Demand more from REITs as investors.

The catalyst for this blog is a comment from a viewer of my YouTube channel.

The viewer said:

"... older video says you did not lose playing reit. need your help man. it is starting to feel a bit strange already."

In reply to that, I said:

"I made a lot of money investing in REITs but that was during the 15 years when interest rates were almost zero. Things different already."

We must realize that things have changed.

I blogged about how I made more than $2 million investing for income and that was from passive income received alone.

$2 million in passive income.

Sunday, January 8, 2023

https://singaporeanstocksinvestor.blogspot.com/2023/01/2-million-in-passive-income-if-ak-can.html

It did not include any capital gains made over the years.

I can safely say that more than half of that $2 million in passive income was from REITs.

If we take into account capital gains from voluntary and involuntary sale of REITs in those 15 years, I have made a lot more money from investing in REITs.

For an average Singaporean like me, that is a lot of money.

It has definitely helped me to achieve F.I.R.E. more comfortably.

However, like I said, things are different already.

In many blogs I published and videos I produced in the last year or so, I said as much.

Rapid and significant increases in interest rates have thrown a spanner in the works for REITs.

Indeed, they have had the same effect on all risk assets and not just REITs.

In an environment where risk free rate is 5% or more, Mr. Market is right to demand more from REITs.

This means yield has to expand, all else being equal.

I made videos on this and I am including them here for people who do not follow me on YouTube:

If a REIT was yielding 5% when risk free rate was almost zero, now, it should yield 10% or so in order to be attractive.

In Singapore, if we take the recent Singapore Savings Bond which offered 3.33% p.a. 10 year average yield, a REIT which offered 5% distribution yield in the past should offer 8.33% today to be attractive, all else being equal.

This is just something to bear in mind and might not be an ironclad rule to follow, for people who still believe in REITs as viable investments for income.

However, it is simply sensible to use this yardstick, I believe.

Anyway, I get the feeling that people are still not as demanding as they should logically be when investing in REITs today.

Many are investing with the idea that interest rates might be rapidly cut from 2H 2024.

Investors who only started investing during the years of very low interest rates might even think that interest rate cuts means a return to the post Global Financial Crisis low interest rate environment which lasted 15 years or so.

Investing in REITs today with such a belief could lead to disappointment.

Bearing this in mind, I also made a couple of videos on IREIT Global before:

Finally, AK is losing money investing in a REIT.

This might make some people cackle with glee.

To me, this is just another example that I am not always right.

It is only paper loss right now but who knows how things would pan out?

Of course, we must not forget that AK is also losing money in another REIT, CapitaLand China Trust.

Things are different now and this is why I have been saying that I am not adding to my investments in REITs in the current environment.

Why do DBS, OCBC and UOB together form more than 40% of my portfolio today?

If AK can talk to himself, so can you. 

68% expects downturn! CPF POFMA! Distressed REITs!

I have three things to say.

Since I am lazy, might as well put them all in one blog post.

1. Two thirds of Singaporean consumers expect an economic downturn.

There is plenty that is not well in the world and this is probably not unexpected.

However, if we end up just feeling worried about how life could get tougher, then, that is a waste of energy.

I would shore up my cash position even more aggressively.

Make sure I have an adequate emergency fund.

Fill up my war chest and be prepared to buy from Mr. Market when he feels depressed.

I have blogged about such topics many times before and many blog posts are consolidated in this one blog post:

Survivability and opportunity in times of distress.

2. Fake news on CPF!

A Tik Toker has been spreading fake news about the Singapore election system and the CPF system.

POFMA has been served to him twice.

Yet, he is stubbornly sticking to his views.

If he is looking for fame, this isn't the way not only because he harms himself and possibly his family.

He is also harming ignorant Singaporeans who watch his clips and believe what he says.

I like to help people but some people are beyond help.

Like what I said before in this blog post:

A river called CPF and stubborn horses.

3. I made a lot of money buying distressed REITs before.

I recently published a new video on how Manulife US REIT could possibly be an opportunity to make a lot of money.

