4Q 2020 passive income: Year of the COVID-19.

Another quarter has come to a close and with the end of the final quarter of 2020, a rather terrible year has ended too.

It is probably a year which many would rather forget but we will probably remember this nightmare of a year for many years to come and for many reasons too.

A full year of COVID-19 has imposed a new and rather unpleasant reality on all of us.

This new reality is sticky and some of us are still trying to get used to it.

In a nutshell, COVID-19 is a black swan event of pitch black intensity.

COVID -19 has shown that things could go terribly wrong and we should not ever take the good things we have for granted.

Indeed, the only constant in life is change.

With the promise of multiple COVID-19 vaccines on the horizon, things are looking up and there is hope that COVID-19 will become a thing of the past soon.

However, once we are sure that the vaccines are safe and effective, even if we are very optimistic, it might take many months even at a fantastic rate of mass vaccination before sufficient people are vaccinated in order to achieve global herd immunity.

More likely, to be very realistic, this will take a few years to happen.

Don't be overly optimistic.

Even as optimism grows, it is important to stay pragmatic and not throw caution to the wind.

There is talk of "Disease X" and we don't know when it will strike but it is just a matter of time as we cannot bank on a rapid change in human behavior to be more considerate on a global scale.

Indeed, it might not be a simple case of being more considerate as cultural and social norms are involved and these are hard to change as they are usually deeply rooted.

What we can do as individuals as we try to return to a semblance of normality is to be aware of our own mortality, do not engage in risky activities and remain cautious to stay safe.

Be considerate in our behavior and we will also help to keep others safe.

If we always think of safety first, we can hardly go wrong.

Now that I have gotten that out of the way, what about the investment space or, rather, my investment space?

Well, many things happened to my investment portfolio in 4Q 2020.

Where to start?

Let us start with the two largest changes.

IREIT Global became the largest investment in my portfolio as I took part in the rights issue priced at 49 cents a unit. 

Post rights issue, I kept on accumulating at between 58 cents and 62 cents a unit, increasing the size of my investment in the REIT further.

To understand why I took part in the rights issue, go to the link I have provided at the end of this blog in "related posts."

I also increased my investment in the local banks with the size of my investment in UOB increasing the most as I added aggressively to my position around the end of October at about $19 a share.

By doing so, I have achieved the goal of having my investment in all three local banks to be similar in size.

Of course, regular readers know that a big part of my strategy during this crisis is to accumulate local banking stocks as the local banks have strong balance sheets and the ability to pay dividends with relative ease.

I certainly hope that these much larger investments will pay good dividends in future.

Apart from increasing my investments in IREIT Global and the local banks, what else did I do in the investment space in 4Q 2020?

I also added to my investments in Centurion, SPH, ComfortDelgro, AIMS APAC REIT, Hock Lian Seng, Raffles Medical Group, Tai Sin and SingTel in 4Q 2020.

When a reader asked me about SingTel on 1 Nov 20, I said:

"No plans to blog about SingTel but I might buy some because it looks terribly oversold ..."

On 20 Nov 20, in reply to readers on Centurion, I said:

"I did buy more at 32c a share ... Mr. Market could be overly pessimistic ... especially with multiple COVID-19 vaccines on the horizon. 

"Mr. David Loh bought 200,000 shares at 33.5c a share more than a month ago ..."

Then, I had this to say about Hock Lian Seng:

"Hock Lian Seng has a conservative management that is unlikely to create any excitement ... 

"... for anyone who believes that the construction sector will recover once we have a handle on the COVID-19 situation."

Individually, these additional investments were relatively small five figure sums and unlikely to have a big impact but collectively they might move the needle a little bit into positive territory.

In 4Q 2020, I also increased the size of my investment in CapitaLand Retail China Trust significantly at closer to $1.20 a unit and also took part in the rights issue priced at $1.17 a unit.

CapitaLand Retail China Trust should have a much bigger and positive impact on my passive income in future.

At my purchase prices, apart from trading at about a 20% discount to NAV, it was also offering the possibility of a normalized distribution yield of about 8%. 

I also like that the REIT would see reduced sectorial and geographical concentration risks after the exercise.

In 4Q 2020, I also increased my investment in Sabana REIT substantially after its proposed merger with ESR-REIT failed to materialise.

Long time readers might remember that Sabana REIT was one of the largest investments in my portfolio and how I made some money from it. 

I have not done anything to my investment in the REIT since that time it had a rights issue.

So, I have been holding on to this smallish legacy position which has been a free of cost investment for quite some time and it still generates an income for me. 

I feel that there is really no reason to sell a free passive income generator, especially when it is being undervalued by Mr. Market. 

With the recent proposed merger with ESR-REIT scuttled in part due to the efforts of activist investors, Quarz and Black Crane, I am more confident now that we could see fair value unlocked for Sabana REIT's minority investors in future.

