Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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Many people ask how can they retire from work earlier and be financially comfortable like me? Of course, I tell them investing for income has a big part to play. Often, the next question is whether I could teach them how to invest for income? No, that sounds like work and I am lazy. Bad AK! Bad AK!
Well, we haveDividend Machines. I know many are waiting for the next intake and it has been almost a year. Good news! The wait is over! See:
Learn how to analyse REITs. First peek into AK's head.
Investing for income consistently and correctly could help us to achieve financial freedom. This is when income received from our investments is enough to replace our earned income or at least meet our expenses in life. Then, we have the option to work if we want to and not because we have to.
Learn how to analyse REITs. Second peek into AK's head.
I like Dividend Machines because it really helps investors for income shorten their learning curve and it is also great value for money. You will be surprised by how affordably priced it is. Find out for yourself:
Don't wait too long to sign up because once this intake is full, it will be another long wait before the next intake. Don't say you should have started investing for income earlier. The best time to start is always now!
If you enjoy listening to AK talking to himself, you will definitely enjoy Dividend Machines. If AK can do it, so can you. Related post: Dividend Machines for a secure retirement.
Hi Jerry, Saizen REIT was not a shitty counter. It was just misunderstood and it was thanks to the misunderstanding that I was able to accumulate a sizable position relatively cheaply so many years ago. In fact, I thought Saizen REIT had a very competent manager who ate their own pudding. Of course, the REIT was a fantastic investment, as it turned out, for me and many other investors. I shan't say more since regular readers should be quite familiar with the narrative. As for Sabana REIT, I did blog about it quite regularly for a few years as it was a big part of my S-REITs portfolio for the same number of years. Although I agree that the REIT has a mediocre manager who strikes me as mostly self serving, to be fair, it was a rewarding investment for me. Having said this, I am aware that that there are fellow Sabana REIT investors who are less fortunate. As always, I am quite happy to help people to help themselves. If my blog has helped to educate retail investors to some degree, I am glad. In the end, however, I must let readers make their own decisions and I won't push them in any direction. I am not allowed to and I don't want to. Although I am sympathetic to those who have lost money investing in Sabana REIT, I believe that they must take responsibility for their own action or inaction as investors. If they happen to form the majority of Sabana REIT's investors and if they choose to be apathetic for whatever reason, then, they have to accept whatever the consequences might be. By replying to your comment in the form of a blog, I am helping to spread the word about the activism that is taking place now. However, please understand that I do this because I believe that more people must be made aware of how investing in REITs for income is not as easy as they might think and they must know that REITs are not risk free investments. I am not doing this to be a part of the activist movement against the manager of Sabana REIT. With best wishes, AK
If you are a Sabana REIT unitholder and if you are interested, here is the link to the FB page: https://www.facebook.com/groups/1586399528054150/?qsefr=1 By the way, as requested by some readers, tomorrow, I will be sharing a check list for investing in REITs.
It will be part of an advertorial which was planned weeks before. If this is of interest to you, please visit my blog again tomorrow. Investing in REITs for income is simple enough to understand but it might not be as easy to do it well.
Reader: "I read your analysis of IREIT and how your strategy turned out in August 2015. You said that you wanted a minimum of 8% yield to invest in IREIT. So, you waited. At today's price, you would get more than 8%. Would you invest in it today?"
The reader was referring to a blog dated 14 August 2015. If anyone is interested in the background which led to this blog, please read: How did IREIT Global's rights issue turn out for AK? AK: "Wow! You read that recently? You must be combing my blog's archives! Gambatte! "Anyway, back then, my average price was about 66c and, estimating a DPU of 6c today is not unrealistic. So, conservatively, I am getting a 9.1% distribution yield for that investment. "Actually, as things turned out, less than a week after I published that blog, I increased my investment in IREIT a lot more at 66c and 65.5c.