It reminds me of the time when I bought Saizen REIT and AIMS APAC REIT when they were in distress donkey years ago.

If you are not subscribed to my YouTube channel, here is the link to the video.

How to make money buying distressed REITs?

Be prudent, patient and pragmatic!

If AK can do it, so can you!

From MUST to DC REIT to MINT, signs that US commercial real estate is in trouble. ARA Hospitality Trust to be spared?

This is the transcript of a YouTube video I produced recently.
-----------------------

During "Evening with AK and friends 2023", someone came up to me and asked what I thought of US Hospitality REITs listed in Singapore.

He asked that question since I kept reminding myself to stay away from US commercial real estate REITs, and in particular the US office REITs.

Of course, now we know what just happened to Digital Core real estate investment trust, a data center Trust listed in Singapore.

They lost their second largest customer which contributed 23% to their total rental income.

That customer was also Mapletree Industrial Trust's third largest customer.

So, Mapletree Industrial Trust would be taking a hit too although not as badly as in the case of Digital Core real estate investment trust.

Mapletree Industrial Trust announced that their 3rd largest tenant by gross rental income has initiated bankruptcy proceedings in the US Court.

The data center tenant is a global co-location provider and accounted for 3.2% of Mapletree Industrial Trust's gross rental income.

Quick to follow, we saw Manulife US REIT's fifth-largest tenant by gross rental income exercised an early termination of its lease.

This was for 500 Plaza Drive, also known as Plaza, in New Jersey USA.

Wait, there is more.



This is in the news today.

Park Hotels and Resorts, a real estate investment trust in the USA, has made the "difficult, but necessary" decision to stop payments on its $725 million commercial mortgage-backed security loan secured by two of its San Francisco hotels.

They are Hilton San Francisco Union Square and the Parc 55 San Francisco.

They are giving up on these hotels and would see them removed forcibly from their portfolio of hotels.

The problem has partly to do with overly optimistic valuations during the years of ultra-low interest rates.

The two downtown San Francisco hotels were valued at a combined $1.56 billion in an appraisal at the time of the loan underwriting in 2016!

This means the current Loan to Value, if the valuation is still valid, is around 46%.

Think of it as a gearing level of 46% for a REIT.

That does not sound excessive, but it seems like it is. ;p



It is very likely that the valuations of those two hotels could have seen a decline, which would bump up the Loan to Value number, of course.

We would not be wrong to question if the valuations of assets held by ARA US Hospitality Trust are still realistic today, compared to what they were pre-pandemic.

Of course, this is but one question to ask.

ARA US Hospitality Trust has seen its gearing ratio increased and is relatively high at about 41%.

This is even as its proportion of debt which have fixed interest rates declined significantly from 82% to 73%.

With weighted average debt maturity at only 1.3 years, the Trust is going to face the challenge of refinancing in an environment of not only higher interest rates, but also tighter credit conditions.

Why is this important to note?

Well, the question sometimes is not how much the loan would cost, but whether we could even get a loan?



Shoes are dropping.

More shoes are going to drop.

And it feels like it is raining shoes in the US commercial real estate sector.

Now, apparently, the next shoe to drop could be US Hospitality REITs.

To be sure, I am not talking about excessive financial engineering or possible fraud here, which seemed to be the case for Eagle Hospitality Trust, another US hospitality Trust which was listed in Singapore.

I am talking about something which affects the entire commercial real estate sector in the USA.

Credit is tightening in the USA and more so for commercial real estate.

In a recent interview with CNBC, a commercial real estate developer in the USA said he sent out 48 enquiries recently, and he received quotes from only two banks.

He said that was highly unusual, and he followed by saying it seemed that the commercial real estate sector in the USA was being strangled.

That interview gave an idea of how bad the credit situation for commercial real estate is in the USA now, and it could get worse for the whole sector.



During "Evening with AK and friends 2023", I reminded myself that I was painting the entire US commercial real estate sector with a broad brush.

I don't know enough to be able to invest comfortably in those REITs.

Those who have enough knowledge and savvy to invest well in the sector should follow their own plan.

Always have a plan, our own plan.

If AK can talk to himself, so can you!

