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This is the transcript of a YouTube video I produced recently.
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Q2 and Q3 are usually good quarters for me in terms of passive income.
After setting aside money for personal expenses, parental support and gifts, the plan was to use some of the money to increase exposure to T-bills.
I still find 6 months T-bills to be quite attractive.
Of course, regular readers would understand why.
I have always had a soft spot for risk free and volatility free CPF which pays between 2.5% to 4% per annum.
Oops.
My apologies, it should be 2.5% to 4.01% per annum.
So, with similar characteristics, it is no surprise that I am attracted to T-bills these days like a bee is to honey.
The latest 6 months T-bill auction saw a cut-off yield of 3.84% per annum.
I said in an earlier blog that I would be happy if cut-off yield remained the same at 3.85% per annum.
3.84% per annum is enough to make me quite happy.
3.84% per annum is enough to make me quite happy.
Anyway, like I said, I had planned to use some incoming passive income to increase exposure to T-bills.
That plan has to be put on hold now.
I would have to be contented with simply recycling money from maturing T-bills into new ones.
This is because of two rights issues which are coming up.
AIMS APAC REIT and IREIT Global are two of my largest investments.
So, together, I would have to put aside a relatively large amount of money for the rights issues.
For AIMS APAC REIT, we are likely to see a slight near-term reduction in DPU.
For AIMS APAC REIT, we are likely to see a slight near-term reduction in DPU.
This is because part of the plan is to use the funds for asset enhancements and possible redevelopment of existing assets.
Nothing immediately income generative.
With more units in issue, including those issued for the private placement, existing shareholders could see roughly a 6% decrease in DPU if we subscribed only to our rights entitlement.
We can apply for excess rights which would increase the income we receive from the REIT if we are successful, of course.
However, as my resources are pretty limited, I am alright with receiving a bit less income from AIMS APAC REIT post rights issue for a while.
For me, this is not a terrible outcome as I have said many times before that my investment in AIMS APAC REIT has been free of cost for some time.
All income distributions from the REIT are really free money for me.
So, I will subscribe to my rights entitlement and just enough excess rights so that I do not end up with odd lots.
As for IREIT Global, they do not have any private placement in their fund-raising exercise.
As for IREIT Global, they do not have any private placement in their fund-raising exercise.
So, there is no risk of DPU dilution if we do not apply for excess rights.
They are raising funds using a combination of debt and rights issue.
I also like that the funds they are raising will be used to purchase income generating assets right away.
This is why I said that IREIT Global is really inviting existing shareholders to invest in more properties.
The sponsors will be doing this alongside shareholders as they hold about 50% of the units in issue.
Therefore, I find their rights issue to be more interesting than the one by AIMS APAC REIT.
I also like that at 45 cents a unit, we would be getting a distribution yield of around 8% which is pretty attractive.
I also like that at 45 cents a unit, we would be getting a distribution yield of around 8% which is pretty attractive.
Of course, this is not without risk and volatility, unlike T-bills.
However, for me to forgo increasing exposure to T-bills for this rights issue is not a tragedy.
Remember, I am just talking to myself here.
It should be quite obvious to anyone that this is a plan that seems fine for me but it might not be suitable for others.
If AK can talk to himself, so can you!
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21 comments:
Hi AK,
We can even buy IREIT shares now at $0.45 or hopefully lower.
If there is a dilution of the DPU, how do you calculate to how many more shares to compensate for the dilution. Thanks.
Hi keng,
Unlike AIMS APAC REIT, IREIT Global does not have a firm price for the rights issue yet or maybe I am not aware of it.
However, I know they did provide an "illustrative" price of 45c.
If the market price keeps falling, then, the rights issue would have to be at a lower price or else it would fail.
Whatever the case might be, if the unit price falls another 10% or so, I would be buying more.
Hi ngs,
If you think there is going to be a 6% dilution, it means that if you were getting $1 with 1000 units before, you would be getting 94c with 1000 units now.
So, in order to get $1 with 1000 units again, you would have to buy another 63.83 units or 100 units to round up in this case.
In Math class, the answer is derived doing the following.
Dividing 1000 by 94 x 100 which would give us 1063.83.
Math and all subjects that had to do with it were my worst subjects in school.
So, I could be wrong. ;p
Yv
I like the intentional (or was unintentional) jab at the 4.01%. I planned to go for rights issue, just not sure if I should go for excess application.
AK
I also don't know if the jab was intentional or not. I am mental, I remind myself. 😷
As for the excess rights, we will have our own considerations. In my case, I have limited resources to allocate. So, I must prioritize.
Also, since my units in AA REIT are already free of cost, I don't have to do much else to get a good result.
If I had unlimited resources, I would just buy everything which I like, of course. 🤣
I am increasing AA shares from the open market. I reckon it's about 11% share dilution. There is 725.04m outstanding shares before private/preference shares. Private placement is 57.66m and preferential is 25.38m. Hence I will increasing my holding accordingly 11% to maintain my DPU ceteris paribus
Hi Siew Mun,
I calculated a 6% dilution if we are subscribing to our rights entitlement and do not apply for excess.
If we do not subscribe to our entitlement as well, then it would be an 11% dilution, I suppose.
So, I guess you are buying more units from the open market as an insurance against not getting all the excess rights that you would need in order to maintain the income received from the REIT at the current level.
