SembCorp Industries (SCI) investment larger now.

There were a few comments from readers regarding the rights issue by SembMarine (SMM) and also how SembCorp Industries (SCI) would distribute its stake in SMM as dividends to SCI shareholders.

Basically, SMM is issuing rights in a 5 for 1 rights issue priced at 20 cents per rights.

Depending on the response to the rights issue, each SCI shareholder will get between 427 to 491 SMM shares for every 100 SCI shares they hold.

The question some might ask is "how much is each SMM share going to go for after the exercise is over"?

Well, your guess is as good as mine.

If we use the rights issue price of 20c per rights share, getting 427 SMM shares means getting $85.40 worth of shares.

If we were to buy SCI at $1.95 per share today, the implication is that our cost for what is the new SCI is approximately $1.10 per share.






The biggest drag on SCI's performance for so long has been the loss making SMM.

Like I said in reply to a reader recently:

"Things have been bad for oil and gas for way longer than expected and that has impacted SembMarine really badly."

Full comment: HERE.

This exercise has been called a "demerger."

Basically, SCI will divorce SMM while SCI shareholders will become SMM shareholders if they are not already so.

It is like SCI saying to SMM:

"Take the money and get out of my life!"

And maybe SMM should say or sing:

"Do you think I will crumble?

"Do you think I will lay down and die?

"No, no, not I!

"I will survive!"






Anyway, some readers will remember that an important reason why I was attracted to SCI was its utilities business.

In a reply to another reader recently, I said:

"I have a smallish investment in SCI which I am holding onto with the belief that its energy and waste management businesses will remain resilient."

and also:

"With urban (development) being a small component, SCI is more of a utilities company after the whole exercise is over and should be seen as a defensive investment."

Full comment: HERE.

As an investor for income, I like reliable recurring income.

So, after not doing anything to my investment in SCI for a long time, I increased my investment in SCI today.

Upon completion of the exercise, SCI investors can choose to keep their investment in SCI's mainly utilities business and sell their new or enlarged investment in SMM if they so desire.

SMM is still loss making as the environment remains very challenging for oil and gas businesses.

However, those who believe that the oil and gas sector is simply in an extended down cycle should hold on to their investment in SMM while they wait for the cycle to turn back up.






Of course, this blog would not be complete without a comment on SCI as an investment for income.

With loss making SMM out of the way, SCI is likely to be more profitable in future, all else remaining equal.

A DPS of 5c might even be viewed as conservative then.

Even so, at $1.10 a share, a 5c DPS would translate to a dividend yield of about 4.55%.

Of course, depending on the assumptions we make, we would get different results.

However, to be realistic, we could first see a reduction in dividends with the COVID-19 pandemic's negative impact on the global economy.

"Utilities and marine group Sembcorp Industries expects the performance of its energy business to be markedly lower than last year due to reduced demand and falling prices.

"Sembcorp said on Monday (May 18) that while its energy operations continue to be supported by long-term contracts, the impact of the pandemic and the reduction in economic activity amid lockdowns have hit the business.

"Power demand in Singapore, India and Britain declined by about 10 to 25 per cent in April compared with the same month last year, the company noted."

Read full article at: The Straits Times.






I have doubled the size of my smallish investment in SCI today.

I am mindful that although there is an investing for income angle here, there is also a speculative element.

So, I will remain cautious and not throw in everything including the kitchen sink.

For a quick summary of the whole exercise, watch the short video by CNA below.

"Sembcorp Marine unveiled plans to raise S$2.1 billion through a rights issue backed by Sembcorp Industries and Temasek Holdings."

AA REIT, IREIT and Ascott REIT-BT.

In a blog dated 4 April 2020, I talked about my three largest REIT investments.

I blogged about how I viewed them in the past and what I thought of them as the COVID-19 pandemic struck.

AIMS APAC REIT
(formerly AIMS AMP Capital Industrial REIT)

This is, of course, an old timer in my investment portfolio.

