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.

SG BONUS for all Singaporeans.

I received an SMS earlier today to say that I am getting a $200 red packet.

Wow! There is such a thing as a free lunch, after all!

Actually, $200 could probably buy me lunch 50 times over!

What am I talking about?

SG BONUS, of course.

Eligible Singaporeans will get a minimum of $100.

How much we get depends on our income in 2016 (YA 2017).

See the table here:

All eligible Singaporeans will be paid by end of this year.

Now, if only income in 2017 (YA 2018) was used instead, then, I would get $100 more and could include some ice cream for lunch.

I was still doing some part time work in 2016.

A short video on Budget 2018:

If you are a Singaporean and have yet to receive notification, you can use your SingPass to check online as to how much you will be getting.

Check with your SingPass: 

HERE. 

3Q 2018 passive income (non-REITs): Conclusion.

Many things happened in 3Q 2018 in the non-REITs space for me.

Mr. Market made me many attractive offers and I was hard pressed to take advantage of all of them in a meaningful manner.

This is why having a war chest, big or small, matters.

Without a war chest, we would not be able to take advantage of Mr. Market's pessimism.

Even with a war chest, we would have to decide how to allocate our limited funds.





So, what did I do?

If you have not read the earlier 7 parts by now, here are the links:

1. Centurion.

2. RHT.

3. WILMAR.

4. SingTel and CDG.

5. Accordia Golf Trust.

6. QAF.

7. APTT.





Please remember that I am just talking to myself, as usual.

What works for me might not work for you.

Remember not to bite off more than you can chew which means

1. Don't use money you should not be using to invest with

and

2. Don't invest so much money that you worry all the time.





Investing for income will help us become financially stronger over time.

However, we should pace ourselves and not throw caution to the winds.

So, how much passive income did I receive from non-REITs in 3Q 2018?

3Q 2018 passive income from non-REITs:

S$ 33,924.70






It works out to be about $11,308.00 worth of passive income a month.

Some might find this figure too lofty an achievement.

Just remember that Rome was not built in a day and not all of us need to live in a big city like Rome. ;)

If AK can do it, so can you!

3Q 2018 passive income (non-REITs): APTT.

In August 2018, I also received questions about APTT as its unit price plunged.

In one way or another, I was asked whether I was buying APTT again like I did when its unit price plunged in the past.

Regular readers might remember that I said APTT's 6.5c DPU was unsustainable and a more realistic DPU was 4c.





When I bought more APTT in the past, it was based on what I thought a reasonable and sustainable DPU would look like.

The purchase was not premised on what APTT was distributing at that point in time.

Please keep this in mine as I continue talking to myself.





Although APTT's very high debt level and the fact that they are running a deficit is worrisome, again, I remind myself that all investments are good at the right price.

The last time I bought into APTT, my premise was a realistic distribution yield of around 10.5% based on a sustainable DPU of 4c.

If we were to consider the higher risk that comes with an environment of rising interest rate, shaving 10% off what I thought was a more sustainable DPU then is not unreasonable, given APTT's highly indebted nature.

Now, a DPU of 3.6c is surely more sustainable.





Then, if we were to demand the same 10.5% yield like before, we would only be buyers at about 33.5c a piece (or lower).

Therefore, I wasn't interested in buying APTT in August 2018 as I didn't think it was priced attractively enough.

I also had a feeling that APTT's unit price might drift lower upon going XD as Mr. Market was feeling rather pessimistic.

Finally, weeks later, in late September, I took a bite of APTT.





If I didn't have anything else to invest in, I would have taken a bigger bite as I believe closer to 30c a piece, APTT compensates me sufficiently for the risk I am taking.

Having said this, everything else being equal, I would probably be accumulating APTT if Mr. Market should make me even better offers in future.

APTT is not going to implode anytime soon.

A safer distribution yield in excess of 10.5% is rather difficult to ignore.

3Q 2018 passive income (non-REITs): QAF.

In 3Q 2018, I also received questions from readers on QAF and they were similar to this comment from 9 August 2018:

Reader said...

at the current price weakness and offering a dividend yield of almost 6%, will u still considering nibbling??


AK said...

QAF is now trading at a discount to NAV and there is also some insider buying activity.

