2Q 2020 passive income: COVID-19 crisis.

I thought of not blogging about my 2Q 2020 passive income till a couple of weeks later because Mod 19 of Neverwinter, Avernus, just went live this morning.

Yes, the world of Neverwinter just received another expansion.

Anyway, after an initial foray which lasted almost 3 hours in the new adventure zone, I told myself I should quickly pen and get this blog published so that I can continue adventuring without feeling terrible about myself.

Before I start, this is a peek into the world where I will be spending most of my time in the next few weeks:







Some might remember that in the title of the blog on my 1Q 2020 passive income was the phrase "COVID-19 disaster."

This time, in the title, I have the phrase "COVID-19 crisis."

Although economies are re-opening, we are not out of the woods.

The virus is alive and kicking and we are seeing many cases of resurgence.

The COVID-19 pandemic has been described as "a crisis of a generation" by our country's leaders.

The COVID-19 virus is showing some worrying staying power.

The pandemic has damaged economies around the world very badly, erasing years of progress, plunging countries into deep recessions.






Unlike the Global Financial Crisis some 10 years ago, this is a Global Health Crisis.

A recession that stems from a financial crisis can be ended with financial tools.

A recession caused by a health crisis like the one we have now cannot be ended with financial tools.

The aggressive implementation of supportive monetary and fiscal policies around the world has provided relief but it does not address the root of the problem.

As long as a safe and effective vaccine for COVID-19 is unavailable, a return of the global economy to pre-COVID-19 level in a short time is rather unlikely.

We would probably see more of the population suffering from joblessness and business failures in the meantime.

Not being pessimistic.

Just being realistic.

An important thing for us to do is to make sure we can definitely survive this crisis financially especially if it drags on for much longer.

Instead of chasing possible upside, it is more important to be prepared for possible downside in life.

If you are new to my blog or cannot remember, you might want to read this blog:
The most dangerous crisis and what should we do?





Now that I am done nagging, how much did I receive in passive income in 2Q 2020?

$57,395.95

I will say a few words about the entities which made more substantial contributions to my passive income in 2Q 2020.

Frasers Commercial Trust contributed a smallish 4 figure sum which will not be repeated.

This is because they have been bought over by Frasers Logistics Trust (now Frasers Logistics & Commercial Trust).

My investment in Frasers Logistics & Commercial Trust has also become bigger because of this and should continue to be a good income generator for me.





Other entities which made much larger contributions than Frasers Commercial Trust and Frasers Logistics & Commercial Trust to my passive income in 2Q 2020 were Centurion Corporation, DBS, OCBC, ComfortDelgro, VICOM, WILMAR, AA REIT and Accordia Golf Trust.

Of these entities, I expect Centurion Corporation and ComfortDelgro to be the most challenged during this crisis.

AA REIT reduced their distribution by about 20% in 2Q 2020 but I am reasonably confident that they will stay resilient.

WILMAR looks set to list their Chinese business before the end of the year which should result in a special dividend.

Accordia Golf Trust has revealed details of the offer by its sponsor to acquire all its assets and I blogged about this recently.

Although my passive income in 2Q 2020 looks healthy, I am aware that it was paid out by my investments from their strong performance in the past.

With their future performance likely to be weaker, I expect my future passive income to weaken in tandem, all else being equal.






Apart from the passive income received in 2Q 2020, my float has also been strengthened through selling a big chunk of my investment in Ascott REIT-BT.

Ascott REIT-BT is no longer one of my larger investments.

I have also received money from BreadTalk as they paid me 77c a share for my investment as they delisted.

This was a smallish investment but a profitable one.

As for the stock market, it looks like the dust has settled.

Although the economy is quite sick and will probably continue to be sick for some time to come, the stock market has found a bottom.

Technically, there is still a chance that the bottom could be tested in the next few weeks or months but the chance of that happening is slimmer now.

Having said this, if the COVID-19 pandemic has taught me anything, it is that low probability events could happen and they could pack quite a punch when they do.







I see the moving averages turning up and rising in many charts.

So, I am likely to add to my investments if prices should retreat to some of these moving averages as they should provide support.

I would not be throwing in everything including the kitchen sink because if the supports break, the fall might be another big one.

Technical analysis shows where the supports are but it does not tell us if the supports will hold.

No one knows for sure.

Oh, please allow me to nag again before I go.

Please continue to act responsibly and keep all of us safe.

We are #SGUnited.




Related posts:
1. Accordia Golf Trust: $0.732 offer.
2. AA REIT, IRET, Ascott REIT-BT.

Accordia Golf Trust: $0.732 offer.

Finally, we have news.

"... sponsor of Accordia Golf Trust (AGT) has proposed to acquire the trust's 88 golf courses in Japan for S$804.1 million, or an implied purchase consideration of S$0.732 per unit, it said on Monday."

What do I think?

Too low!

Why do I say so?

If you are new to my blog or if you cannot remember, read the following blogs:

1. Offer must be way above valuation.

2. Accordia Golf Trust: Reasonable or realistic price?





Basically, I think that an offer price of $0.732 a unit undervalues Accordia Golf Trust by a lot.

Long time readers know that I invest in Accordia Golf Trust mainly for income.

Having said this, my belief that Mr. Market does not fully appreciate Accordia Golf Trust's value only became stronger in the last couple of years.

There is definitely evidence of undervaluation. 

I have shared some thoughts towards this in some of my past blogs.

It isn't a secret that I have a soft spot for what I believe to be undervalued investments which pay dividends while I wait for their value to be possibly unlocked.

That was the case with Saizen REIT.

It was also the case with Croesus Retail Trust.

What about Accordia Golf Trust?