My original investment in the REIT has most probably been free of cost for some time by now.

Slightly more than a month after my blog in early April, I added to my investment in the REIT.

I explained why I did that in a blog in early May:

AIMS APAC REIT investment is larger now.

Industrial properties are probably less negatively impacted by the COVID-19 crisis.

Of course, there would still be challenges in a softer economy which would logically lead to negative rental reversions but the demand for industrial space should stay relatively strong.

So, I expect AIMS APAC REIT to continue to generate reasonably meaningful and sustainable income for me.







IREIT Global

I was confident enough to increase my investment in IREIT when I did because I thought a large part of the REIT's income should be ironclad with Deutsche Telekom and Europe’s largest pension fund, Deutsche Rentenversicherung, accounting for more than half of total rental income.

Of course, the question now is whether many more office workers who have been working from home due to lockdowns imposed by the COVID-19 crisis would continue to work from home?

This is a question that might be keeping many office properties landlords awake at night.

If it becomes the norm for office workers to work from home, then, what use are office buildings?

See this article, for example:

Twitter tells employees they can work from home forever.

COVID-19 has forced many changes upon us.

Some changes are new while some changes have been merely accelerated.

I do not know how many more companies out there are going to be like Twitter.

I hope I am right when I say that I do know that IREIT Global's WALE is about 4 years and that the REIT should be a relatively dependable income generator for me in the meantime.






ASCOTT REIT-BT

Amongst my three largest REIT investments, Ascott REIT-BT has to be the least favored now.

It was quite obvious the way I talked about it in the blog of early April I was less sanguine about it than I was about the other two.

Ascott REIT-BT is the only one of the three REITs that I did not increase exposure to.

Logically, businesses in the hospitality sector would be amongst the slowest to recover from the recession caused by the COVID-19 pandemic.

Like PM Lee said in his address to the nation on 7 June 2020,

"We will not be returning to the open and connected global economy we had before anytime soon.

"Movement of people will be more restricted.

"International travel will be much less frequent.

"Health checks and quarantines will become the norm.

"Industries that depend on travel like aviation, hotels and tourism will take a long time to get back on their feet and may never recover fully."






Will there be further reductions in the REIT's DPU due to lower income in future?

Given the very difficult circumstances, it should not surprise investors if it happens.

So, if we are investing for income, Ascott REIT-BT seems to be less attractive and less reliable compared to AA REIT and IREIT, for examples.

Still, Ascott REIT-BT's unit price spiked up in recent trading sessions, probably due to the heightened optimism surrounding the re-opening of economies around the world.

The RSI, a momentum oscillator, shows that Ascott REIT-BT is heavily overbought and that its unit price is testing resistance provided by the declining 100 days EMA which is approximating $1.13.

Taking everything into consideration, I decided to  reduce my exposure to Ascott REIT-BT, selling a big portion of my investment at resistance.

Although my investment in the REIT has reduced in size, I would still benefit if the REIT's unit price continues to move much higher which might prompt me to further reduce exposure.

I hope that Ascott REIT-BT as an investment for income will do much better in the future but, to be realistic, I have prepared myself mentally for a relatively long wait.








Related posts:
1. Largest REIT investments updated (April 2020).
2. The most dangerous crisis and what should we do?

The most dangerous crisis and what should we do?

I didn't plan on blogging but after listening to a story and also watching PM Lee's address to the nation yesterday, I decided to blog.

The story is about how someone's friend is now trying to borrow money from mutual friends since losing his job during this crisis.

We are not talking about borrowing tens or hundreds of dollars either but much more.

It is a story that sounds familiar enough and it reminds me of blogs like these:

1. From rich to broke?

2. If we are not rich, don't act rich.

I won't share the details of the story I just heard.

I wish the person well and that he learns from this painful experience.

A reader once told me this:

3. "Compared to anger and fear, shame is 1000 times worse."





Even with all the measures taken by governments around the world, millions and millions of jobs have been lost.

So, there will probably be many more of such stories as the crisis lingers on.