"On hindsight, I didn't have to go through all that trouble to get IREIT at a lower price during its rights issue but who could have known that Mr. Market would go into a mild depression later in August 2015? I am not saying that it was a bad thing, of course. "I added to my investment in IREIT again in mid-2016 at 71c a unit which was 7.5% higher than 66c. Even though it was a higher price, I still found the REIT attractive as an investment for income. More recently, I added a bit more to my investment last month, paying 72.5c a unit." Now, would you invest in IREIT Global today? It depends on what you are after and whether IREIT Global does the job for you. Related posts: 1. FLT and CRCT added. 2. Projected yield of 8% safe?
I'm new to your site, saw quite a few interesting post from you.. Wonder if I can get some advise and directions to investment...
Have $50k spare cash, now searching for what to invest...
I have a $500k HDB housing loan.
Some financial advisors asked me to switch to bank loan. Instead of using my spare cash to clear my housing loan, look for an investment product which is stable and has a good interest rate which is above the bank loan interest like JPMorgan Funds - Asia Pacific Income and First State Dividend Advantage.
Considering the US situation with the new president, USD is likely to rise with the promising policies to come. Then with the increase value of USD and decreasing value of SGD, would USD linked investments be good. Any recommendation?
I am only talking to myself here.
Hi C, I don't recommend stuff. I am only talking to myself in my blog. I like to tell myself not to ask barbers if we need a haircut. Switch from HDB loan to bank loan? These financial advisers work for HDB or for the banks har? Interest rates are going up, then, bank loan interest rates will go up or not? Financial advisers ask me to buy income focused unit trusts which are likely to be more rewarding than using the money to pay down my mortgage? What are the underlying assets of these unit trusts? Bonds, income generating stocks or REITs, probably. Why they never ask me to invest in these directly har? I don't know what Donald Trump is going to do to the USA or the US$. I am not very good at speculation. I did a few times before and fell into longkang. Shhh... Best wishes, AK
As REITs will always be relevant to the income investor, I have been thinking of how best to increase my investment in REITs again in an environment of increasing interest rates and I decided I should choose REITs which have a better plan or chance to improve their income. Hedging interest rate risk is very well and good but this only kicks the can down the road because sooner or later, higher interest rates will hit home.
So, having the ability to increase income is still key as to whether a REIT will do well with interest rates increasing over time. Very importantly, I also decided that it is probably a good idea to diversify more geographically and to reduce my portfolio's reliance on Singapore. Remember I said this in a recent blog post on Sabana REIT? However, things will get even more challenging for REITs from here on with interest rates expected to rise further. Industrial REITs here are facing an oversupply of space and a malaise in demand. (Source: History with Sabana REIT and current thoughts.)
So, although I like AIMS AMP Capital Industrial REIT (AA REIT), for example, last month, I decided to initiate a position at 92.5c a unit in Frasers L&I Trust (FLT) which owns logistics and industrial properties in Australia.
The IPO price was 89c a unit and, to be honest, I was waiting for the price to come down from there before buying some. This was because although there are many things to like about FLT, the distribution yield was on the low side for an industrial REIT. Unfortunately, the decline I had hoped for did not happen.
So, although FLT's distribution yield of 7+% doesn't seem very attractive when compared to AA REIT's 8+%, I decided that there are enough positive factors such as relatively low gearing and a portfolio of mostly freehold properties in Australia for me to invest in the REIT.
(30 November 2016)
Of course, regular readers would know that although AA REIT has been a fantastic investment for income for me and is likely to remain decent, apart from the challenging leasing situation in Singapore, I am also unwilling to add to my already rather significant investment in the REIT.
Other than FLT, I have another new investment in my portfolio. Again, this has a portfolio of real estate outside of Singapore. Some readers might remember that I have been waiting for a chance to get into CapitaMall Trust (CMT). I remember I spent quite a bit of time blogging about it once upon a time: here.
However, from then till now, CMT's unit price did not decline enough to be persuasive, I feel. Translation: AK is "giam siap" and wants to buy at a much lower price. What? You need a translation for "giam siap"? I blur.
After much consideration, I accepted the offer from Mr. Market to invest in Capita Retail China Trust (CRCT) instead, paying $1.40 a unit. Just a few months ago in September 2016, CRCT hit a high of $1.66 a unit.
