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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I met three friends for lunch a few days ago. They are all financially free, having sufficient passive income to meet their expenses in life and more. They do not spend time chasing after money now. We talked about a mutual friend of ours who is richer than any of us but seems to be more interested in getting even richer faster, sacrificing what we thought were more important things in life in doing so.
We only need so much money in life. The rest is for showing off. To be financially free, ultimately, is to be free from working for money.
What is the point of having more than enough money but not enough time to live life the way we want to?
Life is too fragile and I decided to be nicer to myself after a series of unfortunate events which happened in the last couple of years.
A friend told me some time ago:
"You worked so hard for financial freedom. You have the resources to do whatever you want to do now. You should." Yesterday, I said something similar to another friend who has achieved financial freedom but still drags himself to work because he thinks he doesn't have enough money. For some, it could one day be a case of having too much money and not enough time.
We should know when we have enough money so that we can have more time.
How Jack Ma sees his retirement?
“When I retired from the CEO position, I told the CEO team (in 2013) I should have more time playing golf on the beach.
“But I find, oh my God, spent 870 hours in the air last year, and this year, 1,000 hours,” said Ma.
“The thing is, I don’t want to die in my office. I want to die on the beach.”
He famously said his “biggest mistake was I made Alibaba”, because of the enormous pressure and responsibility he has had to shoulder to steer the US$420 billion company with more than 86,000 employees.
“I was just trying to do a small business and [not] grow that big, take that many responsibilities and get so much trouble.
“Every day is like being as busy as a president, and I don’t have any power. I don’t have my life,” Ma said. (Source: SCMP)
Japan is rising from recession. Produced by NHK Int'l. In my last blog, we saw that I made some changes in my S-REITs portfolio in 1Q 2017. Regular readers might recall that the quarter also saw some changes in my non-REITs portfolio. I made the following changes to my non-REITs portfolio: 1. Increased my investment in APTT and then sold it within 2 months. See: Sold APTT at higher price.
Eco World, GuocoLand to hold 27% stake each. Quite a few changes, I must say, and, naturally, my cash position is very much lower now. Off the top of my head, cash is probably at less than 20%. More than 80% invested is a big deal to me. It is probably a big deal for any regular retail investor who believes in always having a war chest ready. Unless Mr. Market should throw me prices much lower than the current levels, all else remaining equal, I really wouldn't be adding.
I received income from the following non-REITs in 1Q 2017: 1. Singtel 2. Tai Sin 3. APTT 4. APSF 5. Croesus Total income received from non-REITs, with Croesus Retail Trust being the biggest contributor, in 1Q 2016 is: $13,543.31 This gives me about $4,514 a month.
Together with income received from S-REITs, I suppose 1Q 2017 turned out pretty well.
I get enough to cover all my expenses and more. So, I am able to do voluntary contribution to my CPF account and also put some money in my war chest. Now, back to my game.
"What is the interest rate risk of REIT investments? Interest rates only represent a portion of the overall equation." Time flies. It is time for another quarterly update.
In 1Q 2017, I received income from the following S-REITs: 1. AA REIT
2. First REIT
3. IREIT
4. CRCT
5. Soilbuild REIT
6. Cache Log Trust
7. K-REIT
8. FCOT
9. Suntec REIT
10. LMIR
11. CIT
12. Sabana REIT
My largest investments in the S-REITs universe are still in AA REIT and First REIT. The others are relatively small investments with IREIT and Soilbuild REIT being slightly larger.
In 1Q 2017, I made the following changes to my S-REITs portfolio:
Everything remaining equal, I don't think I will be making new investments or adding to any investment in the S-REITs space. I am pretty comfortable with what I have now.
So, how much income did I receive in 1Q 2017?
$ 21,477.10
This gives me about $7,159.00 a month which is a big reduction from a year ago.
Of course, what is missing is the income distribution from Saizen REIT.
Full year income, although reduced, from S-REITs should still be quite comfortable due to expected contributions from new investments in FLT, CRCT and SGR as well as a larger investment in IREIT. I will be sharing the numbers for investments in non-REITs in my next blog.
This came about because of my comment on Facebook that "There are sponsors who are mainly interested to use their REITs to sell their assets to. REITs are their ATMs."