After all, yesterday, PM Lee said COVID-19 is the most dangerous crisis humanity has faced in a very long time.

He said that we would have to live with COVID-19 for a very long time just like we did with Tuberculosis.

I don't remember the time when Singapore had to live with Tuberculosis for a very long time but my parents do.

Watch PM Lee's address to the nation yesterday here:








Right now, it seems that people on Main Street are very pessimistic as unemployment is high and the economy is in recession.

Right now, it seems that people on Wall Street are very optimistic as the market indices defy gravity.

Right now, as always, AK is saying we should stay pragmatic.

To the people on Main Street, remind ourselves that COVID-19 will pass and things will go back to normal one day.

Don't be too pessimistic and think that the world is ending soon.

To the people on Wall Street, remind ourselves that even though COVID-19 will pass, it will not happen soon and that COVID-19 will be with us for quite some time yet.

Don't be too optimistic and throw caution to the wind.

Be pragmatic.





Singapore has past reserves which we have drawn upon to help weather this crisis.

The Singapore government has given monetary support to all Singaporeans during this crisis.

PM Lee said we have drawn almost $100 billion to fund 4 national budgets to fight this crisis so far which is 20% of our GDP and this is hard to sustain.

So, we should not count on this being done indefinitely.

Of course, as all of us have different circumstances, I doubt that the monetary support from the government is sufficient for everyone.

This is why, if we have been prudent, we should have past reserves too and this is, of course, an emergency fund.

The emergency fund should be enough to fund 6 to 24 months of expenses, depending on our employment prospects.

"We are particularly concerned about those in their 40s or 50s, who are often supporting children and elderly parents at the same time, and have financial commitments to meet." - PM Lee

See:
How big an emergency fund?






In times of need, we would be glad that we have an emergency fund.

PM Lee said that we are fortunate that Singapore has past reserves to draw upon to fund national support measures.

Unlike other countries, we do not have to borrow money to fund these support measures.

The parallel here for us individuals is that banks are fair weather friends.

They are not altruistic institutions whatever their advertisements might say.

We should not depend on credit because it might not be there when we need help the most.

PM Lee said yesterday we have to prepare for a very different future.

"The next few years will be a disruptive and difficult time for all of us." - PM Lee

The difficult time ahead is not just due to the blow to our economy caused by the COVID-19 pandemic but also due to an increasingly less benign attitude towards globalisation.

Being financially prudent and having an adequate emergency fund is more important than ever.




Related post:
Avoiding financial ruin.

COVID-19, ComfortDelgro and the new normal.

This blog is my reply to a reader's question on ComfortDelgro.

My reply:

All types of public transportation businesses are under immense pressure from the crisis created by the COVID-19 pandemic.

The worst hit sub sector is, of course, the airlines as they are heavily leveraged and have enormous CAPEX and OPEX.

The airlines can also be considered less essential compared to land transport businesses.

So, I am reasonably comfortable with holding on to my investment in ComfortDelgro which isn't bleeding as compared to an airline like SIA, for example.

After all, ComfortDelgro is operating essential public transportation businesses and, of course, also VICOM.

Having said this, until a safe and effective vaccine for COVID-19 becomes widely available, we will not see such businesses recovering to pre COVID-19 levels anytime soon as people should be avoiding crowded places as much as possible.






It follows that although ComfortDelgro remains in my portfolio as an investment for income, realistically, I should be prepared for a reduction in income generated from this investment.

If we add to our investment in ComfortDelgro as an investor for income, we have to keep this high probability possibility in mind.

As for whether the current price is a reasonable one to invest in ComfortDelgro, as you probably know, I have avoided answering such questions for a long time now.

What I would say is that, as investors, whether we think a stock price is reasonable or not should logically be guided by what we can reasonably ascertain in terms of its earnings visibility.

For investors for income, the willingness of a business to distribute a part of its earnings to its shareholders is also a pertinent consideration.

See this blog on my past assumptions which led to me investing in ComfortDelgro, for example:

An incomplete analysis of ComfortDelgro.






