APTT: 1 for 4 rights issue at 12.8c a unit.

I am taking some time off from "Legends of Runeterra" which is a free to play game recommended by a reader, Azrael, in order to blog about APTT.

As a new player in both "Legends of Runeterra" and "Magic the Gathering: Arena", I find the former to have a better free to play model.

So, a shout out to Azrael for the recommendation.

Here is a short video on one of the regions in game:



OK, onward to victory, er, I mean APTT.

In late 2018, I increased my investment in APTT substantially as its unit price plunged.

A little more than half a year later, I sold those units as the stock market rallied, making some pocket money in the process.

I am still holding on to a legacy position in APTT which is largely free of cost by now.

At today's market price, this legacy position is a really small percentage of my portfolio.

How small?

Off the top of my head, probably less than 1% or maybe even less than 0.5% of my portfolio.

As this legacy position is largely free of cost, I am quite happy to simply hold and collect whatever money the Trust decides to distribute to me regularly.

The DPU was last fixed at 1.2 cents per annum which means a yield of 9.37% based on a unit price of 12.8 cents.

Of course, as my investment is largely free of cost, whatever income distribution I get is almost like getting free money and the yield is pretty much infinite.






Now, the proposed rights issue.

As an investor for income, the first thing I ask is what happens to the DPU after the rights issue?

With the proposed 1 for 4 rights issue, the immediate guidance is for a reduced DPU of 1 cent per annum.

This reduced DPU means a yield of 7.81% based on a unit price of 12.8 cents.

For my legacy position, I will just hold on because, like I said, it is almost like getting free money.

The question is whether should I take part in the rights issue?

Regular readers know that I like rights issues more than private placements.

I always get the option to participate in rights issues but I don't ever get invited to private placements.

Rights issues allow small investors like me to participate in the equity fund raising exercises of our businesses.

Some readers might remember my series of blogs on REITs and rights issues.

If you are new to my blog or don't remember, here are a couple of blogs from 2011 on the subject:

1. REITs and rights issues: A Singaporean tale.

2. REITs and rights issues: Dilutive or not?

Of course, to be fair, rights issues can also mean an invitation to throw good money after the bad.

So, what do I think of APTT's proposed rights issue?

Would I take part in the rights issue?






Rights issues are good if the funds raised will go towards efforts to generate more income and hopefully that means higher DPU for the investors for income like me.

Generally, I do not like rights issues which raise funds to pare down debt or to strengthen the balance sheet as it is not rewarding for me as an investor for income.

After this proposed rights issue, to reiterate, APTT's DPU will reduce to 1 cent per annum from 1.2 cent per annum.

We want to take note that this would be achieved on the back of increasing the distribution payout by 4.2% too.

Income is not increasing.

The payout is increasing.

We also want to take note that there is also no guarantee that DPU will stay at a minimum of 1 cent per annum.

Could we see further reductions in DPU in future?

It is a pertinent question.

There is a chance it could happen.





The big reduction in DPU in 2018 was necessary so that APTT would be distributing only a percentage of its earnings to their investors which allowed APTT to fund their transformation strategy without having to take on more debt.

Prior to that, APTT was funding distributions by taking on more debt.

Apparently, that big reduction in DPU in 2018 was not enough for them to pare down debt fast enough.

The management say a key focus of their strategy is to pare down debt.

So, another reduction in DPU in future is not improbable.






It is interesting to see that if no one else is interested in the rights issue, some insiders will buy all the rights units available.

It is said that it is a vote of confidence by the insiders because even the super rich would not want to lose money.

Peter Lynch would say that these insiders are buying probably because they think they will make money.

Well, to be fair, the rights issue will raise about $46 million which is a drop in the ocean for the super rich insiders like Mr. Lu Fang Ming, Mr. Hsiao Han Shen and Mr Dai Yung Huei.

When we have a lot of money, we can also be less calculative when it comes to money.

We can also afford to be more adventurous.





From all that I have said, it should be obvious that I will pass on this rights issue.

What?

My equity participation in APTT will weaken?

