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

Friday, January 1, 2021

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.

39 comments:

Cindy said...

Hi AK,

Do you mean Ireit global is your largest investment ahead of AIMS APAC Reit and CPF?
What are the factors that you consider make Ireit global your largest investment considering that their portfolio, although freehold, are in Germany and Spain and not in Singapore?

Alcus Trader said...

Hi AK,

You mentioned Sabana having "a normalised distribution yield of about 7%". I'm just curious if you can share how the 7% is derived? Is it based on dividends from 2019?

AlcusTrader

AK71 said...

Hi Unknown,

The market value of my investment in IREIT Global is a little bit higher than the market value of my investment in AA REIT which makes it the largest investment in my portfolio.

This could change if the unit price of AA REIT goes up and if the unit price of IREIT Global goes down next week.

The two are pretty close and, maybe, I should just consider them to be equally large.

I do not normally consider CPF savings an investment.

CPF savings is savings although I often think of my CPF savings as an investment grade bond with very decent coupons.

If you have been following my blog for a few years, you might also remember that I do not think holding bonds make us investors.

We are more money lenders than investors when we buy bonds.

As for why I like IREIT Global, please read related post #4 at the end of this blog for a start.

You might also want to read these blogs:
1. AA REIT, IREIT and Ascott REIT-BT.
2. IREIT Global is going to Spain!
3. 3Q 2019 passive income: IREIT Global.

AK71 said...

Hi Alcus Trader,

You guessed correctly, I just looked at what Sabana REIT was paying in 2019 before the pandemic hit.

Expecting a 7% normalised yield is being conservative, I suspect.

Bolder estimates by the activist investors suggest that 10% yield is possible if Sabana REIT's manager does a good job.

You might want to watch their presentation here: Save Sabana REIT.

axt said...

Hi AK,

May I know what's the thought behind increasing your holding on Tai Sin?

AK71 said...

Hi axt,

For me, Tai Sin to some degree is in the same basket as Hock Lian Seng as they have their fortunes tied to the construction sector but less so for Tai Sin.

I have been a shareholder of Tai Sin for about 5 years and of Hock Lian Seng for about 10 years.

Pretty sleepy but their management seem to be competent and also willing to share the fruits of their labor with their shareholders.

Both have been good income generators for me.

They should do better and continue to be good income generators for me as we emerge from the COVID-19 pandemic eventually.

Having said this, I did not increase my investments in a big way and they remain relatively small investments in my portfolio.

Alcus Trader said...

Hi AK,

Have you considered Jardine C&C as an income investment?
Like to hear what you think of it, since yield has gone up quite a bit due to lower valuation.

AlcusTrader

AK71 said...

Hi Alcus Trader,

If we feel that the Indonesian economy is going to pick up, then, yes, it could be an interesting one but my plate is full, so, I am giving it a miss. ;)

Star and Skies said...

Hi AK71,

Happy 2021! Been a recent silent reader of your blog but decided to pluck up the courage to say thank you so much for so generously sharing your wisdom. You have been an inspiration to me and it is so amazing you have achieved your goal!

I have a beginner question, understand that you hold equal weightage of the three banks. If the banks are usually equally affected when the economy goes up and down since they are in the same sector, would it make more sense to just have a position in one than all three if I am starting out with limited funds to invest?

Thank you! And have a great 2021!

AK71 said...

Hi Star and Skies,

Welcome to ASSI and I am glad you have found my blogs helpful. :)

I don't know if the banks are usually equally affected by ups and downs in the economy because they do pursue growth in different places outside of Singapore.

This is the main reason for investing in all three banks instead of just one although DBS for quite some time now has been more popular amongst investors in part due to their dividend payout policy.

I don't know how much is your limited funds but if I had $10,000 or so, I would think it is good enough to split into 2 parts to invest in 2 of the 3.

I believe that all three local banks are well capitalized and well run.

They should all be rewarding longer term investments. :)

David said...

Hi Ak71,
Thank you for your comments.

Wish you & loved ones a Happy + Healthy 2021.

Best Wishes
David

Star and Skies said...

Thank you so much AK71 for your kind and helpful reply! Much appreciated! Happy new year again and may all good tidings come to you in 2021 :)

AK71 said...

Hi David,

Have a safe and healthy new year! :D

AK71 said...

Hi Star and Skies,

Happy new year and good luck to everybody. :)

huatster said...

AK Happy New year although a bit late...hahaha... u have been lazy resulting on blogging... hope you keep fit maybe some 6 packs for this year and keep on gaming๐Ÿ˜„๐Ÿ˜„ My number 1 idol...

AK71 said...

Hi huatster,

Happy new year! :D

"Lazy resulting on blogging."

I like the sound of that. ;p

Honestly, I have been lazy when it comes to keeping fit.

Just doing the minimal 30 to 40 mins of static exercises daily now.

6 packs? Simi lai eh? LOL. O_O

Huat ah! :D

PL said...

Hi AK,

What are your thoughts on Singtel at this juncture.? think there is a good chance of recovery for telcos? Or the rising tide will lift all prices?

Best Regards

Eileen

AK71 said...

Hi Eileen,

Although conditions have remained challenging which was a reason for reducing my exposure to the business in a big way in mid-2019 when Mr. Market turned briefly optimistic, it is obvious to me that SingTel is still transforming.

Going into digital banking with Grab is going to be a game changer but it will take many years before bearing fruit.

Having said this, I am quite happy to hold on to my smallish investment and be paid while I wait. :)

csky said...

Hi AK,

Happy New Year! I am amazed that you picked up more IREIT at 58cents to 62 cents. I remember you picked up a bunch at around 40cents, so you are averaging up. But I curious why do not you pick up more Sabana than IREIT, given that IREIT's yield is about 6% at the purchase price of 58cents to 62cents, vs ~7% for Sabana and also that "maybe" Sabana will unlock value at 54cents?