At the start of the COVID-19 crisis, I expected things to progress very much like it did during the SARS (i.e. Severe Acute Respiratory Syndrome) crisis in 2003 but, as things turned out, it didn't.

The situation we are in now is surely much worse than the SARS crisis ever was.

Just look at the billions of dollars our government has dished out to rescue workers and businesses so far.

In comparison, the SARS crisis was significantly less costly a crisis.

The crisis caused by the COVID-19 pandemic is global and it also simply refuses to go away.





I don't know how long it will take before we see things going back to the old normal.

Honestly, I doubt that anyone really has the answer except for Donald Trump.

However, it is reasonable to assume that the longer we have to wait for a safe and effective vaccine to become widely available, the longer the new normal we have now will stay.

The longer the new normal stays, the more it becomes entrenched.

Working from home and less going out for any reason will surely reduce the need for public transportation in all forms.

The Singapore government has even said that anyone who can work from home should continue to work from home even after Circuit Breaker restrictions are lifted.

That is ominous.






I am much more cautious during this crisis compared to the Global Financial Crisis (GFC) because the damage to many businesses is surely more devastating and the deleterious effects could be long lasting this time.

Since I am less sanguine about ComfortDelgro's earnings now than I was just a few months before, I might add to my investment only when its stock trades at its NAV or a discount to its NAV because that provides me with a greater margin of safety.

This is a real possibility and would mean we could see ComfortDelgro's stock price at a lower low than what was formed on 23 March 2020.





Looking at the charts, the weakness in ComfortDelgro's stock price is stark.

The 50 days moving average is still declining.

The MACD, a momentum oscillator, is still in negative territory and has just formed a bearish crossover.

The downtrend is very much intact and there is no sign of a trend reversal.

Of course, like I always say, technical analysis (TA) is about probability and not certainty.

Have a plan, your own plan.

In the meantime, do the responsible thing and help to keep everyone safe.

We are #SGUnited.





Related posts:
1. Investing in ComfortDelgro and locking in gains.
2. Buffett thinks it is going to get worse.

Perennial Real Estate Holdings' stock price spikes.

Regular readers know I have smallish investments in a few property developers and in a blog in late 2019, I said:

"Based on market value, together, they probably account for a sizable chunk of my investment portfolio."

Yesterday, I saw PREH's stock price spiked up and looked for an explanation.

I got this:

"Perennial Real Estate Holdings Limited (the "Company") notes the increase in the price of the shares of the Company on Singapore Exchange Securities Trading Limited in the course of trading today.

"The board of the Company (the “Board”) has been notified that certain of its substantial shareholders are reviewing the options in relation to their holdings in the Company.

"The Company understands that a decision has yet to be made by such substantial shareholders and there is no assurance that a transaction will take place.

"Accordingly, shareholders are advised to refrain from taking any action in respect of theirshares in the Company which may be prejudicial to their interests, and to exercise caution when dealing in the shares of the Company. The Company will update shareholders in due course when it becomes aware of any material developments."

Source:
PREH Voluntary Announcement.





I have added to my smallish investment in PREH in the past, averaging down my cost.

Still, this investment is suffering a paper loss.

With the spike in the stock price, the paper loss has significantly reduced.

I do not intend to add to my investments in property developers as I explained late last year.

"For a retiree like me, I feel that is enough exposure to property developers.

"For sure, I do not know when value would be unlocked and this unknown makes limiting the total investment exposure to 10% of my portfolio or lower sensible."

I also said:

"... the ability to generate a meaningful recurring income stream has always been an important consideration for me.

"It has become more so as I grow more settled into my early retirement."






If there is going to be an offer to take PREH private, I hope it is a fairly good price as PREH is trading at a huge discount to NAV.

To be realistic, I could still end up losing some money here.

Who wants to pay a higher price if they can pay a lower price?

Even though PREH is undervalued, if we are buying on the hope that value will be unlocked, it is more speculation than investment.