So be it.

I will still get free money from my legacy investment in APTT and I will keep it that way.

Simply from a distribution yield perspective, a prospective 7.8% yield isn't all that attractive when I can get a similar yield from IREIT Global which has greater clarity when it comes to income generation and it is also financially a stronger outfit, for example.

APTT could grow to be a very good investment in future and if that should be the case, I would still benefit from my existing investment.

Not participating in the proposed 1 for 4 rights issue is not going to make a big difference to me.





Till my next blog, be socially responsible and stay safe.

Things might get worse before it gets better.

When I went to the neighborhood supermarket last evening, I saw a group of elderly people lounging and chatting in public.

They were either not wearing masks or using them only to cover their chins.

In the supermarket, there was a family of four shopping.

The youngest in the family, a girl, was rollerblading in the supermarket.

Sigh.

There will always be irresponsible people amongst us.

We should stay united and do the right things.

We should be #SGUnited.

Related post:
Insider buying in APTT and Lu Fang Ming.
"The Monetary Authority of Singapore (MAS) added that the recession ahead is likely to be deeper than first thought."

APTT, SoftBank, ECB, Uber, Grab, WeWork and irrational competition.

Didn't AK say he is going to be less active blogging?

Yes, I am currently holidaying in Neverwinter.

See:
Winter Festival and Hell Pit.

The "Hell Pit" event has started but it seems that the first week is pretty easy.

So, it isn't taking up as much time as I thought it might.

Anyway, a reader wrote me a very long comment on APTT.

It is obvious to me that he put in a lot of effort researching APTT's business and prospects.

Of course, he also put in a lot of effort writing the comment.

It is only good manners that I reply.

The reply became a bit too long and I decided to blog about it instead.

Read the reader's comment: HERE.






AK replies:

Hi Verseun,

During "Evening with AK and friends" last year, I explained in greater detail why APTT was possibly a good investment at much lower unit prices after Mr. Market reacted negatively to its huge reduction in DPU.

This was in response to my blog titled:

Gobbling APTT as its unit price plunged.

I believed that APTT's ability to fund further investment in broadband infrastructure using internal resources would see them becoming stronger versus their competition in the broadband space (i.e. telcos).





I explained that the unlimited data plans offered by the telcos in the area were really untenable in the long run compared to what APTT was able to offer.

APTT's broadband infrastructure has much lower OPEX in comparison.

The investment to upgrade would be huge but like I said APTT had the ability to fund it without taking on additional debt with the huge reduction in DPU.

Even now, I could see APTT selling backhaul capacity to the telcos in the future.






However, I also said during "Evening with AK and friends" last year that it depends on how long the competition stays irrational in Taiwan.

In an era of easy money (think SoftBank) and negative interest rates (think ECB), we could see business entities able to and willing to burn cash for extended periods of time (think Uber, Grab, WeWork etc.).

Why invest in money losing Grab or Uber and not in money making ComfortDelgro?

WeWork has become WeWorked.

How do we work these cash burning businesses?






Anyway, in a nutshell, I agree with your conclusion.

However, I have said that investing in APTT is relatively speculative.

It should be a good idea to keep the position small so as not to lose sleep over it.

See:
Sell into the rally and stay invested.






Of course, all of us have different ability and willingness to take on risk.

We are all wired differently and should do what gives us peace of mind.

Peace of mind is surely priceless.





Of course, please remember that AK is mental.

Read:

How much passive income is enough?

and maybe also:


UBER and GRAB why you so like that?

Insider buying in APTT and Lu Fang Ming.

This blog is in reply to a comment from a reader regarding insider buying in APTT: HERE.

There is usually only one reason why insiders would increase their stakes especially if they should do so in a big way.

After all, no matter how rich we become, rationally, we don't want to lose money.

Personally, I believe that APTT is undervalued.

Otherwise, I would not have bought more as Mr. Market went into a depression.

See:

Gobbling APTT.

and

4Q 2018 and APTT.

It is good that insiders of APTT seem to think the same way.





This video is only about 2 years old.

