Decline in Soilbuild REIT's DPU likely.

In its 1H FY2017 report, Soilbuild REIT's management said that the biggest challenge they were facing was to lease the entire space at 72 Loyang Way because of the weak oil and gas sector.







Now, they are going to have to deal with 2 hot potatoes instead of 1.

NK Ingredients, one of the REIT's top 10 tenants by revenue, has defaulted and the fact that they accounted for almost 6% of Soilbuild REIT's revenue is going to hurt.

The loss might not be as traumatizing this round but to be hit by another loss before being able to recover from an earlier one is very unfortunate.

The trauma is cumulative.

The rental guarantee from NK Ingredients' insurance will provide another 4 months of rental income.

So, Soilbuild REIT has 4 months to secure another tenant if it is to reduce the negative impact the default has on its revenue.







NK Ingredients signed a 15 years lease which was supposed to provide some earnings visibility till the year 2028 for Soilbuild REIT. 

Such a long lease agreement is necessary because being in the chemicals industry, I believe that the asset was probably purpose built.

It probably means that it would be rather difficult to find another tenant to move in within a short period of time.

So, we should logically expect another reduction in the REIT's DPU with this development.





We could also see the REIT's NAV come under pressure if the asset remains vacant for a prolonged period.

See related post #1 below.

In the worst case scenario, going by the above statement, if the asset remains vacant, with a hypothetical half year DPU of 2.64c, if we demand at least an 8% distribution yield, we would only be buyers at 66c a unit.

Related posts:
1. An opinion of Soilbuild REIT.
2. 2016 income from S-REITs.

In 2H 2016, I added to my investment in Soilbuild REIT due to a rights issue. This was at 63c per rights unit. I took up my entitlement and also applied for excess rights. From that exercise, I increased my investment in the REIT by more than 10%.

See slides presentation: HERE.

Cromwell European REIT cuts IPO size.

UPDATED (15 NOV 17):
After cancelling its IPO after cutting its IPO size, Cromwell European REIT is making another IPO attempt with a much smaller offer of a billion units instead.

"Cromwell European REIT's prospectus Wednesday showed that the company is offering 428.54 million units to institutional and retail investors, and another 581.8 million units to investors who have agreed to take them up ahead of the IPO (at 55 European cents each).

"Cromwell had, in September, offered 1.91 billion units at up to 57 European cents each. The company has also reduced the number of assets that will be in the REIT--down from September's 81 assets."

Source: WSJ




-----------
Earlier this month, when I blogged about Cromwell European REIT, I mentioned that the sponsor, post IPO, would be holding a rather smallish stake in the REIT. 

To me, it seems as if the REIT is a place for the sponsor to dump their rojak portfolio.

"It gives me the feeling that the sponsor wants to dump everything into a pot and be done with it." (See related post at the end of this blog.)






Well, things have changed. 

I don't know why but it seems that they have decided to shrink the size of the IPO and the sponsor will now have a stake of 25.9% to 26.8% in the REIT. 

These are much better numbers.

There will be a better alignment of interests with other investors in the REIT, for sure.

Simply put, if Cromwell European REIT should do badly, the sponsor will hurt much more now compared to when they were going to have just a 12.7% stake. 

So, unless they enjoy pain, with a much larger stake in the REIT, they have a stronger incentive to do better.






Although this is a positive development for retail investors in the REIT, I still cannot help but feel somewhat uneasy with the rojak nature of the portfolio from the get go. 

I understand that they bought these properties from various funds looking for exits but it seems rather hasty to me.

Having said this, all investments are good investments at the right price. 

Trading starts on 28 Sep (Thu).

Related post:
Cromwell European REIT IPO.
Reference:
Cromwell REIT cuts IPO size, ST, 18 Sep 17.

https://www.theedgesingapore.com/negative-view-cromwell-european-reit-down-under

"Is this ILP good for my mother?"

Reader:
My mum's insurance agent sent this. Would you consider this ILP? It's also being marketed at an event at the sports hub...

AK:
Generally, I would say to anyone not touch ILPs even with a 5 feet pole. 

However, ILPs are especially unsuitable for older people as the cost of life insurance jumps after age 55 and from age 60, it becomes very costly. 

This is because mortality risk increases as we age.

In an ILP, the cost of insurance is deducted from the policy value by selling units. 

As we age, the cost of insurance goes up and in our golden years, it goes up more rapidly.

So, imagine units in the ILP being sold down more rapidly to pay for the cost of life insurance as we age.

Unless the unit price of the ILP goes up more rapidly and significantly than the increase in deduction, when the value of the ILP becomes zero, the insurance coverage is terminated.






In my opinion, this particular insurance agent who is trying to sell the reader's mother an ILP does not have her interest at heart.

It is no secret that ILPs are probably the most lucrative products available to insurance agents.

So, I am not surprised that less scrupulous agents would try to sell them to any Tom, Dick or Harry or, in this case, Mary.

Related posts:
1. 20 years and $29K.
2. Reader regrets ILP.

Bribed to buy a diesel car and regretting now.

Earlier in March this year, I blogged about how I could sell my car for a higher price when the Vehicular Emissions Scheme (VES) is introduced. 

This new scheme replaces the Carbon Based Vehicle Scheme (CEVS).

The VES will come into effect in the new year and we will see some vehicles which used to enjoy green rebates from $5,000 to $20,000 being slapped with surcharges of up to $20,000 instead. 

My car, for example, will go from receiving a $15,000 green rebate to being slapped with a $20,000 surcharge. That is a $35,000 difference!





Many car models which do not meet the EURO 6 standards will also disappear from the showrooms. 

A couple of popular examples are the Toyota Vios and the Toyota Camry. Apparently, all the models from Chevrolet being sold in Singapore do not meet the new environmental standards.

Of course, I am just a little guy in his little car and I am very much concerned about how everything affects the money in my pocket.

For those who don't know, I have a diesel car. Diesel technology has gone from dirty to green and, now, back to dirty. 

So, apart from the higher price that a diesel car would attract from 2018, there is also a usage based diesel tax. 

Diesel, for many months now, costs an extra 10c a litre.





So, the more diesel I use, the more I pay.

Fortunately, diesel engines are pretty economical compared to petrol engines. This coupled with the fact that I do not drive as much as I used to, I buy only about 40 litres of diesel a month. 

This means that I pay $4 more for automotive fuel each month. 

OK, that is hardly a disaster.

Actually, with the usage based tax, it seems that I will end up paying less because the government is reducing the lump sum tax (road tax) that diesel cars will have to pay by $100 a year.

I read an article titled "First bribed to buy diesel cars and now they want to tax us" and had a good laugh.







The article is about the predicament of diesel car owners in the U.K. and although I had a good laugh, it is no laughing matter for them.


"When I bought my diesel-powered Citroen C5 estate six years ago, the last thing on my mind was that I would end up being treated as an environmental vandal by a government minister.

"It is quite a shock, then, to hear Transport Secretary Patrick McLoughlin warning motorists like me that we face a hike in taxes designed to punish us for doing what we thought was the right thing and buying a diesel car."

Read the full article: HERE.









Although I am somewhat disappointed that my diesel car is not as environmentally friendly as I once thought it was, when I do drive, I still enjoy the car very much and I am glad that new measures taken by the Singapore government are more reasonable than punitive.

In fact, it might even help to lessen the monetary loss of selling my car if I decide to do so in the new year.

Bribed to buy a diesel car and regretting now? 

If I were in the U.K. maybe but not when I am in Singapore. Heng ah!

Related post:
1. Make $35,000 from selling my car.
2. How much to spend on a car?
3. 3 good reasons to buy a car.