References:
1. Digital Core REIT.
2. Manulife US REIT. 

3. Smart money exits US hospitality.

4. How to invest in REITs?

Digital Core REIT lost 2nd largest customer! Things to note!

This is the transcript of a YouTube video I produced recently.
-----------------------

About three months ago, I wrote a piece on Digital Core Real Estate Investment Trust.

I said that I was not attracted by its seemingly high distribution yield because one of its largest customers could go bankrupt.

Today, I read that the Trust's second largest customer which accounted for almost 23% of its rental revenue has filed for bankruptcy protection on 4 June 2023.

During "Evening with AK and friends 2023", I warned that in an environment of heightened inflation and rapidly rising interest rates, many businesses which thrived on cheap money would find it hard to cope.

Unfortunately, many startups and tech companies fall into this category.

When money was cheap or even free, there were many investors who were willing to tolerate negative earnings while watching these businesses grew their market share.

With money having a real cost and a comparatively much higher cost at that, investors want to see positive earnings now.

Hence, the pressure for SEA Limited, Shopee's parent, to cut costs aggressively so as to turn profitable.



With interest rates having risen so much and so quickly, the chaos at the regional banks in the USA already led to 3 relatively large banks failing.

Apparently, deposits are still flowing out of regional banks into larger banks like JP Morgan.

Billions of dollars continue to flow into money market funds.

In a research paper with the following title.

"Monetary Tightening and U.S. Bank Fragility in 2023. Mark-to-Market Losses and Uninsured Depositor Runs?"

It was revealed that if a mere 50% of those uninsured depositors decided to withdraw their funds, 186 regional banks in the USA could be at risk of failure.

So, Warren Buffett and Charlie Munger could be right.

This isn't over yet.



While waiting to see if more regional banks could go under in the USA, businesses which are highly leveraged could fail one by one.

This could pick up pace as the USA sails into a highly anticipated recession.

Investors are less willing to pump in more money into "growth" businesses only to watch their money being burnt now.

If you want an example, we have one right here in Singapore.

Its name is "GRAB".

Why not borrow money from the banks instead?

Well, the chatter is that banks are becoming more cautious when they lend money now too.

So, even if businesses could get a loan, the cost is much higher.

Now, as investors for income, we are mostly concerned about any development's impact on our passive income.

So, what does this latest development at Digital Core Real Estate Investment Trust mean for those of us who invested in it?



When a customer goes bankrupt, it is worse than a customer downsizing or right sizing their rental requirements.

The rental income disappears overnight.

In this case, Digital Core Real Estate Investment Trust will lose 23% of its rental income.

In terms of dollars and cents, the manager has estimated a reduction of around 2 cents in distribution per unit.

At a unit price of 40 cents, this means distribution yield would plunge from around 10% to less than 5%.

That is a massive 50% reduction.

OK, don't panic.

The good news is that the many facilities which this customer currently rents are partially occupied by other companies.

So, if the Trust's manager is able to retain these other companies, the resulting loss of income could be lessened.



Still, we don't want a good lesson to go to waste.

We want to remember the following.

With interest rates likely to stay higher for longer, remember not to stay too optimistic about any business that has too much debt.

I do believe that interest rates will come down again one day.

However, we want our businesses to be able to keep their heads well above water until that day comes.

If AK can talk to himself, so can you!

Reference:
Recession could hit Singapore!

Red flags! Why I avoided DASIN RETAIL TRUST?

For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of another recent video I produced.
------------

This is my third video on spotting red flags in real estate investment trusts.

In my first video, I used the example of EC World REIT while in my second video, I used the example of Eagle Hospitality Trust.

In this video, I will explain why I avoided investing in Dasin Retail Trust so many years ago.

Dasin Retail Trust had its initial public offer on 18 January 2017.

The portfolio had a handful of properties which were all located in Zhong Shan City in Guang Dong China.

The main reason for avoiding Dasin Retail Trust was the hefty financial engineering it employed. 

It was done in order to make the initial public offer much more attractive than it would have been.