I would buy some if I weren't already invested and if I didn't have other investments that are tempting me to buy more as well. ;)







Revenue and earnings have been declining at QAF as they face rather challenging conditions.

They are spending more on advertising to defend their bakery business while their pork business in Australia continues to face oversupply pressure.

Having said this, QAF is rather conservative and has a pretty strong balance sheet.

Although I feel that QAF is still able to sustain a DPS of 4c or even 5c based on the strength of their balance sheet while waiting for improvement, I am prepared for a lower DPS which is probably a prudent thing to have.





Although tempted to add to my investment in QAF, with limited resources, I decided that other investment opportunities in many ways were more attractive in 3Q 2018.

For example, both from an earnings and relative dividend sustainability perspective, Centurion is more attractive.

Another example, from a discount to NAV and prospective dividend yield perspective, Accordia Golf Trust is much more attractive.

However, if Mr. Market is to become even more pessimistic about QAF, all else being equal, I might buy some.

3Q 2018 passive income (non-REITs): AGT.

Some might remember that I reduced my investment in Accordia Golf Trust many moons ago at slightly more than 70c a share.

Since then, Accordia Golf Trust has seen its unit price gone down a slippery slope.

It finally got to a point where I just had to hit the "accumulate" button.

I remember sharing before but I just cannot remember was it here in my blog or during an "Evening with AK and friends" that my own research (with the help of Google Translate) found that PGM, Japan's second largest golf course operator at that time, made an offer to buy Accordia Golf's assets a couple of years or so before Accordia Golf Trust was listed in Singapore.





PGM's offer back then, roughly, translated to a present day unit price of 56c a share.

The offer was rejected by Accordia as being too low then.

Of course, we know that Accordia Golf Trust listed in Singapore later at a much higher price of 97c a unit.

With this in mind, I simply could not resist buying at a price that Accordia Golf's shareholders rejected as being too low or at more than 30% discount to its NAV.





Putting this figure in perspective, a more recent development was the sale of Accordia Golf Trust's parent to MBK, a Korean private equity firm, in a deal that valued the parent at a whopping 60% premium to NAV!

If we give this a moment to sink in, it would seem that Accordia Golf Trust has been hugely undervalued by Mr. Market.

It reminds me of the time when Saizen REIT was able to sell its assets at a premium to valuation.

It reminds me of the time Croesus Retail Trust was sold at a premium to valuation.

To be sure, income investors should be concerned with the stability of Accordia Golf Trust's income distribution as it still has quite a bit of membership deposits which have yet to be claimed.





By my estimate, if redemption remains elevated as seen in the last financial year, DPU could stay at about 3.8c to 4.0c a year and it could take about 5 years for this to be fully purged from AGT's books, all else being equal.

Of course, if redemption should be even higher in some years, DPU could be even lower and if redemption is lower, DPU could be higher but, eventually, membership deposits should be fully redeemed.

This matter of membership deposits is a legacy issue and once they have been fully redeemed, it will no longer be a drag on AGT's DPU but, realistically, it would take some time before this issue is all in the past.






Some might remember that I put forth one reason for reducing my investment in Accordia Golf Trust late last year as the worrisome uncertainty surrounding its loans.

However, they have since managed to refinance their debt with a new 5 year loan and with a lower interest rate to boot.

This is very good news, of course, and has provided me with the confidence to accumulate as Mr. Market remains pessimistic about AGT.





There is intrinsic value in Accordia Golf Trust and once all the membership deposits have been redeemed, all else remaining equal, we could see DPU at around 6c or higher again.

I think a prospective distribution yield in excess of 10% is pretty attractive, especially when we remember that AGT's gearing is relatively low.

We just have to make sure we pay a low enough unit price for AGT.

Sometimes, I forget but I try to remember what Buffett said before:

"Have the purchase price be so attractive that even a mediocre sale gives good results."





The advantage of being a retail investor and not a fund manager is that we only have to account to ourselves.

Unlike fund managers, we don't have to worry about dealing with investors who might only be interested in seeing their investment increasing in unit price, quarter to quarter.

Our actions are not motivated by a need to appease other investors.

In this respect, retail investors are a fortunate bunch and we should not forget this.

However, remember not to ask barbers if we need a haircut and, of course, nobody cares more about our money than we do.





I remind myself from time to time that all investments are good at the right price.