In speculation, being lucky is probably more important than being clever.






Related post:
AK's exposure to property developers.

Centurion Corp. Ltd. 1Q 2020 Business Updates.

I took some time off from Neverwinter which is doing some maintenance to look at Centurion's latest updates and decided to do a bit of talking to myself in the process.

Centurion is, of course, one of my largest investments.

It was only a few months ago in November 2019 that I published the following blog:

Centurion Corporation is still cheap and a strong BUY.

That was when Centurion caught the attention of analysts at DBS and they had a target price of 52 cents a share.

Of course, things have changed dramatically since then.

I will not talk about how most of our COVID-19 cases are foreign workers living in dormitories or how students in hostels are given the option to terminate their rental agreements early without penalty to go back home.

That is old news by now.

I am more interested in Centurion's ability to survive the crisis given the challenges and its future.

I invested in Centurion because it was trading at a big discount to NAV and I believed it was a good income generator.

Of course, as an investor for income, I like that it paid a good dividend.






Today, Centurion is still trading at a big discount to NAV but, realistically, that discount could lessen if their assets are revalued lower.

The ability of assets to generate income will affect their valuations.

The government has mandated that companies must pay the dormitories operators promptly even if their employees have been moved out of the dormitories for COVID-19 treatment.

However, will occupancy suffer a reduction like it has for the student hostels in the future?

This would depend largely on how progress in the fight against COVID-19 unfolds.

It would depend on how badly the crisis has damaged the economy and, maybe, continue to damage the economy for some time to come.

So, to be realistic, we have to expect Centurion's income to take a hit at some point and, together with higher costs, earnings to reduce.

Investors should expect a cut or a suspension of dividend payment which is, of course, bad news for income investors like me.







Some of us are familiar with the saying that Centurion is like an S-REIT.

They collect rent and distribute some of that rental income to shareholders like REITs do for their unitholders.

Centurion's gearing ratio is 50% which is relatively high compared to S-REITs but I have said before like in the instance of IREIT Global that a REIT's interest cover ratio is a better measure of risk than gearing ratio.

If we borrow little but are unable to repay, it is worse than if we borrow a lot but have no issue repaying.

Centurion's interest cover ratio is 3.4x which is higher than some S-REITs today.

In an environment where interest rates stay low for longer, Centurion could possibly refinance at lower interest rates and that would improve interest cover ratio, all else being equal.

A suspension of dividend payment might not be a bad idea if some of the money goes to reducing debt.

If this should happen, I hope that Centurion remembers to reward shareholders better when the good times return.

Short term pain for long term gain.

With a good track record and relatively large stakes in the business, I believe that there is little fear that insiders would do anything to damage minority shareholders' confidence or interests.






In fact, constant insider buying is one reason why I like Centurion as an investment.

The insiders eat their own pudding.

The last time an insider bought more was last month in early April when Mr. Han Seng Juan bought 107,800 shares at about 37 cents per share.

However, it is interesting also to note that there has been no insider buying since then.

In a business where insiders have consistently increased their stakes, it is probably a good idea to monitor their moves closely to help us decide when to buy more.

We might believe something:

"We believe the PBWA and PBSA sectors will recover fairly quickly once market normalises and we will continue with our course of expansion plans into these sectors."

However, we should not throw caution to the winds:

"Wait till the situations across our markets normalise from Covid-19 pandemic and reevaluate our expansion plans then accordingly to the market situations."

Centurion's management and insiders are staying grounded and so should we.

Stay cautious and stay safe.

We are #SGUnited.








Related post:
Largest investments updated 4Q 2019.

Recently published:
1. Buffett thinks it will get worse.
2. AA REIT FY 2020 results.

Reference:
Centurion's presentation slides.

Buffett thinks it is going to get worse.

This is another blog that started out as a reply to a reader's comment: HERE.

During the Global Financial Crisis (GFC), I believe the lowest price I paid for AIMS APAC REIT (then AIMS AMP Capital Industrial REIT) was about 17c a unit. 