Reader: Soilbuild owner also use the REIT to sell property right? AK: Must see how it is done. 😉 If sponsor sells property with rental support, usually, it is a sign that the property is overpriced. Reader: hmmm Because I haven't heard many favourable talk about soilbuild owner AK: Oh, neither have I 😜 But if we are on the same side, it is OK. LOL If he hurts me, he hurts himself. 😉 Reader: Haha I thinking just buy in those with solid management at good prices Less headache AK: Now, difficult. So, I settle for good management at OK prices. Or OK management at good prices. 😜 OK management at OK prices, I also take a bit. Reader: Because what I read so far is similar to OUE, soilbuild owner treat the reit as dumping ground to unlock cash AK: Eh... I dun see it leh... They do sell but they dun dump. No financial engineering as compared to OUE or Keppel. Selling does not equal dumping. Reader: Sponsor is weak also AK: OK. If you say that, OUE and Keppel are strong sponsors. 😉 I like to see what they do and decide. Saizen REIT didn't have strong sponsor. Reader: (Some concerns with valuations of assets.) AK: Book value and market value har? The best way of looking at whether valuations are realistic is to look at market prices. When a property like XXXXXX was delisted (together with Soilbuild) many years ago, it was undervalued. Of course, when relisted, they want to list at market value. Reader: haha I more conservative just worried owner play punk if own also carry small position only AK: I think Soilbuild towkay has business savvy but not crooked. Reader: me KIV until better, I also don't like the heavy exposure to O&G AK: I remember the towkay has a 25% stake in the REIT. That is not a small stake. Note:
Although Soilbuild REIT's business parks are attractive assets to own, it is true that their exposure to the O&G sector is a cause for concern.
With Technics going bust, I estimated that 10% of their income is affected. I believe that Mr. Market has priced this in.
If the entire O&G sector goes kaput, I guess that is when we might see Soilbuild REIT being punished by Mr. Market and its unit price could decline another 20%, maybe. This is improbable but possible. Related post: AA REIT, Soilbuild REIT and VIT.
I am going to pre-empt a response to this blog and say that although I am known more as an investor for income, I also invest in stocks which are not for the purist income investor. To my regular readers, this would be quite apparent in many instances. So, by revealing that I bought into Guocoland recently would not surprise them.
Guocoland is a developer with businesses in Singapore, Malaysia, China and Vietnam. They also have some exposure to the U.K. and Australia through a 27% stake in Eco World International, helmed by Mr. Liew Kee Sin who left SP Setia after it was bought out in a hostile takeover in 2014.
Guocoland recently got my attention because of a series of insider buying by Mr. Quek Leng Chan. Of course, I do not know exactly why he was buying but Peter Lynch said if insiders buy, it is usually because they think they will make money from doing so (i.e. the stock is undervalued). Doing more research into Guocoland gave me a second and bigger push to become a shareholder. Being a developer, earnings are lumpy. Most assets are development properties meant for sale.
However, Guocoland is going to see an increase in recurring income and a big increase too. This is in the form of Tanjong Pagar Centre in Singapore and Damansara City in Kuala Lumpur. Guocoland is the majority stakeholder in both projects.
Quite possibly, Guocoland is worth more than what its book value of about $3.00 a share suggests. At $1.85, the discount to NAV is about 38% but if my guess is correct and the RNAV is higher, then, the discount is more than 40%. Do take note that I am no expert in this area and these are just my back of the envelope scribbles. OK, if you must know, I really scribbled on this:
Want to own a piece of prime commercial property in Singapore's CBD? What about Tanjong Pagar Centre at a discount? This gives me a feeling of deja vu because it is similar to Saizen REIT's past situation. If the sale of certain assets at a premium in China and Malaysia by Guocoland in the recent past were good instances to go by, all the assets they are holding now could be worth more.
I like recurring income. I like buying good stuff at a big discount. If Mr. Quek thinks his company stocks are cheap enough for him to buy more at $1.85 a share earlier this year, then, I want in. There has been speculation that Guocoland could be taken private because of the big discount to valuation and the very small float. Mr. Quek's stake is almost 70% of the issued shares.
So, to add a bit of speculative flavor:
GuocoLand rated "buy" at target prices of $2.55. UOB notes that GuocoLand is a potential privatisation play due to its stock trading at a deep discount of 45% to its revalued net asset valuation (RNAV). A low public float of 21% and a high majority-sponsor stake of 68% are also contributing factors.
Of course, I don't know if it is going to happen. Guocoland, like my investments in OUE, Wing Tai and PREH, is more of an asset play with no guarantee that value will be unlocked soon.