Accordia Golf Trust is a good fit too.





I increased my investment in Accordia Golf Trust significantly in 2018 and 2019 so that my position crossed the $200,000 mark in market value.

See:
3Q 2018 passive income: AGT.

and

Largest investments updated (4Q 2019).

That was after substantially reducing my investment in 2017 at $0.70 a unit.

To understand why I did that, see:
Reducing investment in Accordia Golf Trust.







Looking at my records, I see purchase prices of 49c to 54c in 2018 and purchase prices of 51c to 53c in 2019 as I substantially increased my stake.

The records are all hand written, of course.

Feeling a bit sentimental.

At $0.73 a unit, the market value of my investment in Accordia Golf Trust would cross the $300,000 mark easily.

Been receiving nice passive income from Accordia Golf Trust.

This might end soon, it now seems.

Even though some of that $0.732 a unit would likely go towards costs and some of it might be retained at the Trust level as Accordia Golf Trust is not being delisted, receiving approximately $0.70 a unit would still give me a pretty nice capital gain.

When I take into consideration the dividends received in the past, my investment in Accordia Golf Trust has turned out pretty well.





Having said this, honestly, I am perfectly OK with holding on to my investment and to continue receiving passive income especially because I think an offer of $0.732 a unit is really too low.

I am pretty disappointed and even disgusted.

Well, I guess there is really no point in being upset about this.

Could have been worse, I suppose.

It is what it is.

For what it is worth, having a lot more cash in my bank account is a rather comforting thought.

Well, for a while anyway.

Have to try to look at the bright side of things a bit more, especially during these trying times.






Reference:
The Business Times

Worried as dividends and interest income reduced.

Regular readers know that I am a worrier.

Yes, it is true that I am somewhat mental.

As my parents are not financially savvy, I worry about them constantly.

This is one enduring worry which has only become worse over time.

I am more worried about my dad than I am about my mom because he spends money too freely.

There is no point in nagging at him which was something I was prone to doing in my younger days.

I remember when I told him to sell two of his club memberships away some 20 plus years ago, he got angry with me and yelled that he wanted a lifestyle in retirement.

Well, he is trapped into paying $500 each month in club subscriptions even though he hardly visits the clubs.

It is worse than buying insurance policies which he doesn't need because there is no way to terminate these memberships other than to sell them away.

Of course, club memberships are not as popular as they were once upon a time and it would be harder to sell them even if he wants to do so now.

If my dad regrets not listening to me donkey years ago, he hasn't told me.

All of us have pride which can be a good thing but it can also be a bad thing.

My dad is in his mid seventies and it is too hard for him to change his ways.






I blog about my parents from time to time.

The last time I did this was in October last year when I talked about how much passive income I needed?

In that blog, I talked about my decision to double financial support for my parents to about $40,000 a year.

With dividends from my investments reduced this year, I might have to dip into my emergency fund to keep the promise.

Of course, we would know for sure by the end of the year when I calculate my total dividends for the full year.

It is my responsibility to make sure that my parents don't have to worry about money.

If our government is right about the negative economic impact of the COVID-19 pandemic lingering on for years to come, I must be prepared that I might have to continue dipping into my emergency fund as my dividend income falls short.






Adding to this development, lately, I have been wondering if I must give even more financial support to my parents?

This happened after a recent visit back home and a conversation I had with my parents.

My dad complained about the paltry interest rates when he renewed his fixed deposits.

Banks' shrinking interest rates on my dad's shrinking savings.

My dad complained about the former while my mom complained about the latter.

Uh oh.

I don't know if some of you might be familiar with such a scene or something similar to such a scene.

Well, as expected, in my case, it quickly escalated into a yelling competition.

When two people who have been married to each other for half a century fight, oh, they have so much material to draw on.

All that baggage.

I will not share the details.

Too much and, really, what's past is past.

Also, we have to accept that no one is perfect and if we cannot look past that and see the good in each other, life becomes almost unbearable.

Of course, when emotions run high, people become unreasonable but the problem is that they think they are reasonable.

OK, you get the picture.






Anyway, to help address my mom's complaint about my dad's shrinking savings and also to help address my dad's concern about shrinking interest income, I made my dad an offer.

I told my dad that at his age, it is about not taking on too much risk while trying to make his savings last longer.

I know he doesn't want to be reminded of the bigger financial support I am giving them.

Old man has pride.

Of course, as children, we should want our parents to age with dignity too.

So, I made him an offer that I felt he would respond well to.

I introduced him to AA REIT which, of course, I increased exposure to more than a month ago.

I took him through the pros and cons of the investment and offered to let him take over my recent investment in the REIT at $1.15 a unit which was what I paid.

I told him that, conservatively, it could give him a return of 7% per year at that price.

He took the offer and somehow managed to make it looked like he was helping me out.

Like I said, old man has pride and if it makes him feels good about himself, so be it.

That was how I partially diffused the tension that day.

Only partially but I shan't bore you with everything else.

家家有本难念的经.






If AA REIT's unit price should plunge below $1.15 for some reason and if my dad should decide to sell, I would still pay him $1.15 a unit.

So, his investment in AA REIT is like a risk free fixed deposit but with some upside.

I am sure I do not have the right answer to every problem.

I also do not have unlimited financial resources but I will always put my parents' interests before my own.

We are not perfect but this imperfect son will do his best for his imperfect parents.

This is as close to perfect as is humanly possible.






Related posts:
1. Improving retirement funding adequacy for my dad.
2. Retirement adequacy for late bloomers.
3. How much passive income do I need?
4. The most dangerous crisis and what should we do?
5. AIMS APAC REIT investment is larger now.
6. Dad's whole life insurance policy.

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.