Or was it 13c a unit?

Anyway, at 17c a unit, after a 5 to 1 consolidation that took place some time later, that would be 85c a unit.

If it was 13c a unit, that would be 65c a unit.

Things were pretty bad during the GFC.

Back then, AA REIT was surely trading at a big discount to NAV and there would have been some negative rental reversions too.

However, now, things look like they are worse than what they were during the GFC.

During the GFC, we didn't have forced shutdown of economies which resulted in record unemployment.

The kind of monetary rescue packages thrown at the economy by the central banks in response to this crisis dwarf whatever they did during the GFC.

I know some countries call them "stimulus" packages but they are really "rescue" packages.

There is nothing to stimulate but plenty to rescue.






A couple of months ago, in a blog, I said I paid attention when PM Lee said that the negative effects of this crisis could be worse than what we saw during the GFC.

I am more cautious during this stock market crash compared to the crash caused by the GFC.

With the ramifications that this pandemic has and we have yet to discover all of them, I feel that it isn't a bad thing for anyone to be more cautious with money this time round.

There is no certainty that it will happen but, increasingly, chances are a second wave or even a third wave of COVID-19 might hit us.

More shutdowns to come?

Maybe.

In a recent blog, I said I watched a documentary on the Spanish flu and how that health crisis took two years to resolve as the virus attacked in waves.

The Spanish flu crisis changed the way people behaved for a long time and it was bad news for the economy for a long time.

During the GFC, people were not dropping like flies like they were during the Spanish flu crisis and also this crisis.

This crisis caused by COVID-19 will not only be remembered for a long time but it will also change the way people behave for a long time to come.

For many businesses, more enduring behavioral changes caused by the COVID-19 crisis will continue to be negative for them and the effects will ripple through the economy. 






Mr. Market could sink again into a depression as economies reopen to a new reality of probably reduced confidence and much slower growth.

Things could get worse before they get better.

When we have a safe and effective vaccine, things should get better.

Having said this, to get back to where we were before the pandemic hit us would surely take quite a bit of time.

With that belief, I am still staying invested, adding to my investments from time to time but not throwing in everything including the kitchen sink.

There could come a time when I throw in everything BUT the kitchen sink but even if I don't do so, it is OK to me.

I rather make sure that I am ready for a relatively long and bumpy ride which could be in store for us in the weeks or months ahead.






I would like to end this blog by sharing a video I found on some things Warren Buffett said at Berkshire Hathaway's 2020 annual meeting for shareholders.

Why has Warren Buffett not bought anything yet during this market crash?

Take a leaf from Warren Buffett's book.

Have a war chest or two ready.

Also, make sure to have an emergency fund and an adequate one at that.

You might want to start watching from 4:48.







"Federal Reserve Chair Jerome Powell says the U.S. economy faces unprecedented downside risks." 13 May 2020.

Related posts:
1. Market sways between hope and worry.
2. Survivability and opportunity in times of distress.

AIMS APAC REIT FY2020 results.

This blog started as a reply to a reader's comment and it became quite long.

So, I decided to publish it as a blog because I think many readers are probably interested in hearing me talk to myself on AIMS APAC REIT's performance.

AIMS APAC REIT (AA REIT) is retaining some income instead of distributing 100% of their distributable income.

We are living in extraordinary times and this is an extraordinary move.

I remember when I was given a tour of some of their properties in the western part of Singapore, they told me that they preferred to distribute all their distributable income to investors because they would have to pay a tax on whatever income they retained.

If you are new to my blog or if you cannot remember, see:

A private tour of AA REIT's properties.

In that blog, I shared 5 questions which I asked and the answers I received from the CEO then.

Question number 4 was on if AA REIT thought of retaining some income.






Anyway, although it is an extraordinary move, I am glad they made it because things could get worse before they get better.

As for AA REIT's lowering DPU starting from FY2016, things have been pretty challenging for local industrial properties landlords in recent years.