Why the big decline in unit price? It was probably due to a 10.6% drop in DPU, year on year. A new tax in Beijing and a weaker RMB were the reasons. NAV also declined by almost 12% to $1.56 per unit. Offering a higher yield than CMT even now and having ownership of a portfolio of shopping malls in a market with arguably more room for growth (in terms of organised retail activity) than Singapore's, I decided CRCT is probably worth investing in.
After all, a 10.6% decline in DPU doesn't warrant an almost 15.6% decline in unit price unless we are expecting a more severe decline in DPU. In fact, I think that DPU should recover somewhat as CRCT's non-Beijing malls could pick up the slack over the course of the year.
Having said this, I am reminded of a longer term risk, that land lease in China is typically 50 years and that could explain why Mr. Market demands a higher distribution yield for a retail REIT in China compared to one in Singapore.
I do not know if, like in Hong Kong, land lease could be renewed easily. This is one risk to bear in mind if we choose to invest in CRCT.
(September 2016.)
Another risk we should be aware of is financial in nature. CRCT's loans are mostly S$ loans but its income and valuations are in RMB. This arrangement is similar to Lippo Malls' and I blogged about it before (See blog: here). A decline in RMB against the S$ could see both gearing and interest expense affected in a bad way.
Although I have said that CRCT would likely see income increasing over time, this is going to be a gradual process. So, to be prudent, I am keeping my investment in CRCT relatively small.
As CRCT distributes income half yearly, I will be receiving DPU of 2.37c (4Q2016) and 2.36c (3Q2016) for a total of 4.73c in March. Annualising the DPU gives me a distribution yield of 6.75%.
Again, why did I choose to invest in FLT and CRCT in an environment of rising interest rate which would impact their cost of doing business eventually? You blur? I also blur.
Chinese New Year is a time of family bonding, catching up with friends and also gossiping. What? Gossiping is not a Chinese New Year tradition? Alamak. Oh, it is something we do daily? OK lor. Since this is the Year of the Chicken (What? Not Chicken? Is Rooster? Rooster is not a Chicken meh?), I present to you "A tale of two HDB flats" by Darles Chickens.
Gossip Tale #1
A: Charlie's family sold their 5 room flat. B: Aiyoh, why like that? Bad times need money har?
A: They downgraded to a 3 room flat and they no longer have a home loan to worry about. Fully paid. B: Wah! Quite smart hor? Gossip Tale #2 X: You know Dickens from our primary school class? I met him recently. Y: Oh, what happened to him? X: His family upgraded from 3 room to 5 room flat already, you know? Y: Wah! Must be doing well! X: He says now they are stuck with a big loan and he must help to pay. Y: Why like that?
X: Actually, when they sold their old flat, they could have paid for the new flat in full. Their old flat sold for very good price. Y: What happened to the money?
X: His parents took a home loan for the new flat and spent the money from selling the old flat. You think this tale can become classic like Charles Dickens' novel or not? Alamak! Who threw a shoe at me? Who? Who?
Reader:
"Hi, I found out abt ur blog thru Remove Sabana Mgr fb grp. Thks for sharing CNY video from Gardenia. I din know abt QAF. What is ur ave price? Do u think this $1.41 is gd to enter?" AK:
"What is my average price for QAF Limited? Is $1.41 a good entry price? Alamak! I am not a guru and I just anyhow do valuation. You have been warned. Er, I anyhow talk to myself in my blog later."
OK, I start talking to myself now. What is my average price? I don't know. I have never bothered to find out. I could but I just don't bother. AK is lazy. Regular readers know I don't care about average prices. I do know I have been a QAF shareholder for many years and I first bought some shares at 60+ cents a share donkey years ago because I wanted to eat free bread. Mental? Must be. Is $1.41 a good price to enter? I don't know about price but I probably can say something about value.