When Mr. Market was more optimistic about APTT, some thought that the target price should be 64 cents.

Pretty mind boggling.

Some might also say it was irrational.

APTT's business really hasn't changed much.

The big change is that APTT no longer has leveraged income distributions for its investors.

That was what caused its unit price to plunge which, as I have explained in an earlier blog post, isn't rational either.






Of course, Mr. Market can stay irrational longer than we can stay solvent.

Always do our own due diligence and don't ride on other people's coattails. 

Remember, no one cares more about our money than we do.

Don't ask barbers if we need a haircut.






From an investing for income perspective, APTT's much higher income distribution to its shareholders in the past was unsustainable and I said so before too.

However, after being reduced drastically, its income distribution is probably more sustainable now.

Having said this, if the business remains very challenged and if its income continues to dip, income distribution should have to be trimmed, reasonably.

Investing in broadband infrastructure is the key to maintaining an edge that could compensate for the continuing weakness in its pay TV business.

Not paying an unrealistic dividend means that APTT has the internal resources to fund its broadband investment in order to stay competitive.




APTT's insiders should know more than we do and insider buying probably signals some confidence.

However, unless insiders have a very substantial stake or unless their purchase is a very significant percentage, insider buying might not be as meaningful.

This is the difference between insider buying in APTT versus insider buying in Centurion.

Insiders bought APTT's management from the Australians but, if I remember correctly, they don't hold a large stake in APTT itself.




Finally, APTT is in a business that is disrupted and there is a fog of war here.

So, telling myself that it is never wrong to book a gain, doing the novice TA that I do, that was what I did recently in the rally.

I booked a gain and took money off the table.

If APTT's unit price were to fall drastically, all else remaining equal, I could buy in again.

Remember what I said about speculative positions and how to size them: HERE.





Lu Fang Ming is very wealthy and if he were to lose half a million dollars, he might feel it like a pin prick but, for me, it would be like chopping off one of my arms.

Insider buying gives investors (and speculators) some measure of confidence but, still, we should be aware of our own capacity for pain and not throw caution to the wind.





Related post:
Sell into the rally and stay invested.

Sell into the rally and stay invested.

A reader left me a comment recently:

"Many AK shares like CDG and APTT have gone up. I hope AK didn't dispose them."

Why would I sell them before?

I like being paid while I wait.

This is something I have said many times before.

Therefore, regular readers would find this quite familiar.






We buy undervalued income producing assets, receive dividends while waiting for Mr. Market to turn realistic.

We could even buy good income producing assets at fairer values, receive dividends while waiting for Mr. Market to turn optimistic.

When Mr. Market is greedy, the wait is over.






Having said this, regular readers would also be familiar with the phrase "trading around a core position".

Although I will sometimes sell into a market rally to lock in some gains, I always stay invested for income, retaining a core position.

I am an income investor at heart and more so now as a retiree but there is also no accounting for Mr. Market's moods which means staying invested is probably sensible.






Despite the fact that there are negative divergences aplenty, the bull might have legs and market euphoria could last longer.

Some readers who attended "Evening with AK and friends" might remember the way I explained what a negative divergence was.

An example is as the share price goes higher, trading volume dwindles.

Volume is the fuel that drives rallies.

If volume dwindles, the rally could be ending.






There are potential double tops as well.

We see this when the share price, having retreated from a high, tries to go higher but fails.

As prices retest recent highs, we want to see higher highs forming on the momentum oscillators such as the MACD.

If we see lower highs in such instances, we have a negative divergence.





Mr. Market's euphoria could be sputtering.

I have trimmed my investment portfolio by some 25% to 30% since my last blog post.

So, as you can see, it is not an overly big reduction.

I have sold into the rally but I am staying invested.






The rally is also a good opportunity to sell stocks which are more speculative like APTT.

APTT was really too cheap to ignore and regular readers know I was gobbling as its unit price plunged.

At one stage, it went under 13c a unit and, of course, I bought more.

The market rally has allowed me to book a gain on my investment in APTT which, I won't deny, is a pretty speculative position, whichever way we cut it.