So, I have sized my investment in a way that will make patience more affordable. What does this mean? If we are invested in an undervalued business and we are waiting for its value to be realized, it requires patience but we must be able to afford patience. In general, we would be able to afford patience if 1. We are not investing with borrowed funds. 2. We are not investing with funds we need in the near future for other purposes. 3. We are not investing an amount of money that might make us lose sleep at night. Now that I have gotten that reminder out of the way, did I mention that Guocoland has a rather predictable 5c dividend per share every year too?
I like being paid while I wait.
Finally, another word of caution. I did a lot more research into Guocoland than what I am sharing here. Knowing what I know, I decided that I want Guocoland in my portfolio. You should do your own research too.
Reader: u took a look during your site visit? AK: During the tour they gave me🙂 Reader: haha. hard to get the shares cheaply though.
AK: Now, too many people want in. It is now a fair price Today, the price is S$ 1.38 a unit. In early September 2015, I had a chat with another reader who had reservations about investing in AIMS AMP Capital Industrial REIT (AA REIT) for income. See the chat: http://singaporeanstocksinvestor.blogspot.sg/2015/09/a-chit-chat-session-with-ak-on-reits.html What was the unit price back then? $1.35 a unit.
How much income did AA REIT distribute from then to now? 23 Dec 15: 2.8c 23 Mar 16: 2.85c 22 Jun 16: 2.95c 22 Sep 16: 2.75c 22 Dec 16: 2.75c 23 Mar 17: 2.77c Total DPU: 16.87c
Now, don't ask me how much have I received over the years. I am too lazy to find out. Some ask me if this is a good time to invest in the REIT. Basically, they want to know if the REIT's unit price is going to fall in future. They don't want to buy and end up losing money. I would tell them it depends on what they are after.
If they want to invest in real estate for a constant stream of income, AA REIT is a good enough choice. If they are looking for capital appreciation, then, they might want to look elsewhere. Related post: AA REIT levels up.
We work hard to earn money and, being good citizens, those of us who earn more money give a portion of our earned income to our country.
This is why IRAS always thanked me for the contribution towards nation building but not anymore.
Many things have changed in my life. This is another change.
I like to think that I am still contributing towards nation building and although I do not get any tax breaks for donations made to National University of Singapore, I continue to make donations.
To have aged parents is our good fortune. However, they could be a drain on our financial resources if they do not have adequate savings to fund their golden years. Add to this the greater possibility of being stricken by illnesses which require hospitalization or even long term medical care, we could have a very stressful situation on hand.
In recent years, I have been suggesting that we contribute to our parents' CPF accounts. Contributing to their CPF Medisave Accounts (MA) which earns 4% per annum would, in effect, make the government help us grow this contingency fund.
However, my dad's CPF MA has been maxed out. So, this year, for his birthday red packet, although I will be doing a voluntary contribution to his CPF Account, the money will go to his OA and SA instead of his MA.
If my dad's MA is not maxed out, the bulk of the voluntary contribution would go to his MA as he is above 65 years of age. See table below:
With the money going into his OA and SA only, he would earn 2.5% to 4% per annum from this voluntary contribution.
No longer having an earned income means he would be able to withdraw this money anytime he wants although withdrawing only the interest income from his CPF Account, leaving the principal untouched would be a better idea.
Good food and good company = Good celebration. See how we celebrate birthdays: HERE.
Reader: hello AK, just curious and wanting to understand further your thought process on HLS. Would knowing about the bumper dividend have changed your decision? I assume the announcement wasn't made yet when you sold.
AK: Alamak. This is like asking me if I can see the future... Not a meaningful question 😉
Reader: hahahaha clearly I didn't give a good illustration put it another way, how would a bumper dividend + increase in price of a stock influence your decision whether to hold/sell/whatever? Do you consider how long it takes under normal circumstances for yearly dividends to cover the bumper dividend? (eg 4 years of dividends for HLS assuming $0.025 per share, to account for $0.100 bumper dividend)
AK: it is about what we feel is a fair price to pay... some feel that they want to get into HLS even at 60+c and to get the special dividend... I don't think it is a good idea... I think 52c was a fairly good exit price... there is no accounting for prices. If people who buy from me make some money, good for them. I try not to overthink.