Once I have identified an undervalued investment, and it should preferably pay a meaningful dividend, I buy some.

So, what did I do?

I bought more Accordia Golf Trust at between 52 to 54 cents a piece recently.

Now, all I have to do is sit back, relax and get paid while I wait.

Well, if Mr. Market makes me even better offers, I would probably be buying more.

3Q 2018 passive income (non-REITs): SingTel and CDG.

Deciding that Mr. Market was probably overly pessimistic, I added to my already very significant investment in SingTel as its share price sank below $3.10 again sometime in 3Q 2018.

The business environment has become more challenging for telcos, no doubt.

However, we have to remind ourselves that telecommunications companies are not all equally vulnerable.






Experience tells me that in any sector that is facing challenging conditions, 

1. entities which are sectoral leaders 

and 

2. entities which have strong balance sheets 

will most likely prevail and SingTel is that entity here.

SingTel's dividend yield expanded as its share price declined.







With a strong balance sheet, SingTel is committed to paying a meaningful dividend.

SingTel is very much aware of the challenges to its businesses and is very much in the process of transformation to stay relevant.

To be quite realistic, however, if the transformation takes longer than two years to make a more significant contribution to earnings, we could see DPS being reduced to 15c.

Whether this makes sense to the income investor in us would depend on the dividend yield we demand from an entity like SingTel.






Of course, this would help us to determine our desired entry prices.

When to buy?

You decide.

Regular readers know that I like being paid while I wait.

While waiting for improvement, I am quite happy to receive a near 5% dividend yield or more.

So, I would be quite happy to accumulate SingTel if Mr. Market should go into another depression.







Next, Mr. Market's pessimism also gave me the opportunity to add to my investment in ComfortDelgro as its share price fell closer to $2.20 again in 3Q 2018.

Regular readers would remember $2.20 as the support I identified in the event of a decline in CDG's share price and how I bought some at that price in 2Q 2018 too.

On the chart, the rising 200 days moving average was also approximating $2.20 and I thought it should strengthen the support I identified.





I like to think that I know ComfortDelgro a bit better than before and simply bought more at a price I would not sell at.

Buy at prices we would not sell at.

Sell at prices we would not buy at.

I believe although we might not get it right all the time, we should get it right most of the time if we bear this in mind.

3Q 2018 passive income (non-REITs): WILMAR.

Another business I increased exposure to in 3Q 2018 was Wilmar.

As its share price went under $3.00, I simply had to buy some.

At that price, I believe Wilmar was very undervalued and based simply on NAV per share, it was.





If the constant buying by insiders as the share price declined was anything to go by, I am in good company.

When the soft commodity cycle turns up again and it is just a matter of time when it does, Wilmar will be a major beneficiary.

Apart from this, I am also waiting for the listing of Wilmar's Chinese business in 2019 which would probably help to unlock some of Wilmar's true value which has gone unappreciated by Mr. Market.





Wilmar has become a more valuable company over the years on a per share basis but its share price has languished.

Still growing, it will become even more valuable in future and any further weakness in its share price is an opportunity to accumulate.

I believe that patient shareholders will be well rewarded with higher dividends in time to come when CAPEX finally tapers off.

Then, capital gains would logically follow.

Of course, I don't know when this is going to happen.

However, being paid while I wait makes patience more affordable.

3Q 2018 passive income (non-REITs): RHT.

In 3Q 2018, I also added to my investment in RHT Health Trust at 72c a unit when Mr. Market got the jitters and the unit price plunged.

The reason for a nervous Mr. Market could be due a cautionary note issued by RHT's external auditors on its weak balance sheet.

I received messages from readers and my reply to each and every one was more or less the same.

"The cautionary note really was not saying anything new nor was it earth shattering."

If we sell simply because the share price is declining and we are fearful, that is probably a bad reason.

Warren Buffett said the dumbest reason to buy something is because the price has gone up.

Probably, the dumbest reason to sell something is because the price has gone down.

If we sell because we think that RHT cannot continue as a going concern just because of the cautionary note from the auditors, that is probably a bad reason too.





However, if we sell because we think that RHT could not reasonably be expected to refinance their debt, that is a good reason.

I didn't happen to think that way.

Anyway, peace of mind is priceless.

So, although we should have mental fortitude and the right attitude as investors, we should do what gives us peace of mind.







