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AA REIT, IREIT and Ascott REIT-BT.

Tuesday, June 9, 2020

In a blog dated 4 April 2020, I talked about my three largest REIT investments.

I blogged about how I viewed them in the past and what I thought of them as the COVID-19 pandemic struck.

AIMS APAC REIT
(formerly AIMS AMP Capital Industrial REIT)


This is, of course, an old timer in my investment portfolio.

My original investment in the REIT has most probably been free of cost for some time by now.

Slightly more than a month after my blog in early April, I added to my investment in the REIT.

I explained why I did that in a blog in early May:

AIMS APAC REIT investment is larger now.

Industrial properties are probably less negatively impacted by the COVID-19 crisis.

Of course, there would still be challenges in a softer economy which would logically lead to negative rental reversions but the demand for industrial space should stay relatively strong.

So, I expect AIMS APAC REIT to continue to generate reasonably meaningful and sustainable income for me.







IREIT Global

I was confident enough to increase my investment in IREIT when I did because I thought a large part of the REIT's income should be ironclad with Deutsche Telekom and Europe’s largest pension fund, Deutsche Rentenversicherung, accounting for more than half of total rental income.

Of course, the question now is whether many more office workers who have been working from home due to lockdowns imposed by the COVID-19 crisis would continue to work from home?

This is a question that might be keeping many office properties landlords awake at night.

If it becomes the norm for office workers to work from home, then, what use are office buildings?

See this article, for example:

Twitter tells employees they can work from home forever.

COVID-19 has forced many changes upon us.

Some changes are new while some changes have been merely accelerated.

I do not know how many more companies out there are going to be like Twitter.

I hope I am right when I say that I do know that IREIT Global's WALE is about 4 years and that the REIT should be a relatively dependable income generator for me in the meantime.






ASCOTT REIT-BT

Amongst my three largest REIT investments, Ascott REIT-BT has to be the least favored now.

It was quite obvious the way I talked about it in the blog of early April I was less sanguine about it than I was about the other two.

Ascott REIT-BT is the only one of the three REITs that I did not increase exposure to.

Logically, businesses in the hospitality sector would be amongst the slowest to recover from the recession caused by the COVID-19 pandemic.

Like PM Lee said in his address to the nation on 7 June 2020,

"We will not be returning to the open and connected global economy we had before anytime soon.

"Movement of people will be more restricted.


"International travel will be much less frequent.


"Health checks and quarantines will become the norm.


"Industries that depend on travel like aviation, hotels and tourism will take a long time to get back on their feet and may never recover fully."







Will there be further reductions in the REIT's DPU due to lower income in future?

Given the very difficult circumstances, it should not surprise investors if it happens.

So, if we are investing for income, Ascott REIT-BT seems to be less attractive and less reliable compared to AA REIT and IREIT, for examples.

Still, Ascott REIT-BT's unit price spiked up in recent trading sessions, probably due to the heightened optimism surrounding the re-opening of economies around the world.


The RSI, a momentum oscillator, shows that Ascott REIT-BT is heavily overbought and that its unit price is testing resistance provided by the declining 100 days EMA which is approximating $1.13.

Taking everything into consideration, I decided to  reduce my exposure to Ascott REIT-BT, selling a big portion of my investment at resistance.

Although my investment in the REIT has reduced in size, I would still benefit if the REIT's unit price continues to move much higher which might prompt me to further reduce exposure.

I hope that Ascott REIT-BT as an investment for income will do much better in the future but, to be realistic, I have prepared myself mentally for a relatively long wait.









Related posts:
1. Largest REIT investments updated (April 2020).
2. The most dangerous crisis and what should we do?

27 comments:

Bananamint said...

AK,

When you have the time, can you please talk about your overall investments also, and what has changed in this quarter? Thank you!

Rellangis said...

Hi, there seems to be a disconnect between governments and stock markets... Governments are pessimistic and markets are optimistic.. Maybe is a good window to start selling with the idea of picking up later on the cheap several months down the road ?

Dom said...

thks AK

AK71 said...

Hi Bananamint,

I try to share in my blog changes to my investment portfolio and anything else really, as long as I feel comfortable doing so. :)

My 2Q 2020 passive income numbers will be published end of this month or early next month.

So, look out for it. ;)

There really isn't anything new to blog about with regards to my investments now.

As you probably know, I have only added to my investments in IREIT, DBS, OCBC, UOB and AA REIT in the last couple of months and nothing else.

Of course, now, you know I recently reduced my investment in Ascott REIT-BT.

In a couple of earlier blogs, I explained why I have been more cautious during this stock market crash.

Now, with sky rocketing stock prices, I am more cautious than ever. ;p

AK71 said...

Hi Rellangis,

Stock prices don't usually go down or up in a straight line.

They go down a river of hope and climb a wall of worries.

Right now, a retest of the March lows looks like a distant possibility.

A retreat to test support provided by the upturning 50 days moving average (50dMA) is more likely in many cases.

If we look at the 50dMA for Ascott REIT-BT, for example, it is approximating 88c now.

The 50dMA will continue to rise higher or at least level off as long as there isn't another huge crash in prices but, even so, if prices do retreat, there could be a long way to fall.

AK71 said...

Hi Dom,

Welcome. :)

I am just talking to myself, as usual. ;)

keng said...

Hi AK,

Similar thoughts on ART.
Good that ART is included in the NAREIT index, share price has risen as a result. However it remains to be seen when tourism can be restored fully.

I feel those who invested for income will have to hang in there and accept reduced dividends during these tough times.

