Is Keppel DC REIT an attractive investment for income?

I have been asked on various occasions what do I think of Keppel DC REIT and my usual reply was it was still something very new to me. 

I didn't know what to make of it but just looking at the prospective distribution yield was surely the wrong way to value the REIT although as income investors it would be the first thing that drew our attention.

In the latest copy of The EDGE, we would find a well written article on page 27 on Keppel DC REIT. The title is attention grabbing as it included the phrase "solid DPU growth". 

Read the article carefully and we would learn why data centre REITs are so different from other industrial property REITs.

I would draw attention to the following:

"For Keppel DC REIT, depreciable infrastructure accounts for approximately 70% of the development cost, with the building shell accounting for the remaining 30%."

This is an important bit of information, an eye opener, and it is just one line in a full page article. It could be quite easily missed or even dismissed.

Citadel 100. Land lease expiring in 2041.

Even for seasoned income investors in S-REITs, we would think industrial property REITs are just landlords. Buy or develop an industrial property and find a tenant or tenants. 

The tenants do their business while the REIT manages and maintains the property (if the building does not have a Master Tenant) and, of course, collects rent.

When we think of asset value, we think of the value of the buildings a REIT holds. We think mostly of brick and mortar. In the case of a data centre REIT, the asset value is not just the building but significantly the high tech infrastructure in the building. 

Of course, what the high tech infrastructure is exactly will remain Greek to me. I only need to know that it has to do with IT and it is very costly.

By now, most of us would have realised why listing the REIT at a premium to NAV was a very good deal for Keppel T&T. IPO price was 93c a unit while NAV was 86.6c a unit.

For those of us who still don't get it, remember why there is a preference for properties which are freehold instead of properties which are leasehold? It has to do with depreciation. 

Freehold properties (and Keppel DC REIT has 3 of them at IPO), theoretically, do not depreciate.

T25. Land lease expiring in 2021. Option to extend for 30 yrs.

However, if a data centre REIT should own a freehold property, it would also depreciate since "depreciable infrastructure accounts for approximately 70% of the development cost". 

To be able to sell a depreciating asset at a premium to valuation is a wonderful thing. It is like selling a used family car at a premium to market price.


Understanding Keppel DC REIT better now, we want to remember that as a REIT pays out most of its income to unit holders as dividends, it won't be wrong for us to question if the current income distribution from the REIT, all else remaining equal, is sustainable. 

After all, the high tech infrastructure has to be maintained regularly or even replaced periodically. Where is the money going to come from?


We could, of course, argue that because Keppel DC REIT's gearing, post latest acquisition, is 29.9% and, so, it has ample debt headroom to borrow more funds to maintain or replace ageing high tech infrastructure. 

However, if its NAV is formed mostly of depreciable assets, would gearing increase without any additional borrowings, given time? I am not IT savvy but I hear that IT infrastructure suffers from rapid obsolescence.


So, I went online and searched for the cost of maintaining and even replacing the high tech infrastructure in data centres. 

It seems that the costs are usually less than 10% of the revenue generated but in certain years the costs could spike. 

For anyone who is investing in Keppel DC REIT, this is something very important to bear in mind.

S25. Land lease expiring in 2025. Option to extend by 30 yrs.

With an estimated DPU of 7c, post latest acquisition, and a closing price of $1.095 a unit, we are looking at a distribution yield of 6.39%. I would argue that, realistically, this is not a sustainable distribution yield, all else remaining equal.


It might sound totally unrelated but it could be useful to bring up the case of HPH Trust which maintained a higher DPU than it should for a while by delaying much needed CAPEX. 

I believe that was a move to support its unit price and to keep investors happy. The Trust could not delay those CAPEX forever.


When we invest in any business or business trust that requires regular and relatively high CAPEX, we must be ready for it. 

If these entities should pay out all their income to investors as dividends, we must be realistic enough to understand that something must give.


I would demand a higher distribution yield, free of any financial engineering, before investing in Keppel DC REIT, if ever. How much higher? I have yet to decide.

Related posts:
1. The instant gratification of yield.
2. Overpaid for our investments in biz trusts?

Retirement funding for our parents: An idea.

My blog, ASSI, is very fortunate to have guest bloggers and some readers who are willing to share their very thoughtful ideas generously. Their thoughts have made the many discussions on diverse topics in ASSI more engaging.

Here, we have another example of what I am talking about:

Hi AK.

My parents are 66 yrs old this yr. Dad is still working. Likely to retire by 70. He prefer to work till 70 than staying at home. My parents belong to the earlier cpf minimum sum scheme. (Last for 20yrs only)


I am considering for them to join the cpf life. My parents saving is about $200k. Instead of keeping the cash in bank for their retirement usage, i am thinking of putting $200k into their RA.


