ESR-REIT gives ARA Logos the short end of the stick?

This is going to be a quick blog. 

My interest here is mostly academic. 

I have a big tub of popcorn ready and I hope the movie is a good one.

Talking about movies, recently, I dug out my Harry Potter books from almost 20 years ago and read them again. 

Thanks to the weekly screening of Harry Potter movies on TV recently, I felt like reading the books again.

The books are still as good as ever; they are definitely better than the movies, to be honest.

Really, I do solemnly swear.

Time does fly, doesn't it?

Fellow Harry Potter fans might remember this:

   

Anyway, isn't this an interesting article in The Business Times?

ESR-Reit, Ara Logos propose merger with pricing favouring ESR-Reit unitholders. 

Feeling of deja vu?

Hmm. 

Maybe, just a bit.

Familiar ESR REIT pattern? 

Hmm.

Maybe, just a bit.

Another interesting article in The Business Times.

ARA Logos unitholders must weigh pure-play logistics status against being part of a larger entity.

"Under the deal, for each ALOG unit, ESR-REIT will pay S$0.095 a unit in cash and 1.6765 new ESR-REIT units issued at S$0.51 each, for a total of S$0.95 a unit, the REITs said. 

"Units of ESR-REIT were trading up 2.15 percent at S$0.475 at 11:55 a.m. SGT Monday, while ALOG was at S$0.90, down 3.74 percent." 

 UOBKH advises ARA LOGOS unitholders to accept ESR-REIT takeover bid. 

Really?

Accept? 

Don't accept? 

Alamak, I blur. 

Remember, no one cares more about our money than we do and don't ask barbers if we need a haircut. 

ARA Logos unitholders have to take care of their interest because no one else will do it for them.

Remember this article which was published in The Business Times with regards to ESR REIT's offer for Sabana REIT? 

 Sabana Reit's dissident unitholders were right to fight its manager... 

 "If the proposed merger of Sabana Reit and ESR-Reit last year demonstrated anything, it is that IDs cannot always be relied upon to act in the interest of unitholders." 

IDs cannot be relied on? 

Can rely on brokerages or not? 

Alamak, I really blur lah. 

Sabana REIT was lucky to have activist investors leading the charge.

What about ARA Logos?

I also said something about the proposed merger in the comments section of this blog:

3Q 2021 passive income. 

Good luck to unitholders of ARA Logos.

The short end of the stick, anyone?

Reference: 

Sabana REIT's lesson...

AIMS APAC REIT to buy Woolworths' HQ.

It is confirmed. 

AIMS APAC REIT is going to buy Woolworths' HQ in Sydney. 

The price tag? 

Around S$454 million. 

This is going to increase the REIT's portfolio value by more than 26%.


As a long time investor of AIMS APAC REIT, I like the purchase for the following reasons: 

1. The asset will increase the number of freehold assets held by the REIT. 

2. The purchase will increase income visibility as there is a 10 years lease to Woolworths with annual rental escalation of 2.75%. 

3. There is room to build more rentable space as the asset's plot ratio has yet to be maxed out which will allow for more organic growth in the future (and this is probably a big push for the REIT to make the purchase if we look at their commendable record in maxing out plot ratios of some of their assets in Singapore.) 

4. The purchase is likely to be DPU accretive because it is going to be 60% financed by debt (which is likely to be competitively priced given the current low interest rate environment) and net proceeds raised from the recent S$250 million in perpetual bond issue will also be utilized.


A question on many unit holders' minds is probably will there be a rights issue? 

The REIT manager has said that they could issue new equity. 

Personally, I think that it is a forgone conclusion because when we compare the price tag of S$454 million and what we know in point number 4 above, there is a shortfall of some tens of millions of dollars. 

Equity issuance could take the form of private share placements or a rights issue, of course.


As a long time unit holder, I hope that any equity fund raising is going to be a rights issue. 

This is so that I can increase my investment in the REIT probably at a discounted price. 

After all, I never get invited to take part in private placements. 