The sponsor of the trust waived a large portion of its distribution entitlement which resulted in a distribution yield of 8.5% in 2017 and 9% in 2018.

Without the waiver of distribution by the sponsor, the distribution yield would have been much lower at 3.8% in 2017 and 4.7% in 2018.

That would have been some dramatic reduction.

Anyone considering investing in the Trust should be realistic enough to make the following assumption.

That the waiver of distribution would have to end at some point.

It would have been a reasonable assumption which was also necessary.

That was the first and biggest red flag.



The second red flag was the quality of the assets injected into the trust.

The sponsor seemed rather desperate to monetize its assets as it injected assets which have yet to mature as well.

Of course, the sponsor could tout the potential of such assets but there was no guarantee that such assets would live up to expectations, and investors would have to bet on them doing better in the future.

Without a good track record, these assets could turn out to be mediocre.

So, although the trust was offered to investors at a discount to its book value, savvy investors would question the reliability of its valuation.

The third red flag was concentration risk as all assets were located in Zhong Shan City China.

To be honest, it wasn't the biggest concern to me, and the first two red flags were already enough to drive me away.

Still, if anything untoward were to happen to Zhong Shan City, then, the entire ship would sink.



The fourth red flag is worth a mention as it was a concern to me back in the day, but it isn't as important these days.

That was the issue of land leases.

Dasin Retail Trust had assets with land leases which would expire between 2041 to 2046.

So, its shortest land lease was 24 years.

It was a big concern to me back in the day because I had been invested in Croesus Retail Trust which had freehold malls in Japan.

So, putting the two side by side, the difference was really stark.

Of course, Croesus Retail Trust won hands down.

Sadly, I was forced to let go of Croesus Retail Trust as it was privatized.

I would have been quite happy to hold on to Croesus Retail Trust to continue receiving passive income.



Anyway, back to Dasin Retail Trust.

I have learnt in recent years that it is relatively easy and less expensive to renew leases in China and Hong Kong as long as they do not have any other use for the land.

So, having shorter land leases isn't as big a concern when compared to Singapore. However, it doesn't mean that it is not a concern.

Good reminders to myself.

If AK can talk to himself, so can you!

Reference:
How to invest in REITs?

Cannot 4X money with MUST but what about a 70% growth?

This is the transcript of my most recent video on Manulife US REIT and how we could possibly grow our money 70% if we should invest in the REIT?

======

In one of my recent YouTube videos, I talked about an analysis which suggested the possibility to grow your money 4 times by investing in Manulife US Real Estate Investment Trust.

However, I said that the real estate investment trust would probably have to do an equity fund raising exercise which would make that claim untenable.

Today, I read another analysis but by DBS Research House this time.

In the report, DBS said that with gearing at 49.5%, just a little below the 50% limit by the Monetary Authority of Singapore, the need and urgency for a capital injection becomes more apparent.

I like to remind myself that the 50% limit was allowed because of the pandemic.

Could we see the limit going back to 45% regardless, since the stresses caused by the pandemic are eventually going away?

This is another reason why we want to invest in real estate investment trusts with stronger balance sheets.

The proposed sale to Mirae which would result in the creation of almost 10% more in new units to help recapitalize the real estate investment trust would dilute the current shareholders' interests.

Still, it is unlikely to be enough.

More unlikely still is the possibility to 4 times our money.



To be sure, Mirae is doing this deal not because it is altruistic.

It isn't a charitable organization.

It is acquiring a stake in the real estate investment trust and the REIT manager because it thinks it will make money from this deal.

It will heavily dilute current investors' interests.

It is also buying the REIT manager at what DBS research house estimates to be 6 times PE ratio which sounds like a pretty good deal.

If it plays its cards right, Mirae should be able to recover its investments in just a few years.

Post acquisition, DBS Research estimates Manulife US REIT should see gearing level reduce to 42.8%, all else being equal.

In economics, we always like to say this.

All else being equal.

That phrase encompasses everything else that could change the picture.

In this case, the gearing level could change because the value of the properties held by Manulife US REIT could see significant declines.

I remind myself that the average physical occupancy in many of its properties is under 40%.