Q2 2016 EPS was 5.1c. Q1 2016 EPS was 2.9c. (Hyperlinked. Click on above links to read quarterly announcements.) So, for first 9 months of 2016, total EPS was 11.4c. To put things in perspective, full year 2015 EPS was 9.4c. So, buying more at $1.03 a share in 1H 2016 meant paying a PER of under 11x. Yes, that was the last time I bought more QAF shares. Now, with only 9 months worth of earnings in 2016 (i.e. 11.4c a share), assuming Q4 does not turn in a loss and we have zero earnings in Q4, 11x PER would give me a price of $1.25 a share or so. If Q4 were to turn in pretty decent earnings which I think it would, of course, based on 11x PER, the price should be higher. If Q4 turns in an EPS of 3c, I would get a price of $1.58, for example. Now, for a dash of excitement, if I remember correctly, when Mr. Market was feeling a bit happier in the past, QAF Limited was valued at about 14x PER which would give us a share price of almost $1.60 a share based on EPS of 11.4c (i.e. with no contribution in Q4). What if we were to add EPS from Q4? 3c EPS in Q4 maybe? That would give us $2.02 a share at 14x PER. OK, I am beginning to talk nonsense. What? Will it happen? Alamak, don't ask me things about the future. I don't know. I will say that getting in at $1.41 a share with the thought that share price is probably going higher in the next few weeks or months has a strong speculative flavour. There is nothing wrong with a bit of speculation, I always say, if sized properly. Now, seriously, go read the quarterly reports for yourself and see why earnings went up as much as they did. Don't just eavesdrop. AK is mental. Remember? ----------------------------- Added 7.55PM (31 Jan 17):
Recently, I had a blog on three attributes of a wealthy peasant. Prudence. Pragmatism. Patience.
We don't have to be smart and we don't have to make a lot of money to become wealthier. However, we should be prudent, pragmatic and patient if we want to become wealthier. (See related post #1 at the end of this blog.) Charlie Munger certainly thinks it is a no-brainer and so do I.
Tax deferred account? In Singapore, we have the SRS but try to take full advantage of the CPF first. I like to think that I have been prudent, pragmatic and patient in the last 20 years.
See related post #2 at the end of this blog.
Yes, at the ripe old age of 45, I am showing off my CPF savings graphically.
Of course, I have always said not to use me as a benchmark because all of us have different circumstances in life. If we have done the best, given our situation, that is good enough. Finally, remember, I always say that a bit of luck doesn't hurt and I have said many times before that I have been mostly lucky in life.
See related post #3 at the end of this blog.
Very happy to share the good luck with all who read my blog. Don't say that we cannot be rich because we are not smart and don't make a lot of money. We don't have to be smart to be rich!
How are you? One year ago i've start following your blog and chatting with you via FB as well. I got so much things to share and update you. After completed my private degree, i have changed a job and income increased from 2.4k to 3k. Some of my friends are still earning more than me. i was so stressful to keep up with the market and expenses. But thanks to AK's Blog, everything is under control. Well, i have been doing my financial planning constantly for the past one year. i set my own personal goals. Firstly, i have already got all the necessary insurance covered and building my Emergency Fund, transferring all my OA to SA, note down all my extra expense every month and everything is keep track down BLACK and White in EXCEL. Like i said, i feel my full time job 3k is so insufficient, hence be like AK, do more part time job. i took up part time job working in the Gym. As my Full time belongs to shift work, i try to slot myself whenever i can to earn extra cash. All my friends asked, "Not tired meh?". Of course my respond was, "Its Damn tiring, Dying!". I have reduced free time to hang out with friends for movie and stuff. But well, i start saving even more. I re-contract latest Iphone 7 and sell away for extra $800 cash into my pocket. I went to keep fit and train for my 2.4km run and take ippt for extra $500 cash into my pocket. I have completed half of my NS ICT milestone and rewarded with $3k CPF OA and $2k MA. Happy! So after talking so long, what did i gain from 2016 to 2017? I attached my CPF statement for your reference. I realised the 4% interest in SA is IMPT when i've WITNESS and received what Government is rewarding us.