I suppose I will just have to wait and see. 

Woolworths’ Full Year Result 26 Aug 21: Woolworths’ earnings led higher by Australian Food business.


References: 

1. AIMS APAC REIT and perpetuals. 

2. AA REIT: A private tour.

"Good time to buy now or should I wait?"

This blog is a reply to a reader's comment: HERE. 

Whenever readers ask me if it is a good time to buy something, I get the shivers. -.-" 

I don't know what Mr. Market might do tomorrow and, so, I don't know if the price will go up or down. 

I do not have a working crystal ball.

However, I have a very dusty bowling ball that sometimes thinks it is a crystal ball.

You want? ;p

As long as I am satisfied that something is an investment that will generate a fairly attractive and reliable income for me, I buy some. 

Past rights issue shouldn't matter to an investor today.

He should look at today's numbers and decide whether it is an investment that will deliver what he is looking for or not?

We might have different requirements and certainly different circumstances. 

So, it is probably not a good idea to ride on someone else's coattails, no matter how famous that someone is.

We can always wait for prices to plunge before buying but prices could appreciate instead. 

It might also be many years before Mr. Market goes into another depression and we would have lost many years of income.

This is why some say time in the market is more important than timing the market.

To buy now or to wait, it depends on whether you feel IREIT Global fits your plan and whether it meets your minimum requirement from an investment. 

If you are interested to get a glimpse of my investment philosophy, read this blog: 

Investment philosophy... 

"I emphasize that I will not tell anyone if they should or should not buy anything. 

"I am only sharing my philosophy and experience in my blog. 

"I am not here to make a decision for you." 

There are also some relevant ideas in these blogs: 

1. An exchange with AK on REITs. 

2. Undervalued but is it a BUY? 

3. Sell now and wait to buy lower? 

4. When to BUY, HOLD or SELL? 

5. Eagle Hospitality Trust: Extinction?

Beware of scams!

Should we invest in AIMS APAC REIT in 2021?

Readers left me a few comments on AIMS APAC REIT (formerly AIMS AMP Capital Industrial REIT) recently and I decided to do a quick blog on one of my largest investments. 

Let us start with my reply to the latest comment: 

"I get palpitations when people ask me if something is safe to invest in. ;p 

"The one place where I would say our money is safe is the CPF which is risk free and volatility free. 

"Having said that, I have been invested in AA REIT for more than 10 years and it has been good to me. 

"You might want to read this and my other blogs on AA REIT for an idea: 

AIMS AMP Capital Industrial REIT: An opinion. 

"OK, maybe, this one too: 

AIMS AMP Capital Industrial REIT and free money for AK."


I should have said this earlier but if you are interesed, read Egg's comment in the comments section of this blog: HERE. 

I also posted a couple of replies to another reader's comments on AIMS APAC REIT in another blog. 

See the comments section here for Blur Sotong's comments and my replies: 

Largest REIT investments updated. 

For anyone interested in investing in REITs, maybe, read this too: 

Is investing in REITs right for you? 

Oh, if you are wondering where I got the inspiration for the title of this blog:

Neverwinter for the win!

Sneaky AK!

Bad AK! Bad AK! 

Hopefully, 2021 will be a better year than 2020.

Till the next blog, everybody stay safe!

IREIT's rights issue: Why did AK subscribe?

This blog is in reply to a reader's comment.

I decided to publish it as a blog as other readers might be interested in this.

"The rights issue is dilutive because it raises more money than is required to acquire the rest of the Spanish portfolio of assets.

"Also, much of the funds raised is used to reduce gearing.

"As an investor for income, it isn't something I like and I have blogged about this view before.

"However, I like IREIT Global's freehold properties, especially those in Germany.

"I like that its interest cover ratio is very high.

"I also like that it has CDL as a strategic partner.

"With the reduced gearing, I am reasonably optimistic that IREIT Global would do better in future.

"We also want to bear in mind that IREIT Global has a relatively high distribution yield and it is probably harder to make yield accretive acquisitions.