In late August, RHT announced that sale of its assets to its parent would go on.

After repayment of external borrowings, estimated net consideration per unit would be 82.5c.

Unitholders expected to receive about 76.6c per unit. (See comments section for more on this.)

The proceeds will help to replenish my war chest.

Watch video: 
"Malaysia's IHH Healthcare Wins Fortis Bid At Rs 170 Per Share."






See:
1. Disposal of entire asset portfolio.
2. Results of EGM held on 26 Sep 18.

3Q 2018 passive income (non-REITs): Centurion.

In 3Q 2018, I decided on many things in the non-REIT space and this will be the first in a series of blogs on my decisions.

Several times in 3Q 2018, I managed to add to my investment in Centurion as its price declined closer to 40c a share.

It is my belief that a dividend of 2c a share is sustainable because it represents a payout ratio of only around 50%.





Centurions's cash flow also remains strong and relatively predictable.

An almost 5% dividend yield from a business run by a savvy management with a good track record is comforting.

Throw in a strong potential to grow further and the investment is even more attractive to me.

Then, plus a big discount to NAV, at closer to 40c a piece, Centurion became a very compelling investment for both income and growth to me.





Centurion's insiders probably agree if the insider buying activity is anything to go by.

Insiders bought more in the months before I decided to increase my investment in the business.

They paid higher prices to add to their stake.

I paid lower prices to add to mine.

That makes me happy.

Should NSF invest $30k savings and pay $4k a year for insurance?

Reader says...

I am a fairly new reader on your blog.

I am thankful that you are sharing your knowledge, and at the same time I have a few questions that I would like to seek your opinion on.

I am currently serving NS.

I have been working part time since 18 and have a saved up 30K which I am planning to use for my university fee (Private).






I am not sure whether I should invest with the amount of money that I currently have or just leave it untouched as it is money that I would require in the coming years (approx.1-2 years).

I am also currently spending $4000 a year on an insurance saving plan (25 year plan, 10 years of paying).

I will have to commit to it for another 8 years before I can stop paying, after reading up I have found out that it is not a wise decision to continue, however cancelling the plan now would only ensure me a value of 1k++ returned.

Thus I am unsure if I should or should not continue with it as the whole plan last for 25 years.

AK says...

Welcome to my blog. 🙂

I will never invest with money which I will need in the near future.

As for insurance, my preference is to buy term and invest the rest.

However, an insurance savings plan can be good for people who do not want to bother with investing themselves but would rather let someone else do it for them.

(Then, you are basically treating it as a pseudo bond component of your investment portfolio.)

You decide. 😉







Related posts:
1. Invest with peace of mind.
2. Financial security plain and simple.

Unhappy with CPF and angry with AK. (Alamak! Why you so like that?)

Whenever I blog about the CPF, I must be prepared for some debate and it happened again last night.

I always welcome debates as long as they are civil and constructive.

Please don't be rude.

Don't tell people to get a rope and hang themselves, for example.

I am so sorry to have caused the reader so much angst. :(

Since following my blog upsets him, I will do him a big favor by blocking him.

I don't usually block or ban readers from my FB page.

If I did it to you, you must have been pretty bad.

Don't follow my blog.

Don't worry. Be happy. :D





I am glad to share an example of a civil debate with another reader here.

Reader says... 
Our CPF removes choice. 

One may suddenly need money for some valid reason eg temporary retrenchment but one will not be allowed to take out even a small sum to meet daily needs. 

Malaysia's EPF and Singapore's CPF have some good aspects. 

EPF is like a bank which allows withdrawal of money when needed but the same bank tells CPF subscriber that no money can be released whatever the need however urgent.

Would you put your hard earned cash in such a bank for it to dole out paltry sums now and then saying its looking after your money for old age?

While CPF is good , it needs a little flexibility in disbursement of funds which after all belong to the subscriber.

What use are better returns when one cannot enjoy them at will and perhaps will only be given to your nominee on your demise?






AK says...

In reply to: "Would you put your hard earned cash in such a bank for it to dole out paltry sums now and then saying its looking after your money for old age?"

Such a comparison is misleading.

I think we have to be clear what the CPF is. 

CPF isn't a bank although we can use it like one when we turn 55 if we have the FRS in the CPF-RA then.