I am still holding on to 50% of my original investment in HLS. It has become free of cost and I see myself holding on to this investment for many more years to come. This is just like my investment in OCK which also became free of cost when I sold half of my investment after its share price doubled a few years ago. I won't lose sleep over the fact that their share prices went higher after I sold half of my investment. I made good money and will probably continue to make money from these investments. To me, that is good enough.
If I had a working crystal ball and could see the future accurately, I would not be an investor. I would be a full time TOTO gambler. ;) Anyway, to sleep better at night, we won't be wrong to avoid the phrase: "If only I had known." It has no practical purpose. -------------------------------- Ten Experts On When The Next Recession May Hit, 20 August 2018.
Hi L, If you remember, I have a blog that says unless we are rich, be pragmatic, not romantic. Most of us have to work, exchanging our time and energy for pay. If we are not financially secure, then, we might have to forgo that dream job which does not have a predictable income. Having a predictable income stream provides peace of mind which is priceless. Your passive income stream just about meets your expenses. I don't see much of a buffer but I am usually conservative. Dream job or not, you decide. As for taking risks (in the stock market), there is nothing wrong with taking a bit of risk as long as we size our positions properly. Of course, if you are a speculator, then, sizing is out the window. If you are an investor, then, stay prudent. Which one are you? You decide. The AK way? Be prudent. Be pragmatic. Be patient. Best wishes, AK Always remember, my way might not be your way. What we do depends on what we want to achieve. Related post: Three attributes of a wealthy peasant.
Reader:
Hi AK,
I am glad to chance upon your blog recently and is currentlu busy reading up on the various blog post which is quite informative.
I recently came across a website which was featured in (a popular personal finance blog) which indicates returns of investment up to 14% through P2P lending to SMEs.
I am in the process of checking if these are guaranteed returns which i highly doubt so.
Like to understand more of your view on this.
If we say junk bonds must offer higher coupons to attract lenders because they are risky (think risk of default), for example, Swiber offered a coupon in excess of 7%, what could a 14% coupon from a borrower mean? Aiyoh, headache.
Reader: may I check with you about AIMS AMP. Its DPU for last 2 quarters have been dropping. But you seem very optimistic about it. Do you think things will get better?
AK: Management is very important. There is little they can do about headwinds But you have to compare it against other industrial REITs and you will see it shines
Rather than acquiring more properties to boost DPU, AA REIT focused on extracting maximum value from their assets.
Reader: Oh. How would it fare against soilbuild? AK: Soilbuild had a stroke of bad luck Very unfortunate Reader: The technics offshore company who vacated the place? AK: I like the Biz Parks they own yup Reader: Ok, thank you. Will read more on ur posts of aims amp before deciding AK: Unlike very short lease biz park owned by VIVA in Chai Chee, Soilbuild's biz park have relatively long leases. Reader: Since Keppel D.C. Reit seems unpromising, I might just switch to AA AK: If the management sama sama as Keppel REIT, cham Reader: Yes.... I think I'm quite clueless as a industrial reit investor. When I read the viva report, I was quite impressed by it AK: People tell us good things only Reader: Only heard the other side of the story when I saw your post, even though you kena hantum by that one reader. Haha AK: I should talk less. 😞 Reader: Haha no la. Should talk more. For the greater good May I check if you've written any articles on assessing industrial reits? I mean, I know the usual of NPI, DPU, gearing, occupancy etc. But the short lease part is something that's new (but makes sense) to me AK Er... maybe. I cannot remember liao. Too much talking to myself until I blur. Reader: Haha. It's ok! Thank you. I'll search through your trains of thought via your articles Related posts: 1. AA REIT levels up. 2. VIVA Industrial Trust. 3. Soilbuild REIT.
Just wondering if you are familiar with Keppel DC Reit? I bought into it some time ago, lured in by its 'good potential', but as of last dividend payout, it's one of those cases where NPI went up but DPU dropped by 20%. Not an encouraging sign. But the company presentation said that things will get better because income from its new acquisition will 'kick in' by next payout. However it's hard for me to gauge if it'll make up the 'shortfall' of 20%. Extrapolating from the most recent dividends, its annual yield would be only 4.7%. DBS still rates it as a BUY though. AK:
I don't have this. I avoided. I must say I have not been following developments though.
Reader:
I really didn't like the part where it's NPI went up but DPU dropped 20%. AK: Sounds like another Keppel REIT.
Plain English guide to data centres. For anyone who might be interested, see my one and only blog on Keppel DC REIT (well, not anymore, I guess) and why I avoided investing in it:
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.
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?
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