One more question, are the position of the bank stocks almost as big as AIMS or IREIT?

Thank you!

AK71 said...

Hi csky,

Happy new year. :)

There isn't any brilliant reason behind this.

It is simply timing.

I like what Sabana REIT's activist investors are doing but I was not sure if they would be able to block the proposed merger.

I only added to my investment in Sabana REIT in early December when the proposed merger was scuttled.

The purchase of more IREIT units at between 58c to 62c a unit happened in October and November.

As a whole, off the top of my head, my investment in the 3 banks are probably a bit bigger than my investment in AA REIT and IREIT combined.

I expect all of them to be meaningful passive income generators in my portfolio.

csky said...

Wow more than AA REIT!

Do you keep up with all these investing news from just BT? Admire your discipline to keep up with the businesses in the midst of your gaming. This is something that I need to be more disciplined with.

Thank you for sharing!

AK71 said...

Hi csky,

I have decided to share my reply to your follow up comment as a blog. :)

See:
3 local banks, 3 REITs and SIA.

Happy gaming! :D

csky said...

Hi Ak,

Sorry I have so many questions. ๐Ÿ˜… But this one is relating to Sabana. I was just reading and watching the stuff on Save Sabana Reit (https://www.savesabanareit.com), I see that ESR Cayman is majority shareholder of Sabana Reit, which somewhat makes me wonder if things will improve at Sabana even after the deal is off.

Black Crane and Quarz seems to have decent plans to revamp Sabana, but if ESR is majority owner, what if they do not support Black Crane & Quarz's plans? They talked about getting a new internal Sabana Manager, are they referring to replacing Donald Han?

Isn't there a risk that ESR may purposely let Sabana deteriorate so they can get it at an even cheaper price from here?

AK71 said...

Hi csky,

I also have many questions about Sabana REIT?

How like that? ;p

I do not think it is in Donald Han's interest to do badly as the CEO of Sabana REIT.

He has his professional reputation to consider.

After all, he is a relatively well known figure compared to his predecessor.

It is in his own professional interest to do a good job.

As usual, remember to size our more speculative positions conservatively but if we are seriously in doubt, it might be better to stay out. ;)

Reference:
My investment portfolio or my investment philosophy?

csky said...

Ah gotcha! Thank you. Position sizing, something I am still working on!

AK71 said...

Hi csky,

Yes, I like to eat crusty bread with ink slowly. ;)

Reference:
Eat crusty bread with ink slowly for peace of mind.

Betta man said...

Hi AK,

For someone who does not have existing stake in First Reits, from a risk-reward perspective, I feel it is ok to take a small bite at existing price of $0.245. Hope to seek your opinion. Thanks alot!

AK71 said...

Hi Betta man,

My opinion of First REIT has not changed.

So, if I say anything, it will just be repeating what I said in this blog post about First REIT. ;p

Yes, I know.

Bad AK! Bad AK!

A small bite sounds like you have sized your position conservatively which should be ok for a more speculative position. Good luck. :)

AK71 said...

Sabana REIT has announced a distribution of 2.29 cents per unit in Sabana REIT (“Unit”) for the period from 1 July 2020 to 31 December 2020 (the “Distribution”), comprising wholly taxable income distribution.

Unitholders of Sabana REIT (“Unitholders”) whose securities accounts with The Central Depository (Pte) Limited (“CDP”) are credited with Units as at the Books Closure Date will be entitled to the Distribution to be paid on 26 February 2021.

Source:
http://www.shareinvestor.com/news/news.html?source=regional_sgxnet&nid=31915507

Unknown said...

Hi AK,

Apologies if this subject was covered in an earlier post on your blog.
I am interested in your current thoughts on APTT. Is this still part of your portfolio?

Thanks.

AK71 said...

Hi Unknown,

I have a smallish legacy investment in APTT.

Reference:
APTT: 1 for 4 rights issue at 12.8c a unit.
Wednesday, April 29, 2020

Betta man said...

Nibbled first reits at 0.225 today. Hope it turns out fine.

AK71 said...

Hi Betta man,

Looks like First REIT's unit price is still trying to find a bottom.

Just have to hope that they don't drop another bombshell soon which will probably take the form of acquisition of more assets from the sponsor.

This REIT needs time to recover.

David said...

Hi AK,
Wish you & family a Happy & Prosperous Chinese New Year.

Best Wishes
David Lim

AK71 said...

Hi David,

I wish you good health and bountiful wealth this CNY too. :)

Betta man said...

Massive cut in Hock Lian Seng's dividend. Any cause for concern ?

https://links.sgx.com/FileOpen/Financial%20Statements%20and%20Related%20Announcement%20for%20the%20financial%20year%20ended%2031%20December%202020.ashx?App=Announcement&FileID=649357

AK71 said...

Hi Betta man,

With the construction sector hit hard last year, this is a prudent measure.

KC said...

Hi AK,

Would like to hear your thoughts on Singtel. With operating income on a decreasing trend and expected huge capex for 5g infrastructure in the next few years,does Singtel still fit your investment thesis? Would you buy more in the next dip?

AK71 said...

Hi KC,

I still have a smallish investment in SingTel after significantly reducing exposure sometime in the first half of 2019.

I did not add to my investment in SingTel during the last market crash and it is unlikely that I would do so in the future as there are more interesting options out there.

For example, I remember reducing my exposure to SingTel and Wilmar at about the same time but have since increased my investment in Wilmar so that it is still one of my largest investments.

SingTel will probably remain a smallish investment in my portfolio.

Reference:
Wilmar: Target reacquired...

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