Good luck and stay safe.

laurence said...

Eeeeeeeeks(screak).........selling Ascott Reit!!!!! (panic)
;)

AK71 said...

Hi keng,

Yes, it is probably going to be a bumpy and slow recovery for Ascott REIT-BT.

As you know, I have been looking at the local banks as investments for income.

Stronger balance sheets and paying a percentage of their earnings as dividends look more sustainable than some REITs which are more leveraged and distributing 100% of cash flow to investors to achieve similar yields.

If a retracement to support happens and I am looking at the 50 days moving average, I would consider increasing my investments in the local banks partly with the proceeds from this sale.

AK71 said...

Hi Laurence,

Oh, you and your histrionics.

Ho ho ho. ;)

Lucky said...

hi AK,

possible to share your thoughts on SCI? How should we value SCI now as an utilities company?

i am quite skeptical on the free SMM shares.

Lucky said...

hi AK,

possible to share your thoughts on SCI? How should we value SCI now as an utilities company?

I am skeptical over the free SMM shares

AK71 said...

Hi Lucky,

I have a smallish investment in SCI which I am holding on to with the belief that its energy and waste management businesses will remain resilient.

SCI's property arm should continue to chug along after COVID-19 is brought under control.

As for SMM, it will still be in a loss making position after this exercise.

If you do not believe SMM can turn around, then, sell the SMM shares you will be getting as a shareholder of SCI.

Investment sentiments towards SCI could improve further after the exercise is over as they would distance themselves from the troubled oil and gas sector.

We should note that, logically, the stock price of SCI should fall after they have distributed all their SMM shares to SCI investors.

I might then look to SCI's book value to help determine if it is undervalued since its assets are very important to its ability to generate income.

Having said that, businesses can stay undervalued for a very long time.

Lucky said...

Hi AK,

Thanks for your insight! the main bulk of revenue is utilities and energy which is recurring and small contribution is from urban. i guess they may not stay undervalued for too long since there wont be much turbulent cycles.

AK71 said...

Hi Lucky,

Property development business is cyclical and the income tends to be lumpy.

With urban being a small component, SCI is more of a utilities company after the whole exercise is over and should be seen as a defensive investment. :)

Ergo said...

Hi AK,

What do you think of IREIT's latest proposal to acquire to remaining 60% of the spanish portfolio, resulting in a significant reduction in DPU and NAV?

Source: http://ireitglobal.listedcompany.com/newsroom/20200807_233747_UD1U_JVUE4W38A7Q528C6.2.pdf

AK71 said...

Hi Ergo,

I had expected a rights issue but I had thought that a smaller rights issue would suffice.

IREIT seems to be using this rights issue to raise a lot more money to bring down its gearing level pretty significantly (i.e. to strengthen its balance sheet) and not just to acquire the Spanish assets.

This explains the much lower NAV per unit and also the lower DPU post rights issue.

Not a big fan of this and I hope the management does not squander the funds.

Not a big fan also because this is going to require the unlocking of my war chest and it means my plan to increase my investments in the local banks more meaningfully would have to be scaled back.

Ok said...

AK71, hi,
https://www.businesstimes.com.sg/companies-markets/aims-apac-reit-proposes-to-buy-bulim-street-logistics-facility-for-s1296m

MK said...

Hi AK, what do you make of the issuance of perpetual securities of $125m at 5.65%, and the purchase of the facilities at Bulim street for $129m? Market does not seem to have taken kindly to it, with AIMS price closing at $1.17 today.

MK said...

Hi AK,

AIMS just issued perpetual securities of $125m @ 5.25%, and also bought the Bulim street logistics facility at $129m. Market does not seem to have taken kindly to it, with the price closing at $1.17 today. What’s your take on these developments?

john said...

There is erosion of NAV by 14.5% and DPU by 18.9% after the acquistion and right issue. Are we better off with these accquistion financed by right issue. I ponder.

AK71 said...

Hi Ok and MK,

Thanks for sharing the news.

This property has a NPI Yield of 7% and the purchase is DPU accretive.

I rather like it.

AIMS APAC REIT TO ACQUIRE STRATEGICALLY LOCATED RAMP-UP LOGISTICS
WAREHOUSE AT JURONG INNOVATION DISTRICT.

AK71 said...

Hi John,

I rather prefer a rights issue to a private placement because a rights issue allows me to participate.

The issue here is really the size of the rights issue.

If it was just to finance the acquisition, a much smaller rights issue which was what I thought could take place would suffice.

Unknown said...

Hi AK,

Would u mind sharing your view on IREIT right issuance?

NMHRGY said...

hi AK.. will you be subscribing to the rights issue of IREIT?
At first, I was quite reluctant as there is a dilution of NAV and reduction in DPU
however, the discount on rights issue allows me to lower my investment cost and post rights issue, the net yield is about 7%.

in addition, I will be receiving cash from acquisition of accordia golf trust on 15 Oct which ties in nicely with the Ireit rights issue amount.

at the opportune time, I'm will reduce my Ireit exposure and increase investment in logistics/industrial/data centre reits instead...
I feel the office reit may be subject to disruption from WFH/telecommuting phenomenon, so I'm wary of the sector.

Nightmare_Angel said...

Hi AK,

You have always been positive on ireits and I guess you will subscribe for their rights inclusive of excess?

Thanks.

AK71 said...

Hi Unknown, NMHRGY and Nightmare Angel,

You might want to see my latest blog of more on this:
3Q 2020 passive income.

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