Advantages:
1. They able to earn interest 4% per annual.
2. They able to get payout for life under the cpf life scheme.
3. Money is safe and will not lose to any scam cases.


I have also checked through the annuity plan by ntuc, aviva, tokio marine etc... they cannot match with cpf life. Of course there are other options such as buying stocks, reits, property etc... but not so suitable for retired folks.


Not seeking advise from you but like to hear second options if you have any. smile emoticon

You may like to post this in your blog so as to share it with other friends. smile emoticon

Cheers,AL

AL shared this with me in a chat on FB not too long ago and I very much agree that CPF Life is the best annuity plan there is out there.

However, it would depend on whether he is able to convince his parents to accept his plan. That could be the biggest obstacle to overcome, I suspect.

Related posts:
1. Securing risk free returns for our retirement.
2. Retirement: AK bought a AAA rated bond.
3. An annuity proposal: AK does a case study.
4. EcoHouse: Questions we must ask.
5. A banker's advice on retirement income strategy.

Feeling depressed about paper losses?

I have received notes in various forms from readers on the subject of plunging stock prices recently.

Here is an example:

Reader says...
i think i have been quite depressed over recent market falling.
sighz..

serious, paper loss about 35k. i started to doubt that whether i should
quit investing or not.




what i earned from past few years just enough to cover for my paper losses.
and marco polo alone are suffering 10k paper losses now:(

i have limited cash now.

sometime, or most time, i do feel little dissapointed on myself . feel like i am a failure, as others do investment so successful while i am just a loser.

a bit feel like to sell all and quit investing

AK says...

I have a feeling that you might have over committed to the stock market. 

You probably want to relook and decide if you want to re-size your positions, taking some losses in the process, if need be.




If you are losing sleep at night, you have probably over-invested. 

It could also be you didn't quite understand what you were buying into and whether you paid prices you could live with even in a downturn (which is when you should be thinking of buying more).

It might be a good idea to cultivate the right mindset before investing again, if you decide to continue the journey as an investor.

I recently replied to another reader in the comments section of my blog as well: here.

I also shared a conversation with a reader on Facebook:

AK has his float. Do you?

We should invest for a better future and we should invest in a way that gives us peace of mind. What is the way? 

Well, it could be quite different from person to person and I have shared mine here in my blog many times before.

Know ourselves, know our motivations and know the right tools to use.




Remember that media headlines should not be what is driving your overall strategy and, instead, thoughtful analysis of your goals (and willingness to absorb pain in market down periods) is what is necessary for a successful investment strategy.

Decide which type of investor you are before you invest and make sure the overall strategy reflects your view of the world as well as the degree to which you can afford to be completely wrong.
From:Michael Yoshikami in  Have a plan, our own plan.





Added on 21 Sep 16:
A very important thing is never to enter the stock market thinking that we will only make money. 

That is like entering a relationship and thinking that there won't be rough patches or even break ups... 

We will be setting ourselves up for disappointment. - AK

Related posts:
1. When to be fully invested in stocks?
2. Passive income: To pursue or be pursued?
3. How to size our more speculative positions?
4. Investing for income and position sizing.
5. How to have peace of mind as an investor?

Failure of 1MDB: More than economic consequences.

With the leaked video, it seems like the money did get transferred into Najib's personal account.

This explains why he has not denied the allegations and it explains why he is fighting so hard to stay in power. If he stepped down, he would be in danger of having the law come after him. A term in prison would almost be certain then.

Muhyiddin alleges Najib admitted to misapropriating funds

"Leaders are vulnerable to making big mistakes, such as violating the law or putting their organizations' existence at risk. Their distortions convince them they are doing nothing wrong, or they rationalize that their deviations are acceptable to achieve a greater good." Bill George

In ancient China, the people believed that if the Emperor was immoral or unethical, the country would suffer. It might be superstition but since Najib took power, Malaysia has had so many problems and disasters.

Being Malaysia's neighbour, Singapore should naturally be concerned.

Yes, if 1MDB should go kaput, there could be economic consequences which would affect Singapore. For example, the High Speed Rail project could be put on hold.

However, the Malaysian people's feelings against Najib could be so strong that the current tension could escalate and lead to civil unrest. The scary bit? It looks like it could actually happen.

I hope the unrest does not spill over into Singapore if it does happen.

Are we worried about retirement adequacy in the right way?

If we have a plan on achieving adequate retirement funding but have trouble executing the plan, we should be worried. If we do not have a plan on how to achieve retirement adequacy, we should be very worried.

This was a conversation with a reader on FB:

J A

Hi AK, was talking to my friend about the pros of cpf, but they were saying we will not be able to fully withdraw the amount, and if we pass on before we totally withdraw all out, it will be pass to the child and it goes on.. what do u think about it?