I had to read that last sentence three times to make sure I got it right. ;p
Hi AK,
I had been following your blog for a long time.
I think your IREIT global had been purchasing from 0.60+ to 0.40+.
With the market price now at $0.45, I believe your holdings is now showing a paper loss of about 20% to 30% from your averaged purchase price.
Can I know how do you cope with this mentally as it is very sad to see the investment in deep red and especially it a large holding of yours.
My holding is sufferring from this now. Hence, I like to know how are you coping with me for my reference to cope with it. Thanks.
Hi john,
A paper loss of 20% sounds like a good estimate. :)
Well, if 100% of my portfolio is in IREIT Global, I might be in IMH right now. LOL. ;p
The nice thing about investing for income is that as long as we are being paid regularly, our paper losses are reduced when we take into consideration the dividends received.
The other thing is what I have said from time to time and that is if we are right most of the time, we will do better than the average investor.
This means we have to look at our performance on a portfolio level.
Sometimes, there will be investments which do not perform so well in terms of their stock prices even though, fundamentally, they are decent investments.
When I look at my portfolio, the huge paper gains from my investments in DBS, OCBC and UOB together dwarf my paper loss in IREIT Global.
Then, there is the fact that I have quite a few investments which are free of cost and still generating income for me, and these include one of my largest investments which is in AIMS APAC REIT.
For sure, we can all have the same investment but how it affects each of us could be quite different.
I am staying invested in IREIT Global because it is well run and still undervalued.
If the problems the REIT faces today are permanent or self inflicted in nature, I would cut loss immediately but this isn't the case. :)
I’ve invested in Ireit since 2016 and watch it drop to $0.45 now.
However taking into account the dividends paid and also because I participated in the rights issue in 2020 which lower my average cost, I will say I’ve roughly broke even at the current price.
Hopefully the portfolio value stays the same, so that any additional dividend will be 8% of my amount invested or I can see the amount return as a form of return of capital which we can use for other purposes.
Hi NMHRGY,
I haven't done a detailed calculation but it could be the same for me or pretty close.
I have always liked the idea of investing in undervalued real estate.
This strategy has proven to be a rewarding one in the past.
I hope it will continue to be rewarding.
However, I must admit that conditions are less favorable now due to higher interest rates and recessionary threats.
Still, I remind myself that tough times don't last. :)
hi Ak,
What much do you assess for value of IREIT global when you deemed it as undervalued? possible to share?
I worries it is that these assets are under European Union countries using EURO.
Germany, France are subsidizing weaker countries such as Greece, etc within the union.
AS such, EURO may be sufferring the same fate like the ringgit forever.
Hi john,
I don't know if you remember what they said about Saizen REIT last time.
Nothing very flattering. ;)
I was positive that the REIT's assets were undervalued and right up to the point when they were sold too.
They were high yielding freehold residential properties and they were below replacement cost.
Ultimately, I was proven right but I thought we could have gotten an even higher price.
Similarly, for IREIT Global, their properties are mostly freehold and getting 8% yield on freehold, all else being equal, is more valuable than getting 8% yield on 30 years or even 60 years leasehold.
Also, I doubt anyone would be willing to build new now because it would cost more to replace the older buildings which the REIT holds.
The day it would cost less to replace these older buildings could come if there should be severe deflation which doesn't seem likely.
Also, their Berlin asset is actually severely under rented as similar properties could command 30% to 50% higher in rent.
In fact, if they should spend some money doing asset enhancement, the asking price could go much higher but this could mean several months of zero income, of course.
As for the Euro, I think we cannot even begin to compare Malaysia with Europe. ;p
Europe, despite their problems, is a far more dynamic region compared to Malaysia.
Of course, I don't know everything.
I can only invest in what I feel represents good value and hope for the best. :)
Hi AK, recently iREIT appointed this independent director with prior experience with a major logistics REIT. Wonder if in near future, iREIT may also diversify into logistics sector in Europe. :-)
Hi C,
Independent directors could give advice, for sure.
Could IREIT Global acquire logistics assets?
Hmm, your guess is as good as mine. ;p
hi ak,
random thought on t bills after reading cpf sa shielding hack...
if money is taken out from sa which is at frs, can money be moved from oa to sa to plug the gap. then when t bills matures, everything gets plonked back into sa.
liddat can anot?
Hi yuhui,
If you are referring to OA to SA transfer, someone else asked me this exact same question before.
I asked him to check with CPFB as I don't think it would be allowed.
He came back to say that it isn't allowed.
Of course, you might want to check with CPFB yourself to be sure. :)
thanks muchly ak :)
Hi yuhui,
Best to check with CPFB and see what they say.
Do share their reply here if you do so. :D
Hi AK, thank you for all the sharings, including IREIT Global REIT.
Personally, i notice IREIT moves steadily Downwards whenever its acquiring new properties..
IREIT started with properties in Germany.
Then, Germany is a Stable economy..
In 2021, Rights issue of 49c to acquire Spanish properties
In 2023, Rights issue of 40.5c to acuire French Retail properites
I will apply Rights...will pray for the best.
Hi David,
It is all a function of yield.
If Mr. Market demands an 8% yield from the REIT and if the DPU declines, the unit price will decline to compensate.
It is also a function of interest rates and market sentiment, of course.
Unfortunately, things have been challenging but if we feel that the REIT is undervalued, then, being paid while we wait is not a bad idea.
It is always darkest before the dawn.
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