This suggests more tenants downsizing their space requirements when their leases eventually expire.



DBS research is cognizant of this as they said, "gearing may be stretched if capital values continue to fall again by end of 2023."

"This may turn out to be true, depending on how the current turmoil pans out with the US commercial real estate space."

So, we could see things worsen as soon as end of 2023.

Due to this, DBS research also says that while a gearing level of 42.8% which is below 45% which is what Monetary Authority of Singapore allows if interest cover ratio is below 2.5x, this is still not a comfortable level for investors.

"As such, we take a step further to evaluate if a rights issue should be considered to bring the gearing level a notch lower."

"With new equity capital raised to bring gearing to a more palatable level of 40%, we believe this will provide sufficient flexibility to defend against further asset declines in the future, which will need an assumed further 20% decline in asset values to bring gearing back to 50%."



Taking all this into consideration, DBS research revised their target price lower to 24 cents a unit.

If we go with this projection, we might not be able to 4 times our money, but we could see it grow some 70%.

However, if we want to try our luck here, be prepared for a rights issue which I have said many times before is to be expected.

It is almost like Hobson's choice.

Not too hard to understand.

If AK can talk to himself, so can you!

Related post:
4X your money with MUST!

4X your money with MUST! Curious AK takes another look.

For readers who prefer reading to watching videos, this is the transcript of a video I produced recently.

From time to time, I come across videos which claims to 10x your money.

Usually, they are pretty speculative at best, and in most cases, they are simply scams.

However, sometimes, we could get a gem or two.

Although keeping an open mind is a good idea generally, but it is only a good idea if we do not give up our own thinking process at the same time.

We want to stay critical and not outsource the thinking process.

Bloggers, Youtubers and even experts at research houses are as human as you and me.

Anyway, you did not come here to get lectured by AK.

You want to know what is this four-bagger investment?

Don't need to skip to the end of the video because you will know in a few seconds.

I have produced several videos and published a number of blogs on US commercial properties real estate investment trusts.

My view has been to avoid the entire sector as there is too much going on which could sink the ship.

Some might wonder if we could find a gem or two with blood in the streets.

This is all good and well in less treacherous circumstances.

However, what the sector is facing could be a tsunami of blood, and this could turn deadly even for those who are in the streets looking for gems.

In a report from CIMB research house, they said that they have a target price of 55 cents a unit for Manulife US REIT.

That was an eye-popping target price as Manulife US REIT trades at 14 cents a unit now.

If CIMB is right in their projection, then, Manulife US REIT is a four-bagger stock in the making.

Anyone wants to take a chance?

In their latest results, the real estate investment trust reported a lower occupancy of 86%. Businesses which are renewing their leases are downsizing or right-sizing.

Physical occupancy which is a more important measure and a forward indicator of things to come is only at a bit more than 30%.

This means that almost 70% of their buildings are not occupied although they are leased out at the moment.

To me, what is the biggest issue with Manulife US REIT is the gearing ratio of 49.5%.

The manager was growing the real estate investment trust in what I would say was an irresponsibly aggressive way.

Of course, they still got paid their fees.

Now, without borrowing another single dime, that gearing ratio could breach 50% as their assets could see valuations decline.

This is why I keep emphasizing that we want to invest in entities with strong balance sheets. 

This is especially when we have a treacherous mix of weaker economic outlook and much higher interest rates.

Manulife US REIT still has almost 20% of leases expiring by end of next year, with about half of the expiries happening for the rest of this year.

I don't know how CIMB researchers came up with a target price of 55 cents a unit for the real estate investment trust.

I say this because it is most likely that Manulife US REIT would have to do fundraising and with gearing nearly at 50%, the only option is an equity fund raising exercise.

With their current depressed unit price, it would probably have to be a very dilutive private placement plus preferential offer.

So, investors have to be prepared to cough up more money.

This makes a target price of 55 cents simply untenable.

I get the feeling that the manager of the real estate investment trust is looking a Mirae as a lifeboat now. 

And other investors might want to do the same and look for their own lifeboats.