"Like I said, I don't necessarily like the rights issue but since I like the REIT for many reasons, I think of the rights issue as a necessary evil to help it to grow.

"Now, let me add a dash of speculation.

"Once the REIT is massive enough, it should attract more investors, especially the institutional investors and that is when we might see yield compressing to 5% or lower.

"Based on the DPU post rights issue, IREIT Global could trade at 90 cents a unit or higher then.

"In the meantime, I get paid while I wait.

"I like to think that patience will be rewarded."

References:

1. IREIT Global is going to Spain.

2. REITs and rights issues: Dilutive or not?

AA REIT, IREIT and Ascott REIT-BT.

In a blog dated 4 April 2020, I talked about my three largest REIT investments.

I blogged about how I viewed them in the past and what I thought of them as the COVID-19 pandemic struck.

AIMS APAC REIT
(formerly AIMS AMP Capital Industrial REIT)

This is, of course, an old timer in my investment portfolio.

My original investment in the REIT has most probably been free of cost for some time by now.

Slightly more than a month after my blog in early April, I added to my investment in the REIT.

I explained why I did that in a blog in early May:

AIMS APAC REIT investment is larger now.

Industrial properties are probably less negatively impacted by the COVID-19 crisis.

Of course, there would still be challenges in a softer economy which would logically lead to negative rental reversions but the demand for industrial space should stay relatively strong.

So, I expect AIMS APAC REIT to continue to generate reasonably meaningful and sustainable income for me.







IREIT Global

I was confident enough to increase my investment in IREIT when I did because I thought a large part of the REIT's income should be ironclad with Deutsche Telekom and Europe’s largest pension fund, Deutsche Rentenversicherung, accounting for more than half of total rental income.

Of course, the question now is whether many more office workers who have been working from home due to lockdowns imposed by the COVID-19 crisis would continue to work from home?

This is a question that might be keeping many office properties landlords awake at night.

If it becomes the norm for office workers to work from home, then, what use are office buildings?

See this article, for example:

Twitter tells employees they can work from home forever.

COVID-19 has forced many changes upon us.

Some changes are new while some changes have been merely accelerated.

I do not know how many more companies out there are going to be like Twitter.

I hope I am right when I say that I do know that IREIT Global's WALE is about 4 years and that the REIT should be a relatively dependable income generator for me in the meantime.






ASCOTT REIT-BT

Amongst my three largest REIT investments, Ascott REIT-BT has to be the least favored now.

It was quite obvious the way I talked about it in the blog of early April I was less sanguine about it than I was about the other two.

Ascott REIT-BT is the only one of the three REITs that I did not increase exposure to.

Logically, businesses in the hospitality sector would be amongst the slowest to recover from the recession caused by the COVID-19 pandemic.

Like PM Lee said in his address to the nation on 7 June 2020,

"We will not be returning to the open and connected global economy we had before anytime soon.

"Movement of people will be more restricted.

"International travel will be much less frequent.

"Health checks and quarantines will become the norm.

"Industries that depend on travel like aviation, hotels and tourism will take a long time to get back on their feet and may never recover fully."






Will there be further reductions in the REIT's DPU due to lower income in future?

Given the very difficult circumstances, it should not surprise investors if it happens.

So, if we are investing for income, Ascott REIT-BT seems to be less attractive and less reliable compared to AA REIT and IREIT, for examples.

Still, Ascott REIT-BT's unit price spiked up in recent trading sessions, probably due to the heightened optimism surrounding the re-opening of economies around the world.

The RSI, a momentum oscillator, shows that Ascott REIT-BT is heavily overbought and that its unit price is testing resistance provided by the declining 100 days EMA which is approximating $1.13.

Taking everything into consideration, I decided to  reduce my exposure to Ascott REIT-BT, selling a big portion of my investment at resistance.

Although my investment in the REIT has reduced in size, I would still benefit if the REIT's unit price continues to move much higher which might prompt me to further reduce exposure.