A, B, C, D, E! Wow, more than AK! He is enjoying an interest rate of 5% per annum for his CPF savings too!
Additionally, now i have 10k saving in my OCBC saving account. i know it's still so little but i challenge myself to target hit 26k by end of Dec 2017. i shared with my friends and they thought i must be CRAZY. Earn 3k monthly, after cpf 2.4k, how to save 16k within 12 months? Don't worry, i got my plans. I will update you next year on this. And i will start planning investment on REITs next year once i fulfil my E-fund of 26k. Lastly, Wishing you good health and a Happy Chinese New Year ahead. AK Warmest Regards S This young man emanates positive energy and determination. I won't be surprised if he ends up saving more than $16K this year!
Watch this one! Very funny one! Don't watch will ai one one!
Once again, I peer into my mental bowling ball. Eh, you don't know my bowling ball thinks it is a crystal ball? It is mental. I am not mental, I tell you. My bowling ball is the one that is mental. You believe me? OK, you must be new to my blog. Now, seriously, there was a year when my bowling ball coughed up 4 numbers and some readers had a windfall. Which year was that? I cannot remember. Maybe, somebody will tell us.
What about this year? You asking me? If I say not to ask me what the stock market is going to be like tomorrow, what can I tell you about the 4D results tomorrow? You must be mental. Ahem.
Cough. 8. Cough. 9. Cough. 6. Cough. 3. That was my bowling ball coughing. Not me. Ahem. QAF shareholders must watch the following video. If you are not a QAF shareholder, watch also lah. Maybe, you become shareholder leh. Ahem.
May theYear of the Chicken Phoenixbring good luck to everyone! Huat ah! -------------------------------- Added 10.33 PM (29 Jan 17)
The last time I had a substantial blog on Sabana REIT was in October 2015. It was titled "Sabana REIT: What is a fair price and what could they do?" Actually, I thought I would never have another substantial blog on the REIT again but a rights issue happened. Never say never, as the saying goes.
Despite all the bad stuff that we have heard about Sabana REIT and, yes, I contributed to the noise too, it is reasonable to think that all investments are good at the right price. I try to keep an open mind (and hope that not too much rubbish gets in). Anyway, it is no secret that Sabana REIT was, once upon a time, a very big investment in my portfolio. It was one of my big 5 investments in S-REITs. When I first invested in the REIT, it was in the pink of health and not ailing like it is today. I didn't get in at its IPO because it was priced at $1.05 a unit and its NAV was 99c a unit. I got in a few months later at 11% lower than its IPO price which meant I got in at a discount to NAV and also with a higher distribution yield of about 9.3%. Gearing was a conservative 26.5%. (See related post #1 at the end of this blog.)
I was, honestly, waiting for a chance to accumulate Sabana REIT on further weakness as the numbers were good. That chance came a few months later in the form of the Fiscal Cliff in the USA. I increased my investment in the REIT, paying 88c and lower per unit which meant getting a higher distribution yield and an even bigger discount to NAV. (See related post #2 at the end of this blog.) This was in 2011.
Two years later, I remember UOB KayHian was particularly bullish in 2013 and had a target price of $1.30 for Sabana REIT. By that time, I had turned cautious although I was enjoying a distribution yield on cost of between 10.3% to 11.1%. In fact, at that time, I said this:
(See related post #3)
Months after they bought a half empty building, I reduced my stake in Sabana REIT. This was in late 2013. I was channeling funds into Croesus Retail Trust instead. (See related post #4 at the end of this blog.)
In the next 6 months after that, I reduced my investment in Sabana REIT by more than 90%. Innotek Limited was going to divest 15 million units. Gearing level had shot up. DPU had declined. Interest cover ratio had declined.
These were things that set alarm bells ringing in my head and I published a blog listing a total of 7 weaknesses and uncertainties in Sabana REIT. (See related post #5 at the end of this blog.)
Sabana REIT's condition got worse over time and its unit price drifted lower and lower. It was like watching a patient in a hospice wasting away. As I did not overpay for my investment in Sabana REIT, I enjoyed a double digit distribution yield for about 3 years. I also enjoyed a decent capital gain of about 11% on the units which I sold.