Like I said in my blogs and videos on Eagle Hospitality Trust, insiders can sell for many reasons. 

However, when insiders decide to bail out when things are looking bad, it is probably because things are really in a bad shape.

Of course, we can choose to take a bet that things could turn out well but with so many pieces of the jigsaw puzzle in place, we can tell that the odds are not very good.

Fortune favors the brave as Matt Damon said in his ad.

What about AK?

AK is not brave and has no fortune.

AK talks to himself.

No one cares more about our money than we do.

Don't ask barbers if we need a haircut.

We don't have to make back our money the same way we lost it.

Don't throw good money after the bad.

If AK can talk to himself, so can you!

虎口拔牙.

That one, AK dare not do. 

You dare to do?

Reference:
1. Buying US office REITs in 2023.
2. Fortnight of banking crisis. Lessons.

$1.60 target price for AA REIT. Really? Why so good?

I make investment decisions based on my own analyses.

However, as a retail investor, I am cognizant of the fact that my analyses are usually incomplete.

I have compared the exercise to a game of jigsaw puzzle.

As long as I have the crucial pieces of the jigsaw puzzle in place, I should be able to make a decision.

I have been blogging and making videos about AIMS APAC real estate investment trust.

It has been one of my better investments for income which has also appreciated in value over the years.

Unlike some other investments which gave me worries from time to time, and a few investments even gave me near heart attacks, AIMS APAC REIT has given me peace of mind.

(Before I go on, if your eyes are feeling tired and you would rather listen to AK talking to himself, you can listen to the video which I have embedded below instead.)

When I remember that I have been invested in the real estate investment trust since the Global Financial Crisis, that is a very long track record.

AIMS APAC REIT has paid me consistently, through good times and bad times.

Still, there could be things I don't know about the real estate investment trust.

So, when I chance upon analyses done by experts, I would read them to see if I might find some missing pieces of the jigsaw puzzle.

Even opinion pieces can be interesting.

In a report dated 8 May, DBS research published a higher target price of $1.60 per unit for AIMS APAC REIT.

The target price is quite a bit higher than what AIMS APAC REIT is trading at.

Apparently, the researcher at DBS was surprised that the real estate investment trust delivered a better performance than what they were forecasting.

The very strong positive rental reversions of 18.5% and record high portfolio occupancy of 98% were the reasons given for why the real estate investment trust outperformed the researcher's expectations by as much as 15%.

It doesn't stop there.

DBS research house thinks there could be more upside because of two reasons.

1. Weighted average lease expiry or WALE of 1.4 years for the logistics and warehouse segment is the shortest in AIMS APAC REIT's portfolio.

Usually, we want a longer WALE for stability.

However, as the passing rent of $1.22 per square foot for this segment is below the current market rate of $1.40 to $1.80 per square foot, the shorter WALE is a positive for AIMS APAC REIT.

We can expect the strong rental reversions for logistics facilities to continue.

2. AIMS APAC REIT plans on growing organically through more Asset Enhancement Initiatives and redevelopment opportunities.

I have been blogging about the potential for AIMS APAC REIT to maximize land use of many assets in their portfolio which have underutilized plot ratios.

So, this is not something I didn't already know.

Anyway, the higher target price by DBS took into account not only past performance but also expected future performance.

As for the possible downside, AIMS APAC REIT has a high proportion of loans or around 88% hedged to fixed rate.

They also do not have any refinancing requirement until November 2024 when a $100 million MTN will be due.

Will AIMS APAC REIT trade at $1.60 a unit in the future?

It is definitely possible as it has done so in the past and it could do so again.

However, that's not how I would approach the real estate investment trust as a possible investment.

Why not?

I am mostly an investor for income and I care more about whether I will be receiving regular meaningful income from an investment.

If the market price of that investment should go up, it is a bonus.

If it doesn't go up, as long as it keeps generating income from me and doesn't make me worry, I am happy enough to stay invested.

If AK can do it, so can you!

Recently published:
Most important investment idea?

Reference:
Why AA REIT?

Why AA REIT? Still one of my largest investments.