I hope that Ascott REIT-BT as an investment for income will do much better in the future but, to be realistic, I have prepared myself mentally for a relatively long wait.








Related posts:
1. Largest REIT investments updated (April 2020).
2. The most dangerous crisis and what should we do?

Wuhan coronavirus and our REIT investments.

Regular readers might remember a blog from 2018 when I shared a message from a reader:

"I do my own diligence which I think is sound but cannot help but be worried when I see negative things about REITs being posted."

Of course, AK ignored the noise and did his own thing.

If you are new to my blog or cannot remember, read this:
Dumping all my investments in REITs.




More recently, a reader left this comment in my blog:

"Are you still holding this China mall REIT? CRCT?

"Seems to catch a big flu virus.

"Would you be adding to this sick REIT?"

See the comments section of this blog:
Wuhan coronavirus is war and are we ready?




Always ask if a situation that is affecting our investment is permanent or temporary.

Then, we will know what to do.

I have sold a few of my investments in REITs before.

They were always because I thought things could go bad for them and that it would be pretty permanent.

Read this blog where I mentioned Lippo Malls and Sabana REIT:
Cutting losses in S-REITs?




What about the Wuhan coronavirus situation?

It looks like things could possibly get worse before they get better.

Just like how optimism could overshoot on the upside, Mr. Market's pessimism could overshoot on the downside.

Some readers might remember how I accumulated large positions in some REITs during the Global Financial Crisis (GFC).

For example, in a blog back in 2012, I said:

"Off the top of my head, my investments in AIMS AMP Capital Industrial REIT and First REIT appreciated some 40 to 75% in value in the last 3 years.

"This is on top of annual distribution yields of 13 to 17%."

We might not see such numbers again for a very long time unless we expect the Wuhan coronavirus to have the same effect on Mr. Market as the GFC had.





AK is just talking to himself here in ASSI.

AK will not tell anyone when to buy or when to sell.

AK will say that if we are interested in investing for income, REITs are not only relevant but can also be very good investments for us.

See:
Man collects rent from his boss.




You might also be interested in these blogs:
1. Sold Soilbuild REIT.
2. Sold First REIT.

In conversation with AK 2019 (Part 2).

Reader #1 says...
Do you feel that there’s a REIT in Singapore which we could buy and hold forever?

AK says...
I thought I could hold First REIT forever.

I changed my mind. 😜

Now, I wonder if I could hold AA REIT forever?

I think we have to be prepared for changes because they do happen.

Related post:
Largest investments updated (3Q 2019).

Reader #2 says...
I noticed that you hardly talked about Forex Trading.

May I know if you could share your thoughts on it?

Actually I’m asking this because one of my friends is doing it and he advertised it on his Facebook recently

AK says...
FOREX trading.

Hmm.

I dunno anything about trading in currencies.

It isn't something I can value.

I made a mention of this in my blogs on Bitcoin.

Bad AK! Bad AK! 😛


Related post:
My final word on Bitcoin and friends.





Reader #3 says...
Now lippo seems to hv "fixed" the mess.

U think for ppl like me who never get (First REIT), can consider?

Can heal?

AK says...
Bandaged :p

You see my blog on why I sold and you decide for yourself. 😉

Related post:
Sold First REIT.






Reader #4 says...
AK, I want to show my friend your $1m CPF meme but the link is gone. 
Send it to me ok?

AK says...
Sure. 
Hope you song song gao Jurong. ;p

See:
This guy has $800K in his CPF (AK responds to HWZ forum).




Been a while since I took a photo of my breakfast.

Two hard boiled eggs eaten with a sprinkling of salt and black pepper.

A glass of warm water infused with ginseng roots.

New readers might want to read:
You are not successful in Singapore unless you do this!

3Q 2018 passive income (S-REITs).

In 2Q 2018, there was a bit of action in the S-REITs space for me and one of the things I did was to add to my investment in Starhill Global REIT at 64c a piece.

In 3Q 2018, I was ready to add to my investment in Starhill Global REIT if Mr. Market's pessimism should worsen.

