Online shopping, retail S-REITs and Starhill Global REIT.

Online shopping is gaining strength rapidly and even an IT dinosaur like AK buys stuff online. From my own experience, I would say that online shopping is attractive because of two factors:

1. Convenience. Delivered to my home with either very competitively priced delivery fee or free delivery.

2. Cheaper. For the same item, I have saved as much as 30% buying online than buying in a brick and mortar shop.




So, if a shop in a mall is selling stuff that could be found online, unless the mall is conveniently located and unless they are priced competitively, that shop is going the way of the Dodo. 

It is just a matter of time.

Shopping malls must fill themselves more with shops that offer goods and services which cannot be found online for one reason or another. 

After all, there are things which online shops cannot do or cannot do well.

Therefore, despite the growing reach of online vendors, I believe that some shopping malls will continue to do reasonably well and some readers might remember that I have been waiting to invest in CapitaMall Trust (CMT). 

However, I have not been able to get in at a price which I am comfortable with because Mr. Market likes pedigree and, just like Frasers Centrepoint Trust (FCT), even now, CMT is trading at around its Net Asset Value (NAV) and both are offering very similar distribution yields in the mid 5%.




REITs, unlike companies, pay out most of their cash flow from operations to their investors. 

They do not pay dividends from their earnings. 

They distribute income. 

They do not have retained earnings. 

One way REITs grow, without placing too much demand on shareholders (think rights issue) or diluting minority shareholders (think private placements) is to ensure that there is genuine growth in the value of their assets which would in turn give them more leeway to fund more growth through using debt. 

It is a virtuous cycle, one that hinges on the growing value of assets. I think we can agree that CMT and FCT have done rather well in this area.




However, given the uncertain retail environment for some time now, although well run, I would like to invest in CMT and FCT at a meaningful discount to NAV and if they offered higher distribution yields.

Asset values in good times would appreciate but in bad times they could come under pressure. 

So, buying at a discount to NAV makes sense to me unless we feel that asset values can only go up and never go down.

Although I have been mostly looking at CMT, I have also looked at FCT and Starhill Global REIT (SGR).




I like CMT and FCT. I am more familiar with their malls. However, I am not comfortable with getting in at current prices. 

I am not as familiar with SGR's malls (i.e. Wisma Atria and Ngee Ann City) and not all their malls are in Singapore which, by the way, is a good thing. 

However, trading at a meaningful discount to NAV and offering a distribution yield closer to 7%, to me, SGR is priced more attractively.

There are a few more factors which pushed me towards investing in SGR:

1. More than a third of SGR is owned by the sponsor, YTL Group. 

This helps to ensure a greater degree of alignment of interest with minority unit holders.

2. The management is looking to sell the REIT's Chinese and Japanese assets to concentrate on what they consider the REIT's core markets of Singapore, Australia and Malaysia. 

Now, reducing concentration risk is good but having a handful of assets in China and Japan probably isn't beneficial and would, in fact, add disproportionately to operating costs.

3. The relative weakness in SGR's performance is probably going to be temporary because of redevelopment works in an asset in Australia and a delay in a new tenant moving into its asset in China.




Looking at SGR's DPU for the last quarter, annual DPU, all else remaining equal is about 5c which gives us a 6.85% distribution yield based on 73c per unit. 

However, if there were to be more hiccups, income could be affected negatively and I am knocking off 5% from DPU to 4.75c to take this into consideration. 6.5% distribution yield is good enough for me while I wait for an improvement in performance.

I am not buying into SGR because I think its outlook is fantastic. For sure, they will face challenges.

I am buying into SGR because, taking advantage of its recent price weakness, I feel that there is some margin of safety.




SGR is an investment that is likely to generate a fairly good yield for the price that I paid.

Related posts:
1. CRCT added to my portfolio.
2. CMT and when am I nibbing?

Understated gains from Saizen REIT.

For a while, I have suspected that ASSI has stalkers but the following can only happen because this stalker happens to be a friend. If he were just any other reader, I would freak out.

Reader:

I believe you made in mistake calculating your gains from Saizen. 

Just letting you know. You see if you want to amend.

"How much space is enough?"

AK:

I checked the numbers again. You are right!

Spooky!!!

I think I mixed up my average cost price for Saizen REIT with First REIT's.

So, $245,000 is too low.

It should be $30,000 to $40,000 higher.

So, the returns, in terms of percentage, should be higher. Maybe more than 25% a year.

Too lazy to come up with the exact figures. Of course, this shouldn't surprise you. LOL.

I will publish a blog as an errata. Thanks.

This is a very good reminder to everyone that ASSI is not very reliable. If you have yet to read the ASSI disclaimer, it is at the bottom of the blog.

If you choose to eavesdrop on AK talking to himself, do it at your own risk.

What? You are like AK? Too lazy to scroll to the bottom to read?

I reproduce it here:

"The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog."

Related post:
How much did AK make from Saizen REIT?

How much did AK make from Saizen REIT?

Reader:

Dear AK,

I just started following your blog this year. So many gems!

Thanks for resharing your Saizen REIT blog post from 2015 on Facebook. It just tells me how much more I have to read in your archives!

I might regret asking this but how much money did you make from your investment in Saizen REIT?






AK:

Don't worry, you can ask. 

I won't bite your head off. 

Whether I give you the desired answer or not is something else.

If I did not reveal the larger investments in my portfolio recently, I would probably have refused your request.

Now, I don't see any harm in sharing the numbers. :)

Income distributions plus capital gains (excluding return of capital) from the sale of all the REIT's assets, roughly,

$ 245,000

Almost a quarter of a million dollars.

The number shouldn't be surprising since Saizen REIT was one of my 3 largest investments in S-REITs and my entry prices were pretty low.

In terms of percentage, the return was probably around 20% per year, give or take a little. 

I am not crazy enough to calculate the exact numbers.

Of course, now, with news that Saizen REIT is to be liquidated, I should be seeing another few thousand dollars coming back but that is really a return of capital.

Related posts:
1. 2016 full year passive income.
2. Saizen REIT: Right prices and luck.
3. My investment porfolio.

See errata (19 Mar 17, 9.25pm):
Understated gains from Saizen REIT.

Made $14K a month and struggling at 48 years old.

Reader:
This one worth a share man.
Financial prudence - 14K a mth former banker and struggling at 48yo. Pity him anot?

http://www.straitstimes.com/singapore/out-of-work-and-out-of-luck-in-search-for-full-time-jobs?xtor=CS3-18

AK:
OMG!

Reader: 
14k per mth I think exclude bonus lah

AK:
Sigh. Banker somemore. Should know better.

Reader:
Master in Financial Engineering somemore.
Wasted, if got 14k a mth I think I can retire 5yrs - 10 yrs earlier.

AK: 
I also say. Squandered opportunity.

Reader:
Sayang the chance.

AK:
Don't ever think we are invincible. Plan for the day we meet our kryptonite. LOL



Tragic.

Of course, this is not a new topic in ASSI. See blogs like the following:

1. Don't think and grow rich.

2. From rich to broke.

3. Why some might never be rich?