During "Evening with AK and friends 2023" which took place in the evening of 10 May, I said that I liked a few real estate investment trusts listed in Singapore.

I mentioned a couple of videos I produced on some possible red flags to look out for when investing in real estate investment trusts.

As for real estate investment trusts which I liked, I mentioned AIMS APAC REIT as being one of them.

AIMS APAC REIT is one of my largest investments and this has been the case for many years since the Global Financial Crisis.

I told a long story about the real estate investment trust, and I hope the audience wasn't bored by it. 

Anyway, I shared some of the reasons why I liked AIMS APAC REIT and still like it after so many years. 

George Wang, the person who led the recapitalization exercise together with AMP back in the Global Financial Crisis has a meaningful stake in the real estate investment trust. 

He is the chairman of the management team, and he said the following recently. 

“For a structure to grow tall, its foundations must be strong and sturdy. It is only through the disciplined enhancement and selection of strong foundational assets that we are able to achieve financial resilience and sustainable growth. The quality of our portfolio has underpinned our robust performance throughout the COVID-19 pandemic and this period of rapid interest rate hikes, and I am very pleased to see our FY 2023 DPU increase by 5.1%, following FY2022 DPU increase of 5.7%." 

Leaving aside the numbers which are commendable given the challenges, I really like what he said about foundations being strong and sturdy to grow.

Very down to earth. 

I really like that he did not lead the rescue of the real estate investment trust so many years ago and then left everything to the management team. 

It is evident to me that he is still active in giving directions. 

During "Evening with AK and friends", I said that I liked AIMS APAC REIT because of the way they pursue growth. 

The CEO said this recently. 

"Looking ahead, our markets remain attractive and continue to offer abundant growth opportunities despite market headwinds. We are actively reviewing opportunities within our portfolio to drive organic growth, which includes adding value through active lease management to secure higher contracted rents, to underpin our future earnings." 

The real estate investment trust still has properties with underutilized plot ratios. 

The management has a track record of successfully redeveloping such assets to grow value and income for investors. 

I am always wary of real estate investment trusts which keep buying properties, no matter the quality in order to grow and to collect fees, of course. 

It is like growth at all costs. 

Sometimes, growth can be too costly for us as investors because we are the ones who end up having to pay the price.

We have to be wary of managers who would even suggest buying properties which are only half occupied or properties with very short remaining leases of 15 years or so, for examples. 

The only people who would surely make money from such situations are the managers. 

Investors have to be more discerning on what kinds of deals to support.

Always ask if it makes sense or if we should be parking our money somewhere else?

Bear in mind the following.

Money should go to where it is treated best or even if this place is not the best place, it should be treated better here than in most other places.

Most people are incentivized by fees and there is nothing wrong with this if they made decisions which would benefit everyone. 

However, many people are selfish, and we have seen ample examples in real estate investment trusts listed in Singapore. 

I have many blogs about Sabana, VIVA and ESR, for examples, if you care to read more. 

Anyway, back to AIMS APAC REIT. 

They own a portfolio of 26 industrial properties in Singapore and three in Australia. 

I like their relatively strong balance sheet with aggregate leverage at 36.1% and a blended debt funding cost of 3.4% and a weighted average debt maturity of 3.1 years. 

About 40% of their portfolio is in the Logistics and Warehouse segment. 

This segment has been experiencing double-digit rental growth across the four quarters, with leasing demand largely driven by third party logistics providers. 

In FY2024, 21.4% of leases are due for renewal, of which 90.6% are from the Logistics and Warehouse segment and this presents strong positive rental reversion potential. 

They also completed the conversion of a multi-tenanted lease to a master-lease arrangement for 23 Tai Seng Drive in FY2023. 

Following an asset enhancement initiative or AEI which cost $1.6 million, the property is fully leased to Racks Central, a data center operator, for an average lease term of seven years. 

It also lifted the valuation of the property by 32.0% from $29.4 million to $38.8 million on 31 March 2023. 

I really like their strategy of organic growth to create value. 

The manager is also evaluating several potential asset enhancement initiatives and redevelopment projects. 

Upon completion, these properties are projected to deliver a stabilized net property income yield of between 7.0% to 8.0%. 