However, Mr. Market felt better about the REIT's prospects and the unit price rebounded.






To understand why I bought more of Starhill Global REIT when I did and how it became one of my larger smaller investments, go to the related post at the end of this blog.

The top 3 income contributors from my investments in S-REITs in 3Q 2018 were:

1. AIMS AMP Capital Industrial REIT

2. First REIT

3. IREIT Global

I often get asked whether we should continue investing in S-REITs since interest rates are on the rise.

I am aware that this is really another way of asking what is going to happen to the unit prices of S-REITs in future.

I don't know how the prices will move in future.

I only know that investing in bona fide income producing assets has been rewarding and it should continue to be rewarding.






If we believe that real estate has intrinsic value, then, buying at a discount to valuation, we should have some margin of safety.

Also, we have to ask whether the management is honest and capable enough to unlock value for shareholders too.

Of course, S-REITs are not perfect nor are they the only tool available to investors for income.

We also want to be careful not to be overly reliant on S-REITs as the higher yield comes at a price.

Remember, S-REITs pay out 100% of their cash flow most of the time and have no retained earnings.

So, investing in S-REITs, we have to be prepared for the possibility of rights issues.

Those who are fully invested and dependent on S-REITs for income should beware.





This is especially if the dependence on S-REITs for passive income is absolute and critical.

"Absolute" means that these investors have no other sources of passive income.

"Critical" means that any reduction in passive income from S-REITs would be a life altering event for these investors.





Remember, how we invest and what we invest in should depend on our personal circumstances and what we hope to achieve.

It is never my way or the highway.

You should have a plan, your own plan.

However, to have a plan that works for you, you must know what you want and what you are capable of and willing to do.




For example, in middle of September this year, a reader asked me about investing in Soilbuild REIT again.

blazingruby60 said...
I remembered you mentioned that all investment is good investment at the right price.

looking at soilbuild i have sold after reading this article here and wondering would you consider buying soilbuild again at 58 cents?

considering soilbuild has ventured overseas to australia to acquire some properties and all.

thanks n cheers.






AK said... 
I was thinking about it but I decided not to invest in Soilbuild REIT now because

1. I already have a pretty large exposure to industrial property S-REITs which also have exposure to the Australian economy (AIMS AMP Capital Industrial REIT and Fraser Logistics Trust).

2. I would like to have a much bigger percentage of my portfolio in non-REITs to reduce reliance on S-REITs for income.

Of course, things could change in future. :)

Investing in S-REITs for income, we have to take in a bigger picture and, to be realistic, your picture could be quite different from mine.

My total 3Q 2018 passive income from S-REITs was:

S$ 19,884.80

AA REIT 10-year Anniversary 
- Celebrating 10 years of Partnership!

On a per month basis, it works out to be about S$6,628.00 a month.

Related post:
2Q 2018 passive income from S-REITs.

2Q 2018 passive income from S-REITs.

Regular readers know that AK is usually pretty inactive as an investor, preferring to do nothing most of the time and just collect dividends.

Well, in 2Q 2018, in the S-REITs space, there was a bit of action.






There was the 1 for 10 rights issue by Frasers Logistics & Industrial Trust (FLT) in which I took up my entitlement and applied for a small number of excess rights.

To be honest, I did not think that the rights issue was very attractively priced. 

Perhaps, it was fairly priced.

We have to take note that the massive deal weakened the REIT's balance sheet significantly while delivering very little increase to DPU and NAV per unit.






I must say that I feel that the deal was better for the sponsor than it was for the REIT.

We shall see if the REIT's DPU grows in future, everything else remaining equal.

Having said this, the REIT should still be a fairly safe and stable investment for income that keeps me happy enough to stay invested.

Even after the rights issue, the REIT is still only one of my bigger smaller investments (under $100,000 in market value but more than $50,000).

Another thing I did in 2Q 2018 was to nibble at Starhill Global REIT as its unit price declined.