A couple of stocks which received greater attention were SingTel and Wilmar, which I bought more of as their share prices plunged in the last one year or more.

Like APTT, they have paid me dividends while I waited.

I decided to reduce my positions in SingTel and Wilmar heavily because, to me, their charts show obvious negative divergences.

Could we see $3.00 to $3.10 a share for SingTel and Wilmar again in the next few months?

It is a rhetorical question, of course.






Certainly, we cannot predict but we can prepare.

There is no better way to be prepared than to have a full war chest.

AK's war chest says:

"Burp. Pardon me."

So, what do I do now?

I go back to being paid while waiting (and playing Neverwinter).

I am just talking to myself, of course.




Related posts:
1. Wilmar.
2. SingTel and CDG.
3. 2018 passive income and APTT.
4. Make investing easy with 3 things.

Recently published:
Ascendas Hospitality Trust.

4Q 2018 and FY 2018 passive income.

It has been a pretty long break since my last blog.

I have also been spending a lot less time engaging readers both in my blog and on Facebook.

I know that many readers are not used to this.

However, this will continue to be the case as I devote a lot more time to other activities.

This was something I talked about before and it is the new normal.

So, please don't be surprised if you do not hear from me for weeks (or months) at a stretch in 2019.

Now, with that out of the way, I shall wrap up 2018 with a blog on my full year passive income.







Mr. Market went into a depression in 4Q 2018 and made me too many tempting offers.

Spoilt for choice, with my limited resources, I added to my investments in several stocks in 4Q 2018 even as I sold my entire investment in First REIT.

To understand why I sold my investment in First REIT, please refer to related post at the end of this blog.




Stocks (with hyperlinks to my earlier blogs where available) which I added in 4Q 2018:

1. Accordia Golf Trust.

2. Centurion.

3. ComfortDelgro and SingTel.

4. OCBC.

5. APTT






Due to the fact that I sold my investment in First REIT as its unit price bounced up when it went CD, my 4Q 2018 passive income from REITs reduced.

Readers who have been following my blog for many years might remember that I didn't share details of my passive income from non-REITs until it became a more significant percentage of my total passive income a few years ago.




As my passive income from REITs have steadily declined in recent years as a percentage of my total passive income, I will consolidate the numbers for both REITs and non-REITs, henceforth.

4Q 2018 passive income (REITs and non-REITs):

S$ 38,884.64






As I have blogged about the reasons why I added to my investments in Accordia Golf Trust, Centurion and ComfortDelgro in 3Q 2018, I will not repeat myself.

I also did an update on APTT as its unit price plunged and also explained more in detail during "Evening with AK and friends 2018" the rationale for buying at what I thought was a distressed price.

In the list of stocks above, I have hyperlinked those blogs for anyone who might be interested in reading or re-reading.






As APTT's unit price plunged under 13 cents a unit after it went XD, I took another bite.

Accepting an offer from what I believe was an overly pessimistic Mr. Market, it was quite simply a price I would not have sold at.

Readers who have been following my blog for many years would know how I size my more speculative positions.

With this last purchase, I would stop increasing my position in APTT as I keep it at a size that my passive income could cover within a year or less.

If you do not know what I am talking about, please read this blog from 2014:

How to size our more speculative positions?




Now, I will briefly explain my decision to add significantly to my investment in OCBC.

With interest rates rising, logically, banks will do better.

Already invested in DBS and OCBC at lower prices two years ago, I have been waiting for another opportunity to increase my investments.

In 4Q 2018, I increased my investment in OCBC significantly.

Why OCBC?







OCBC's stock experienced stronger selling compared to DBS and UOBs'.

A back of the envelope calculation indicated that OCBC was trading at a much smaller premium to NAV while DBS and UOB were trading at a richer premium to NAV.

The same back of the envelope calculation indicated that OCBC's dividend payout ratio is about 40% which is very undemanding and is the lowest of the 3 banks.




OCBC also had the lowest PE ratio.