That prompted me to blog about the situation in 2017:

AA REIT challenged?

At the time, AA REIT was trading at a premium to NAV.

Many REITs have Master Leases and these usually give an illusion of higher occupancy and also higher income.

I am not being critical here but just saying that this happens in the natural course of business for REITs.

When Master Leases expire and if they are not renewed, usually we see income for the REIT takes a hit.

This has happened to AA REIT in the past and it has happened again to AA REIT recently.

The important thing is whether we have an honest and competent manager in place to mitigate the effects and I think AA REIT has such a management.






The oversupply of industrial properties in Singapore which was partly a result of overbuilding meant negative rental reversions over the years and it has impacted DPU.

Unfortunately, being a smaller REIT, AA REIT does not have the financial muscle nor flexibility to acquire yield accretive assets as rapidly and, of course, it is also more difficult for them to do so when they offer a relatively high distribution yield.

This is why AA REIT's strategy has been predominantly the redevelopment of their assets on hand as many assets have not maxed out their plot ratios.

Of course, when assets are being redeveloped (i.e. torn down and rebuilt), they don't generate any income.

We should expect this to continue as the REIT has many more assets in Singapore which have not fully utilised their plot ratios.





AA REIT's portfolio occupancy has declined from 91% in 2017 to 89.4% now.

Their overall revenue has also reduced from $120.11 million in 2017 to $118.86 million now.

However, it is interesting to note that their NPI or net property income has gone up from $79.4 million in 2017 to $89 million now.

This is achieved on the back of gearing ratio declining from 36.4% to 34.8% too.

All in all, for an industrial properties S-REIT of this size, I feel that AA REIT has done pretty well.

To reiterate, the lower quarterly DPU of 2 cents announced today is due to the management being prudent in not distributing 100% of the REIT's distributable income due to economic uncertainties created by the COVID-19 crisis.

Having said this, like I said before, if the crisis were to drag on for many more months, it would be unrealistic to think that AA REIT's income would not be negatively impacted.

I increased my investment in AA REIT last week because I felt that things were more settled and not because I thought that the bull would come charging back soon.

I try to remind myself that bona fide investments with the ability to generate a relatively attractive and reliable income should form the bulk of my investment portfolio.

Of course, there are many investments for income available out there and we invest in what make sense for us.

AA REIT makes sense for me.




Related post:
AA REIT investment is larger now.
Reference:
AA REIT FY2020 presentation.

AIMS APAC REIT investment is larger now.

When I blogged about AIMS APAC REIT (AA REIT), formerly AIMS AMP Capital Industrial REIT, last month in April, I said:

"I have not done anything to my investment in AIMS APAC REIT for many years."

Well, I can't say that now because I just added to my investment in AA REIT.

I spent a few hours in the last few days reading, crunching some numbers and looking at the chart before deciding to buy some.

The dust seems to have settled for AA REIT at least for now.

Volatility has reduced tremendously and the unit price seems to have found a floor at about $1.15 a unit.

Looking at the chart, the rising 20 days moving average (20d MA) provides immediate support at $1.14 a unit.

However, the 50 days moving average (50d MA) is still declining and is currently at about $1.16 a unit.





The 50d MA has been providing resistance which has kept a lid on the unit price.

It is the proverbial tug of war between the bulls and the bears.

One side is unwilling to pay a higher price while the other side is unwilling to sell at a lower price.

The result is a reduction in price volatility and we see some kind of an equilibrium or stalemate as neither party is able to claim victory.

The rising 20d MA and the declining 50d MA are just about to form a bullish crossover, a golden cross, which the textbooks would say is a bullish signal.

The way things look now, the golden cross might happen in the next two or three sessions but, of course, if AA REIT's unit price suddenly plunges, it might not happen.

Of course, I always say there is no certainty in such things, only probability.

I am inclined to think that, at the moment, the only certainty we have is that things are looking relatively more settled now.

Any unwinding of such a situation could see unit price move either way and sometimes quite violently too.

Which direction?