Less than 10% of my original investment remained and it was practically free of cost and still generating an income for me (although a shrinking one). So, you can imagine why I was pretty ZEN when the REIT announced the recent rights issue. 42 rights units for every 100 existing units and at 25.8c per rights unit. That sounds OK, I thought.
Of course, for many other shareholders, it wasn't OK. That was the straw that broke the camel's back for them but that is another story for someone else to tell. (See link to the article in The Straits Times at the end of this blog.)
I took up my entitlement and also applied for excess rights. I figured that, post rights issue and the proposed acquisitions, the REIT would probably be able to offer a DPU of around 3.5c. At 25.8c per unit, that is a distribution yield of 13.5%. Pretty attractive. However, things will get even more challenging for REITs from here on with interest rates expected to rise further. Industrial REITs here are facing an oversupply of space and a malaise in demand. That Sabana REIT is arguably the weakest performing industrial S-REIT does not inspire confidence.
It is natural to wonder if Sabana REIT could see a big decline in DPU again this year, dilution from rights issue not withstanding.
This is, of course, speculative but assuming a decline of about 30% in rental income in the next year or two which is plenty, we could be looking at a DPU of 2.5c then. This does not even consider the increase in finance expense from expected hikes in interest rate. Given this possibly next to worst case scenario, I was not interested in increasing exposure even at 34c a unit when the REIT saw its unit price plunged upon going XR. However, at 25.8c a unit, a reduced DPU of 2.5c would translate into a yield of about 9.7%. Good enough? I think so. At 25.8c a unit, I believe, there is probably sufficient margin of safety to increase my investment in Sabana REIT. I also listened to the more cynical side of me which believed that the rights were probably priced at a level at which the sponsor would not lose money.
Conditions have to be extremely depressing and the management must be more incompetent than incompetent for investors (and the sponsor) to lose money at 25.8c a unit, all else remaining equal.
In terms of value, as a percentage of my total investment portfolio, post rights issue, Sabana REIT remains relatively small at less than 2%, a far cry from the days when it was as big an investment as AIMS AMP Capital Industrial REIT which accounts for about 20% of my investment portfolio today. When we contrast Sabana REIT against AIMS AMP Capital Industrial REIT, the difference in performance is stark. (If you are unfamiliar with AIMS AMP Capital Industrial REIT, see my recent update: here.)
With money made in the past and a significantly smaller exposure even after the recent rights issue, it becomes easier to understand why I am not losing sleep over Sabana REIT's terrible performance. When I was added recently to a Facebook group made up of shareholders who want to remove Sabana REIT's manager, I could feel their anger and pain. Beyond the buzz, however, it would be good to learn something from this. Hence, this blog.
Many readers write to me asking for advice on certain stocks which they hold or are thinking of investing in. They are usually disappointed by my response. Why? I also don't know. Disappointed by my answer? OK, I gave the correct answer. Today, a reader wrote to me about a business which I actually have a stake in but I am sure he was disappointed by my response too.
AK says: I don't have anything constructive to say about International Healthway Corporation (IHC) but I can tell you a story. I have a handful of stocks in my investment portfolio which I don't monitor anymore for various reasons. There is one stock which I did not monitor at all from the day I got it and that stock is IHC. I vaguely remember being given some IHC shares because I am a Healthway Medical shareholder. I vaguely remember that my Healthway Medical shares were free of charge. Bonus shares or something. So, there was little incentive for me to monitor the business performance as, by 2011, I retained a rather tiny investment in Healthway Medical, having sold the bulk of my investment by middle of 2010. (See related post.)
To be honest, I was a more active trader in those days. I got in at about 10c a share and I almost doubled my money as I sold on the way up. From 10c, just a 1c increase was a 10% gain. It went all the way to 21c a share. What is the moral of the story? Is it about position sizing? Is it about knowing our motivations? Is it about knowing when to sell? I blur. Related post: Healthway Medical: Target 20c.
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