said...

Cache Logistics Trust (CACHE) announced that it has entered into a sale and purchase agreement to acquire a modern single-storey warehouse (with two levels of ancillary office) located at 203 Viking Drive, Wacol, Queensland, Australia. The purchase consideration is A$27.0m (~S$27.1m), and will be funded fully by debt. This would raise CACHE’s aggregate leverage ratio from 38.0% to 39.4%.

The asset is CACHE’s fourth acquisition in Australia following its purchase of three distribution warehouses in Australia earlier this year. Upon completion of the acquisition, CACHE will lease the property to Western Star Trucks Australia Pty Ltd on a master lease until Aug 2023, with an annual rental escalation of 4%.

Cache Logistics Trust (CACHE) reported flat DPU of 2.14 S cents in 3Q15 due to a capital distribution of S$1.5m arising from a recent asset disposal. Given the conversions of some master-leased properties to multi-tenanted properties, CACHE incurred higher property expenses and occupancy also declined from 98.3% to 95.2%.

Source: OCBC Research, October 2015

AK71 said...

Soilbuild Business Space REIT (Soilbuild REIT) gross revenue and DPU growing 22.4% and 5.1% YoY to S$20.7m and 1.625 S cents, respectively. This was largely fuelled by acquisitions. Its occupancy rate came down slightly from 99.8% to 98.7%, but positive rental reversions of 4.5% and 1.4% were secured for renewal leases and new leases, respectively. Singapore’s economic growth continued to soften in 3Q15, with the drag coming from the manufacturing sector.

Source: OCBC Research, October 2015.

AK71 said...

Property conversions (from single-tenanted properties to multi-tenanted ones when the leases expire over FY15-16F account for c.18.6% of revenues. This may mean downside to top line in the near term, given the expected loss of property efficiency and higher vacancy rates when these conversions take place.

CREIT has been active in acquisitions and has been focusing on optimising its portfolio performance through strategic AEIs across various properties which will aid growth in revenues in the coming quarters. With gearing at 37.2%, capacity for further acquisitions is likely to be capped.

CREIT has refinanced most of its loans expiring in 2015-2016, diversifying its debt funding sources as a result. As of 30-Sep-15, CREIT had a weighted average debt maturity of 3.6 years at an estimated cost of c.3.6%. The manager has fixed 96.5% of its interest rates over the next 3.5 years.

DBS Group, October 2015.

AK71 said...

Lippo Group plans to shift two real estate investment trusts (Reits) with 35 trillion rupiah (S$3.63 billion) in assets from Singapore to Indonesia in order to benefit from tax breaks offered by Jakarta, its chief executive said.

Indonesia's government last week announced incentives aimed at getting companies to create Reits by removing double taxation that may apply to such businesses.

"Because of the government policy, we think that Indonesia has very good potential for Reits," Lippo Group CEO James Riady told reporters on Wednesday. It aims to boost the asset value of the Reits to more than 100 trillion rupiah in three to four years, he added.

The property-to-retail group's two Singapore-listed Reits are Lippo Malls Indonesia Retail Trust and First Real Estate Investment Trust.


AK71 said...

AIMS AMP Capital Industrial Reit on Thursday posted a 1.8 per cent increase in distribution per unit (DPU) to 2.8 Singapore cents for the second quarter ended Sep 30, 2015.

Gross revenue rose 3.2 per cent to S$31.3 million; net property income rose 2.4 per cent to S$20.7 million.

This was due to higher rental income from 8 & 10 Pandan Crescent as well as higher recoveries from 29 Woodlands Industrial Park E1, 8 & 10 Pandan Crescent and 23 Tai Seng Drive, it said.

During the quarter, the trust successfully secured 13 new and renewal leases at a weighted average rental increase of 4.7 per cent on the renewals. The trust also managed to improve occupancy to 96.5 per cent from 96.1 per cent for the portfolio.

The distribution will be paid on Dec 23, 2015.


AK71 said...

CACHE Logistics Trust has raised gross proceeds of S$100 million from a private placement, managers ARA-CWT Trust Management (Cache) Ltd said on Wednesday.

The managers added that they plan to declare an advanced distribution of 0.86 Singapore cent per unit to existing unitholders for the period from Oct 1, 2015 to Nov 12, 2015. The new units will not be entitled to the advanced distribution.

About 106.27 million new units will be issued at S$0.941 each to raise funds for potential acquisitions in Australia, repay loans and for general corporate and working capital purposes.

At S$0.941 per unit, the placement price represents a discount of about 5 per cent to the trust's adjusted volume weighted average price of S$0.9903 per unit for trades on the Singapore Exchange from Nov 2 up to the time the placement agreement was signed on Nov 3.

The placement will increase the trust's number of units outstanding by 13.5 per cent.


AK71 said...

"We expect lower-specification industrial assets, such as warehouses and multi-user factories, to see weaker rental reversions than for higher-specification assets, such as business parks. The demand for business parks is stronger, and a significant part of the new supply is pre-leased," Fitch Ratings said in a report released on Monday (23 Nov).


AK71 said...

Overnight BUY order for Soilbuild REIT at 73c a unit filled.

AK71 said...

A chat on FB:

"hi AK, hope u doing fine smile emoticon I can't help but ping you when i read manulife US reit going to list on SGX, what are your thoughts about this product judging that its properties are all based in the US"

"I will do what I have done with other IPOs such as those for IREIT and CRT, avoid."

"is it because for IPOs, the price is usually hyped up before hand for the retail investors? and it's always good to wait till the dust settle before we decide our move?"

"Yup. I got IREIT and CRT at much lower prices post IPO, for examples."

bQ said...

Hello AK,
What are your thoughts on the issues that soilbuild Reit is currently facing? Are you adding to your position now that the price has gone down quite a bit?


AK71 said...

Hi Bq,

Off the top of my head, Technics' property accounts for maybe 8% or so of the REIT's valuation. So, if we are to write it off (which is drastic), we would wait for the REIT's price to fall by that much before buying. ;p

Kim said...

Hi Ak
Happy Vesak Day !
"8% of the the REIT valuation".
Hence, Soilbuild reits price need to fall to what price to reach the 8% ?

AK71 said...

Hi Kim,

It would depend on what we feel fair value for the REIT is. This would probably differ from person to person. If Person A feels that fair value is 75c, then, he might start buying at 69c. If Person B feels that fair value is 70c, then, he might start buying at 64.5c. ;)

LKH said...

Instead of buying more Soildbuild reit, will you be selling off your holdings to cut loss?

AK71 said...


Hmmm... That would be somewhat hasty. The REIT is still generating income. It isn't sunk because of this single development. :)

AK71 said...

Units in newly listed real estate investment trust Manulife US REIT opened on Friday in Singapore at $0.82, slightly below their offer price in a $519.2 million sale, the city-state's biggest initial public offering in almost two years.

The IPO was priced at $0.83 per unit. The asset is priced in U.S. dollars, though listed in Singapore.

At 0622 GMT, units of Manulife US REIT, comprising three office properties in the United States, were trading at $0.79. The broader market was up nearly 0.75 percent.


Chiew said...

Hi AK,

Care to talk to yourself regarding MANULIFE US REIT at current level? Thanks!

AK71 said...

Hi Chiew,

I don't have an interest in Manulife US REIT.

My plate is quite full. ;)

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