Your guess is as good as mine.






Now, a bit of FA to provide some padding for TA is in order.

At $1.15 a unit and a DPU of 10 cents, we are looking at a distribution yield of about 8.7% which is a big increase over a distribution yield of about 6.9% when AA REIT was trading at about $1.45 a unit before the crash caused by the COVID-19 crisis.

The distribution yield looks relatively attractive but how realistic is it?

I always say that AA REIT is one of the better run industrial properties REITs in Singapore and I still think it is the case.

Of course, no matter how well run a business is, if it is up against an insurmountable external crisis, it is still toast which was why I kept saying it was better to err on the side of caution and wait for the dust to settle before deciding whether to buy more.

Very early into the crisis when the air was very dusty and the visibility was very poor, a friend decided to buy shares of SIA when it fell to $8 a share because he thought the blue chip was already very cheap at that price.

That blue chip is now a blue black chip.

Together with Temasek Holdings, my friend is performing National Service as he chips in to save the blue chip.

He is coughing (probably because of all the dust he inhaled) up more money to keep SIA alive while he has to live with the very real possibility of getting zero income from the investment for the next many years.






Anyway, back to AA REIT.

With gearing level at 35% and an interest cover ratio of more than 5x, AA REIT will probably be able to weather this storm pretty well now that we have a better idea how the COVID-19 situation might evolve and also how we could keep it better under control until a safe and effective vaccine becomes available to the world.

Of course, to be sure, there is always the possibility things could go awry.

In my blog on my largest investments in REITs last month, I said that if the crisis were to drag on for much longer, then, we could see tenants defaulting on rents.

For sure, it is possible that we could see a 10% or even a 20% reduction in AA REIT's income if the bad situation the world is in now were to worsen.

So, trading at $1.15 a unit which is about a 20% reduction from $1.45 a unit before the crash shows that Mr. Market is cognizant of the risks AA REIT must face.

Talking about this has a mildly speculative flavor, of course, but I remind myself not to be overly optimistic thinking that 8.7% yield is a definite thing as I could be setting myself up for disappointment.

We should be prepared for the possibility of bad news from AA REIT when they release results and maybe provide guidance next week.

Don't throw in everything including the kitchen sink.

I don't know about you but I need my sink in the kitchen.






While we are on the subject of speculation, it is also interesting to note that ESR Cayman and ESR HK have both been increasing their investments in AA REIT.

Their most recent purchase happened earlier this year in March and that was worth more than $2 million, if I remember correctly.

Of course, there has been talk about ESR harboring thoughts of a takeover of AA REIT for some time now.

Although I hope it isn't the case and it doesn't happen, it is a definite possibility.

If you are interested in this possibility, I blogged about it initially in 2018:

2Q 2018 passive income from S-REITs.

At that time, DBS said AA REIT "could be a target for takeover and suggested a target price of $1.55 to $1.65 per unit."

More recently, there were articles in The Business Times (November 2019):

ESR Cayman Ltd (ESR) acquired 26,827,400 units in AIMS APAC Reit (AA Reit) for a consideration of S$37,290,086 at S$1.39 per unit.

and also The EDGE (December 2019):

3 potential S-REIT mergers to watch out for.






Previously, when AA REIT's unit price was averaging $1.45 a unit which was a premium to its NAV, a takeover might have been seen as too demanding or too pricey.

With unit price now at $1.15 a unit which is a discount to its NAV, a takeover is probably more palatable and also more feasible.

To me, ESR accumulating units at $1.30+ a unit continually and in pretty large chunks up until middle of March this year tells me what ESR was thinking about AA REIT as a value for money investment at that price level.

What will their next move be?

You tell me.

Yes, I know.

Bad AK! Bad AK!

I will stop here.

Time for me to move from this world of imagination to another world of imagination.

Till my next blog, be socially responsible and do the right things.

We are #SGUnited.

You might be interested in the following video on AA REIT's portfolio of properties:





Related post:
Largest REIT investments updated.