For people who do not even have the FRS (or BRS) in their CPF accounts and wish to draw upon their CPF savings whenever they have a financial bottleneck, they need to do serious financial planning pronto.

Also, CPF LIFE is not a bank that doles out a paltry sum.

The comparison is again misleading.

Once your savings in a bank runs out, you are out but not with the CPF LIFE which pays you for life.





In reply to: "What use are better returns when one cannot enjoy them at will and perhaps will only be given to your nominee on your demise?"

It is precisely this type of thinking that leads to "Return Our CPF" rallies in Hong Lim Park.

Many people who supported the rallies had very little savings and yet they wanted to utilise their CPF (retirement) savings "to send children to study overseas", "to go on a holiday", "to go on a pilgrimage" etc.

The higher interest rates in our CPF-RA is to help us better fund our retirement and not to be depleted at a whim which is what many would do if given a choice.





See the latest comments in the following blogs:
1. Retirement funding assurance for average investors.
2. When to get a private annuity.
3. Food inflation in Singapore and Malaysia.
4. We do better at managing our savings than CPF does.

Related posts:
1. Crazy Rich Asians or Pragmatic Rich Asians?
2. Use CPF as a savings account.

Crazy Rich Asians or Pragmatic Rich Asians?

I know my blog has some reach beyond the shores of our tiny island nation of Singapore.

Remember how I received a not too glamorous award from a forum in China recently?

See:
Once upon a time in China, Weibo says 铁公鸡AK 还好没结婚!






I would like to share a conversation I had with a reader from Hong Kong some time ago:

Reader says...
Hope you don't mind a guy from H.K. dropping a line.

Indeed I used to stay in Singapore for a few years back 20 years ago.

As far as I know Singaporeans at that time liked luxury items, and home as well of course.

It is kind of having face, isn't it?

Glad to find AK's blog which share a different view from the majority (Forgive me, if this sounds offensive, on my poor English).

Personally I do agree with your mentality but I think You would appear a bit odd in the main stream?






AK says...
I think having face is more important in Asian societies compared to western societies.

I could be wrong but this is from my own observation and Hong Kong is probably the same as Singapore in this respect.

Me? 

I am crazy. ;p

(But not a Crazy Rich Asian hor.)







Reader says...
You are right that face matters in Asian community so does it in H.K. as well.

I am not sure if I still understand Singaporean correctly now but as far as Honkies, I think they are more pragmatic than their counterparts.

I don't say they don't care face but when it comes to money, they prefer money more than face.

People on the street don't put many luxury branded things on them.

I think they like the (saved) money better.





I did find that you guys discussed a lot on financial freedom but don't you guys have the CPF which is supposed to support the post retirement living?

Is it not adequate for the purpose or you guys just want a better than standard living, apart from the possible and unpredictable retrenchment?

Guys, here in H.K. also has a growing concern about financial freedom because our MPF, a copycat of CPF but much less effective, is just a joke.

We really need to be on our own feet after retirement.

No la, you are not crazy at all but just pragmatic and rational.






AK says...
Thank goodness we have the CPF! :)

However, not every CPF member knows how to make good use of it.

For those who know, who are able and willing to, they could have a million dollars in their CPF by the time they retire from active employment.

Enough or not?

That depends on the individual. ;)

A problem with our CPF system is that the government allows members to use their CPF savings for too many things and people forget the primary purpose of the CPF.

More and more CPF members who have used their CPF savings to pay for their homes might find out as they grow older that they might not have enough CPF savings to fund their retirement.






Is it true that Hong Kong people are more pragmatic than Singaporeans?

Do they care more about having money than having face?

I don't know but I know that housing cost is through the roof in Hong Kong and I know that unlike our CPF system, their MPF does not provide a relatively reasonable risk free return.

So, perhaps, this is why they are more worried than Singaporeans about their personal financial health.





I was once told that if we can climb the corporate ladder in Hong Kong successfully, we can do well anywhere in the world because it is that stressful.

I am very fortunate to be a Singaporean and this is one blessing I count all the time.

My fellow Singaporeans, we might not be Crazy Rich Asians but if we do the right things, we will be Pragmatic Rich Asians.

If AK can do it, so can you!






Related posts:
1. If we are not rich, don't act rich.
2. Almost 55, worried about CPF.
3. FRS by age 35 and $1M in CPF.