So, I took several bites of OCBC as its share price plunged in 4Q 2018.

The funds from the sale of my investment in First REIT certainly came in handy.

Of the three banks, OCBC just seemed to be a better value for money offer at the time.






Some people asked me for a forecast of what 2019 has in store for the stock market.

Honestly, I don't know.

I cannot predict.

I can only prepare.

Remember?

However, what I can say is that, a bit more or a bit less, I will probably be receiving a meaningful amount of passive income from my investment portfolio.




Regular readers know I really am more concerned with receiving a meaningful stream of passive income from my investments than whether stock prices are moving up or down.

As long as my investments continue to pay me, I am usually quite happy with holding on to them.

The best investments could be those that I don't ever want to sell because they are able to pay me year after year.

Peace of mind is priceless.







How much did I receive in FY 2018?

FY 2018 passive income (REITs and non-REITs):

S$ 188,735.86

On average, about $ 15,727.00 per month.

I was also fortunate to have more capital gains than losses in 2018.


So, 2018 has been a pretty good year for me and I hope 2019 will be kind to me too.





Remember this if you choose this path.

I do not know if stock prices are going up.

I do not know if stock prices are going down.

However, I do know that I am collecting more dividends and the total amount has increased year after year.






Finally, remember that the best time to start is always now.

It is never too late to start walking the path to financial freedom.

If AK can do it, so can you!

Watch this video on what Gurmit Singh has to say about his income and what he would have done differently:





Related posts:
1. 3Q 2018 income from non-REITs.
2. Sold First REIT.

Gobbling APTT as its unit price plunged 50%.

APTT's unit price plunged by about 50% today, closing at 16 cents a unit.

Mr. Market was probably shocked by APTT's massive reduction in DPU to 1.2 cents a year.

I was surprised by the decision too.

However, I also applaud APTT for having the courage (and wisdom) to make such a drastic move.






Two years ago, I reiterated that APTT's 6.5 cents DPU was unsustainable.

I also said that a more sustainable DPU was around 4.0 cents.

In my blog on APTT last month, I shaved 10% off this 4.0 cents DPU to take into consideration the rising interest rate environment.






Then, I said that unit holders could see a lower DPU at 3.6 cents in future.

Of course, it was all speculative since I could not be expected to speak for APTT.

However, I thought a DPU of 3.6c was a pretty reasonable estimate.

On hindsight, that haircut should have been more in line with what would be required for BMT instead.







With future DPU now officially at 1.2 cents, distribution yield for my nibble is now a tad lower than 4% (instead of the expected 10.5%).

What to do?

Panic and dump?

Of course not.

I bought more today.

This time, I did not nibble.

I took a big bite.

Why?






Now, with the decision to reduce DPU to a third of what I estimated to be more realistic, APTT is going to have internal resources to manage its debt.

APTT would not only have some breathing room.

APTT would have quite a bit of outdoor space too.

If well managed and I am reasonably sure it would be, APTT's reliance on debt to continue as a business would eventually become a thing of the past (before it becomes a thing of the past itself).






At a unit price of 16 cents, we are looking at a prospective distribution yield of 7.5%.

7.5% is still a relatively high distribution yield.

I would even say that APTT is more attractive an investment now although the yield is not as high as before.

I will explain why I say this.









Basically, we have to bear in mind that this relatively high yield is going to be achieved based on APTT paying out only a fraction of its earnings.

This is unlike what happened in the past when APTT distributed much more than its earnings to investors.

Give this a moment to sink in and the picture should look better than it did before (despite the lower distribution yield).

Simply focusing on the reduced DPU would miss the big picture.






The big plunge in APTT's unit price today might signal Mr. Market's disappointment but I have actually become more optimistic about APTT as an investment with the massive reduction in DPU.

Still offering a relatively high yield based on an absolutely more sustainable payout ratio, as an investment for income, the risk of APTT imploding has reduced tremendously if not utterly dissipated.

Everything else being equal, any worsening of Mr. Market's depression would only be a buying opportunity for me.





Related post:
3Q 2018 passive income: APTT.