AIMS APAC REIT has been and still is one of my largest investments. 

I believe that the real estate investment trust will continue to bring home the bacon. 

Leadership provided by George Wang who has skin in the game, a capable management team, a relatively strong balance sheet and a shareholder friendly strategy to grow value are just a few reasons to like AIMS APAC REIT. 

Whether you should have AIMS APAC REIT in your portfolio depends on what you are looking for. 

Remember that AK has been invested in AIMS APAC REIT for donkey years starting from the time when each unit was only 17 cents before 5 to 1 share consolidation took place a little later. 

You want to ask if there are better investments than REITs now in an environment where money is significantly costlier.

Having said this, well run REITs which offer a reasonably attractive distribution yield will always have a place in any income investor's portfolio. 

If AK can do it, so can you!

P.S. After "Evening with AK and friends 2023" ended, I had a few more thoughts to share. I published a blog in the wee hours of the morning. See:

Hope you enjoyed "Evening with AK and friends."

References:
1. Why AK invests in REITs?
2. How to invest in REITs?
3. AA REIT's media release.

Why I avoided investing in EC World REIT?

A reader told me that, fortunately, he heeded my warning about EC World REIT and did not invest in it.

To be quite honest, I could not recall when I did that.

Doing a search of my blogs, I found out that I blogged about EC World REIT in early 2018 to explain why I had my doubts about the REIT.

When in doubt, I stay out.

I don't have to do a complete analysis to know that I want to avoid investing in something.

If I see a red flag or two, that is enough for me to stay away.

OK, I admit I am lazy.

As if you don't know.

Anyway, it could be interesting to revisit the reasons why I avoided EC World REIT and also a chat I had with a reader.

At the time, I was concerned about the relatively short land leases. 

They were similar in length to most Singapore industrial land leases. 

Of course, later on, I found out that it was a characteristic of Chinese real estate. 

So, it became less of an issue. 

At the time, I was also concerned with the relatively low distribution yield. 

The distribution yield was about 7%. 

If I remember correctly, we could get much higher distribution yields back in 2018 from comparable REITs in Singapore. 

Also, that 7% distribution yield was only possible because of sponsor support. 

Without sponsor support, distribution yield would have been less than 6%. 

That was some aggressive financial engineering at work.

Lower than 6% in distribution yield?

Definitely too low for such short land leases, I felt.

The sponsor also accounted for two thirds of the REIT's income. 

That was a huge concentration risk.

I also did not like that their debt was denominated in Singapore Dollar. 

It reminded me of Lippo Mall Trust. 

REITs should strive to borrow in the currency of the country their properties are located in to benefit from natural currency hedge.

To employ forward hedging against currency movement is expensive.

A natural currency hedge protects against disadvantageous foreign exchange movements without incurring extra cost. 

I didn't like that a seaport was part of the portfolio. 

EC World REIT was supposed to be about e-commerce assets. 

I got the feeling that the sponsor was just trying to dump assets on unsuspecting investors by including a port in the offer. 

In response to my blog, a reader had the following to say. 

"I actually view the Singapore Dollar denominated debt as being good for EC World REIT. 

"This is based on the likely appreciation of the Chinese Yuan against the Singapore Dollar. 

"Indeed, the Chinese currency has appreciated against the Singapore Dollar in recent times and, going forward, I believe this trend will continue given international pressure on China to reduce trade deficits. 

"I am quite heavily vested in EC World REIT. And thanks for sharing your views."

Regular long-time readers of my blog would know what I would have said to that. 

We can have an opinion on what might happen to the Chinese Yuan against the Singapore Dollar.

However, we must recognize that when we do that, we are speculating. 

What I have stated about natural currency hedge is a fact. 

The fact is that having debt in Chinese Yuan for Chinese real estate provides a natural currency hedge. 

I hope that reminding myself about why I avoided investing in EC World REIT has been a useful exercise for you too.

Recently published:
1. UOB: Some fundamental and technical analyses.
2. Why defensive investing is a good idea for most investors?

Related post:
EC World REIT.