Assi AK

Why would we want to make a full withdrawal?

The minimum sum goes into an annuity that pays us a monthly allowance for life from age 65.

If your friends do not believe in buying an annuity to fund their retirement, then, I can understand.

A clever fellow in Hong Lim Park.

J A

They are worrying they will not be able to withdraw the full sum.

Assi AK

They should be worried that they might not have adequate retirement funding from age 65. 
They are worried about the wrong thing.

Knowing that I will have a meaningful monthly income for life from age 65 gives me some degree of assurance when it comes to the topic of retirement adequacy.

Source: CPF Board.

J A

So how do they calculate the monthly income age, from 65 till ?

Assi AK

You can share these videos with them: http://singaporeanstocksinvestor.blogspot.sg/2014/09/videos-on-reaching-55-and-what-is-cpf.html

Videos on reaching 55 and what is CPF Life? | A Singaporean Stocks Investor (ASSI)

Assi AK

There is also a very good guest blog on the CPF Life here: http://singaporeanstocksinvestor.blogspot.sg/2015/05/tea-with-ey-is-our-cpf-life-payout.html

Tea with EY: Is our CPF LIFE payout going to be sufficient? | A Singaporean Stocks Investor (ASSI)



Source: CPF Board.

..



..
J A

Ok. They reply me with a few question

 "My question is will we get our entire cpf sum back whether it's thru annuity etc"
By my friend

Assi AK

I started typing numbers and I deleted. He can go and do his own calculations to see for himself why CPF Life makes sense. Don't be lazy. LOL.

As he seems to be fixated with getting back all his savings in his CPF account, I will simply show him how most of the money in my CPF-SA is from the government. At age 55, whatever I have in my CPF that is above the minimum sum, I can withdraw.

The minimum sum which is really money from the government will go into CPF Life to fund my retirement for life from age 65.
See:
http://singaporeanstocksinvestor.blogspot.sg/2015/01/a-lot-of-money-in-my-cpf-sa-is-from.html

A lot of the money in my CPF-SA is from the government. (AK reveals his CPF-SA numbers in detail...

Ask him what would he do if he were allowed a 100% withdrawal? What would he do to ensure that the money will be able to fund his retirement for the rest of his life?

Worry about the right things in the right way.

Related post:
Proposed changes to the CPF system.

Important things to do before we start investing.

It might come as a surprise to some but it is very common for me to see people who are very excited about starting their journeys as investors and neglecting matters of personal finance. Of course, regular readers would know that I always tell people that they must get their personal finances in order before thinking about investing in the stock market.

So, the question is whether we have overlooked essentials in financial planning in our haste to invest? What could possibly be the most overlooked area of financial planning? Not surprisingly, it is the area of insurance. Insurance is an expense that many would like to dispense with but we really shouldn't.

Many people are attracted by the high returns investments could potentially provide but fail to understand enough what it takes to become an investor. Many jump into the sea of investments and end up drowning. Fear strikes me when my peers get overly excited about “investment opportunities” or when they are too eager to begin investing before taking care of the essentials.

As with everything in life, we should prioritise and take care of what are most important first:

Debts - In our financial plans, we know that we first have to take care of our debts. (Do you know that many Credit Cards effective interest rate is at 24.9% per annum now?) It would not be logical for us to invest before clearing these debts, loans and cash lines with high interest rates that we might have. How could we achieve 24.9% investment returns per annum?

Emergency Savings - Emergency savings of at least 6 months of our monthly expenses is recommended. This is important in case of a stoppage of our income which could happen, for example, in a retrenchment. Emergency savings is also critical to cover unexpected expenses such as medical expenses for our loved ones, household, vehicle repairs and other unfortunate events.

Essential Expenses - If we expect some essential expenses to come our way such as hosting a wedding banquet, having our home renovated or planning to have a child, then, we should save up for these expenses. These are all expenses which could end up being five figure sums. This is money we should not invest with because it is money we cannot afford to lose. We do not want to have to liquidate our investments at a time and price not of our own choosing.

Insurance - We must get sufficient insurance coverage where it matters. Bad things do sometimes happen in life and we should not think that bad things happen only to other people. Without proper insurance coverage, we could see plans for retirement adequacy or financial independence derailed.

Examples of Financial Risks

Medical bills:  How would we deal with hefty medical bills if we did not have sufficient savings?

Loss of income due to medical crisis or death: If we should die or be disabled due to some illness, who is going to provide for our dependents?

These are all real issues which have to be dealt with. The good news is that it is possible for us to be adequately insured at a low cost if we purchase the right insurance products.