As its unit price declined by 5%, I pointed out to a friend that the drop in unit price did not really make the REIT absolutely more of a bargain than it was before.

Of course, I was not interested in adding to my investment then.

If you remember, I mentioned in an earlier blog that with the new tax levied by Malaysia, I estimated a 5% reduction to the REIT's DPU.

So, with a lower DPU, it is only logical that the REIT's unit price took a 5% hit as well.






However, when its unit price declined by much more than 5% later on, I decided that the selling was probably overdone.

In fact, unit price has declined by more than 10% compared to my initial entry price and I couldn't resist nibbling.

After all, there is reason to be hopeful that Starhill Global REIT could do better in future and that buying at a big discount to its NAV is a very tempting proposition and probably provides a decent margin of safety.







The REIT's portfolio of commercial buildings has intrinsic value.

As an investment for income right now, however, it is really nothing to shout about.

Although I feel that there is nothing fundamentally wrong with the REIT, it is really one for investors who are very patient and who are OK with being paid while waiting.

As I bought more in 2Q 2018, Starhill Global REIT has just crossed the line to become one of my larger smaller investments like Frasers Logistics & Industrial Trust (under $100,000 in market value but more than $50,000) but it is on the smaller side compared to FLT.









I like to think that all investments are good at the right price.

At such a big discount to NAV, it is just too hard for me to ignore but without a clearly stronger income investing angle here, I reminded myself not to take too big a bite.

I don't like choking.






Regular readers should not be surprised that the two largest contributors to my passive income from S-REITs are:

1. AA REIT
2. FIRST REIT






DBS recently did a piece on AA REIT, suggesting that it could be a target for takeover and suggested a target price of $1.55 to $1.65 per unit.

• Resilient industrial gem that offers above-average yield of 7.4%-7.6% over FY19-FY21

• Extraction of value from greenfield projects and addition of c.600,000 sqft of untapped GFA could drive revenues by c.16%

• Potential takeover target amid global hunt for quality assets







Frankly, I am not too enthusiastic about this, having lost quite a few good income generating investments in similar fashion already (with Saizen REIT and Croesus Retail Trust being the largest).

Quite honestly, unless there is another bear market, it is not easy to find robust replacements as more meaningful investments for income.





OK, enough grumbling.

Total passive income from S-REITs in 2Q 2018:

S$ 18,715.33

The next blog will be on my passive income from non-REITs and we will have the full picture for 2Q 2018 then.

Related post:
1Q 2018 passive income from S-REITs.

Dumping all my investments in REITs.

Reader says...
I recently started buying REITs and following online blogs online.

I do my own diligence which I think is sound but cannot help but be worried when I see negative things about REITs being posted.

Classic consumer economics behaviour from me cos scared Liao lol.







Anyway, I know there is a difference between Traders and investors.

There is one particular trader that says REITs and dividend stocks will suffer soon.

Should I be concerned? Because my investment strategy is buy and hold.

AK says...
It depends on what you are looking for and if your investments can deliver.

In an inflationary environment, (interest rates should go up and, naturally,) bonds will suffer but we should not mix up bonds and REITs. They are not the same thing.

Bond holders get paid a coupon and that is fixed. 

As interest rates rise, bond prices will fall (as Mr. Market expects a higher yield to buy those bonds and as the coupons are fixed, the bond prices must fall to give a higher yield).







Businesses and REITs have the ability to raise prices and that is what they usually do in an inflationary environment.

Invest in what we understand and disregard the noise.

When we buy bonds, we are money lenders. We charge interest for lending money.

When we invest in a business, we are partners and we share the ups and downs.








REITs remain a relevant tool for income investors but, to be fair, not all REITs are good investments.

Regular readers know that I have reduced my exposure to REITs but it is not for as simplistic a reason as interest rates are rising.


Rising interest rates alone is not strong enough a reason for me to sell down REITs.

Try not to be overly pessimistic nor overly optimistic. Try to be pragmatic.








Related posts:
1. Why bonds and which ones?
2. Largest investments updated.