3Q 2018 passive income (non-REITs): APTT.

In August 2018, I also received questions about APTT as its unit price plunged.

In one way or another, I was asked whether I was buying APTT again like I did when its unit price plunged in the past.

Regular readers might remember that I said APTT's 6.5c DPU was unsustainable and a more realistic DPU was 4c.





When I bought more APTT in the past, it was based on what I thought a reasonable and sustainable DPU would look like.

The purchase was not premised on what APTT was distributing at that point in time.

Please keep this in mine as I continue talking to myself.





Although APTT's very high debt level and the fact that they are running a deficit is worrisome, again, I remind myself that all investments are good at the right price.

The last time I bought into APTT, my premise was a realistic distribution yield of around 10.5% based on a sustainable DPU of 4c.

If we were to consider the higher risk that comes with an environment of rising interest rate, shaving 10% off what I thought was a more sustainable DPU then is not unreasonable, given APTT's highly indebted nature.

Now, a DPU of 3.6c is surely more sustainable.





Then, if we were to demand the same 10.5% yield like before, we would only be buyers at about 33.5c a piece (or lower).

Therefore, I wasn't interested in buying APTT in August 2018 as I didn't think it was priced attractively enough.

I also had a feeling that APTT's unit price might drift lower upon going XD as Mr. Market was feeling rather pessimistic.

Finally, weeks later, in late September, I took a bite of APTT.





If I didn't have anything else to invest in, I would have taken a bigger bite as I believe closer to 30c a piece, APTT compensates me sufficiently for the risk I am taking.

Having said this, everything else being equal, I would probably be accumulating APTT if Mr. Market should make me even better offers in future.

APTT is not going to implode anytime soon.

A safer distribution yield in excess of 10.5% is rather difficult to ignore.

Money from RHT Health Trust past and future. (We are responsible for our own financial future.)

I want to share an interesting video before starting on the blog proper.

There is a lot of wisdom in this 5 minutes video clip and, unless we are born with a spoon made of some precious metal in our mouth, everyone, especially the young, should watch it.

1. Delay gratification (i.e. discretionary consumption),

2. understand the danger of taking on too much debt,

3. save money (that is what 401K means in USA and, for us, it would be the CPF and SRS),

4. start investing early,

5. let time and compound interest work their magic!

We are responsible for our own financial future.






This blog is in response to a recent comment from a reader:

AK says...

Hi Ruby,

For RHT, I believe that it will become a shell company just like what happened to Saizen REIT after they sold their portfolio of assets, if you remember.

RHT's shareholders will receive the bulk of the proceeds from the sale of the Trust's assets but RHT would still be around.






In the case of Saizen REIT, it was finally liquidated and any remaining money was distributed to shareholders.

It could happen to RHT in future or it might not.

Just have to wait and see.

But this deal really helps to crystalise for RHT shareholders on what each unit in RHT is worth.

So, if readers bought into RHT like I did in more recent times at 72c per unit thereabouts, they will be OK.





We should also bear in mind that there is still residual value after the proposed special dividend to be paid to shareholders.

What about investors who got in earlier?

Well, I expect that their investment in RHT would have done quite well.

Of course, you would remember that I first bought into RHT at 88c a unit back in August 2015.






That earlier investment has received income distributions over the years and also a special dividend of about 25c per unit in 2016.

We booked a very nice capital gain back then.

This time, an estimated 76.6c per unit will be distributed.

If not for the rather weak Indian Rupee, the number would be higher.

Without taking into consideration the regular periodic income distributions received in the past, the two special distributions together amount to more than a dollar per unit.

Like before, there is capital gain for us in this proposed special distribution but it would also include the return of our investment capital.

The returns are not stellar like in the case of Saizen REIT or Croesus Retail Trust, but, the outcome is not a bad one.

Investing in good income generating assets is comforting because our investments should become safer over time.






Related post:
1. Increased investment in RHT (Early 2017).
2. Initiated position in RHT at 88c (2015).
See announcement by RHT:
Disposal of assets.