Peter Lynch said that he liked asset plays but he liked them more if there were people involved who would help to unlock the fair value of the assets.

Late last year, Quarz suggested that a fair offer for Sabana REIT should be around $0.545 per unit.

Given the less certain economic outlook even though there are multiple COVID-19 vaccines on the horizon, even a $0.48 per unit offer, which was how much ESR paid Vibrant Group to take control of Sabana REIT, would be better than the more recent low ball offer to merge Sabana REIT with ESR-REIT.

ESR-REIT seems to be pursuing a growth at all cost strategy which I don't like and I thought their merger with VIVA Industrial Trust (VIT) was flawed as they valued VIT too highly.

See:
Merger of ESR-REIT and VIT.

For anyone who value sustainability, I suggested that VIT's high yield was unsustainable because a big chunk of their assets had very short remaining land leases which would create other problems as well.

See:
VIT more attractive with 9% yield? 

ESR-REIT's proposed merger with Sabana REIT recently, however, grossly undervalued Sabana REIT.

Actually, the merger is worse than that because Sabana REIT's investors would eventually have to help bear the cost of the mistake that was the merger of ESR-REIT and VIT.

Unless a much better offer is made, Sabana REIT is better off without the merger as any increase in DPU as a result of the merger is unsustainable and does not tell the whole story.

Sabana REIT has a conservative gearing ratio and also the potential to improve the occupancy and income generated by its portfolio of properties significantly on its own steam.

With occupancy lower than 80%, the REIT has ample room (pun intended) to do better especially when a rising tide should lift all boats.

While waiting for things to improve and also for fair value to be unlocked, a normalised distribution yield of about 7% on the back of a relatively strong balance sheet does not seem like a bad deal to me.

Of course, it now depends on Sabana REIT's manager to deliver and I hope Mr. Donald Han does not disappoint.

No longer a small legacy position, my investment in Sabana REIT is significantly larger in size now.

Now, I will say a few words about First REIT which, for many years, was one of my largest investments for income.

Some readers might remember that I sold my investment in the REIT more than two years ago when I blogged about it.

Recently, the blog entry on my sale of First REIT saw an increase in readership despite being more than two years old probably due to the slew of bad news about the REIT and its rights issue.

I also received questions from some readers on what should they do now?

Should those who are vested sell?

I had this to say:

"... ask yourself if you did not buy at $1.30 a unit, would you buy at $0.20 a unit now? 

"Peter Lynch said before that all investments are good at the right price. 

"... if you feel that you would be a buyer at $0.20 a share, you wouldn't want to sell what you have now."

See Comments Section of this blog entry: Sold First REIT.

So, should we invest in First REIT now?

I had this to say:

"... if we feel that the REIT's income stream is in peril or if we are not ready for rights issues, we should not invest in the REIT.

"First REIT is now priced to reflect a much weaker but more realistic income stream. 

"I feel that it is less perilous now. 

"However, this rights issue is probably only the first of many more to come..."

See Comments Section of this blog entry: Voluntary Contribution to CPF MA in 2021 (Part 2.)

We should know what we are investing in and what could be in store for us.

So, anyway, in 4Q 2020, my war chest saw big outflows but passive income also received a big boost from Accordia Golf Trust which declared two bumper income distributions as they sold all their assets.

As Accordia Golf Trust was one of my larger largest investments, the distributions were pretty significant.

Total passive income received in 4Q 2020:

S$ 336,922.24

Of course, it must be noted that much of this will not be repeated and missing Accordia Golf Trust's regular distributions, passive income in 2021 could take a hit if the other investments in my portfolio are not able to sufficiently pick up the slack.

This remains a real possibility especially if the deleterious effects of COVID-19 linger for a longer time and dividends from my investments remain reduced or suspended.

Of course, it remains speculative as to when the economy will fully emerge from the shadow of the COVID-19 pandemic and I tried to do more investing and less speculating in 2020.

I remind myself that I do not know everything.

So, I can only do what I feel are the right things and hope for the best.

Something I will continue to do is to grow my CPF savings by making voluntary contributions at least till I am 55 years old.

January is the month when I make voluntary contributions to my CPF account to max out the CPF Annual Contribution Limit.

Source: CPF Board.

Some readers are probably looking forward to an update and I will probably be blogging about my CPF savings again soon.

Till then, stay safe to keep all of us safe.

#SGTogetherBetterTomorrow.

Have a safe and happy 2021!

Related posts:

1. 3Q 2020 passive income.

2. Investment in ComfortDelgro.

3. Investment in SPH.

4. IREIT's rights issue.

5. Cutting losses in REITs.

6. Accordia Golf Trust.

7. CPF can be our best friend.

8. 2019 CPF savings in a pie.