If you are wondering what kind of coverage and what type of insurance you should be buying, have a look at the following table:

Seems like there are many types of insurance we have to buy. Does it have to cost an arm and a leg? No, it is possible for a person aged 35 years old to be adequately insured for as little as S$200+ a month.

Where & How to Plan for Insurance?

You could easily calculate your insurance needs:
Click here to find out your life insurance needs
and
Click here to find out your critical illness needs.

To compare and purchase insurance, DIYInsurance –Singapore’s First Life Insurance Comparison Web Portal by Providend Ltd aggregates products from various insurance companies and provides 30% commission rebates in addition to ongoing promotions.

Staff from DIYInsurance are all paid a fixed salary and do not participate in sales-based compensation or incentives of any kind. Not being remunerated on a commission-basis means they are independent and there is no hard-selling and over-selling.

If you require any advice on your insurance needs, do contact them and seek their expertise. Visit www.diyinsurance.com.sg and request a quote for what you require.

Have you planned for the above must-dos?

If you have not, please do so as soon as you can. We do not want to risk having our savings and investment gains wiped out due to our carelessness when it comes to personal finance matters. We have to protect our assets and also plan ahead for any unexpected events.

It probably pays to be patient before diving into the stock markets. We will not only be doing ourselves a favour but a very important favour for our loved ones as well.

The is a sponsored blog post by the good people at DIYInsurance.

Related post:
6 questions to ask about your insurance.

What makes an undervalued and thoughtful gift?

UPDATE:
I remember some people of rather limited imagination calling me a cheapskate after reading my blog post. Well, at least I did not "re-gift".

"HAPPY HOLIDAYS AND MAY ALL YOUR PROBLEMS BECOME SOMEONE ELSE'S."
-----------
I know someone who orders canned green tea at coffee shops all the time. He says it is a healthier option compared to carbonated soft drinks. 

Well, I told him that canned green tea has lots of sugar too and that they are not necessarily much healthier alternatives. (AK can be very sensible about food too, you know.)

Anyway, for his birthday, I gave him a box of green tea. I told him that he just needs to bring a tea bag a day to work and he would be able to save $30 a month from not ordering canned green tea during lunch! His office has a hot water dispenser, I am sure.

Definitely a healthier alternative with lots of anti-oxidants and no sugar too!

When I told a friend what I did, he said I was a cheapskate! 

Oh, dear. Why did he say that? Actually, did you think the same way? 

Now, now, you can be honest with AK. I promise to listen.

Anyway, I told him it was a $80 gift! That puzzled my friend. He wondered if I bought some atas green tea from Japan. 

No, of course I didn't buy expensive green tea from Japan.

Then, what did I do? I explained:

Well, that box of green tea (which is a product of Japan, by the way) costs me a bit more than $5.00 and has enough tea bags to last about 2.5 months. 

So, the recipient of the gift is going to save $75.00 in those 2.5 months assuming that he pays $1.50 for a can of green tea during his lunch breaks (i.e. 50 days x $1.50).

Genmaicha.

In fact, if the habit grows on him, he would continue to save money during his lunch breaks forever.

The gift might not be costly but it is worth a lot more than it looks. 

It is an undervalued and thoughtful gift from AK. 

Remember the difference between price and value?

Well, I hope my friend appreciates it.

Related posts:
1. The price of convenience.
2. Genmaicha.

Do I need a bigger home and what to do if I do?

Housing is a topic that is close to our hearts. It would not be wrong to say that most people tend to be somewhat emotional when talking about our homes. After all, home is where the heart is.

So, being objective which means not being emotional about our homes when it comes to viewing it simply as an asset or liability is not easy for many people. 

Fortunately, for some reason, AK is quite emotionless when it comes to his home or so his friends have observed.

Here, we have an example of AK dishing out some objectivity on a reader's housing situation:

Hi AK,

Hope this email finds you well.

Thank you very much for taking your time responding to our queries in relation to giving us your honest opinion in matters of money management.

I have a "worry".

Currently, we bought a condo and owing about $400k+ with the bank and paying our monthly mortgage still at $2000/month. Its a one bedroom small condo and small enough that we feel we needed a bigger place given that we just had a baby a few months ago.

option
1) Sell condo now and wait for 2 years before we are "allowed" to go into Econdo and might take another 4-5 years before TOP. In practicality, i feel its not practical to wait that long because we will need a bed for our 5 year old grown up boy but pros are we could save up "more" before buying into a bigger econdo home for a 3 member family. So more time for us to save up for something more value for the money e.g econdo, hdb. We made the mistake of buying to condo initally.

2) sell this condo now and buy into another bigger place with our current savings of $250k, meaning take out our savings and buy a bigger place, something like a 2+1 bedroom private condo. pros we can take opportunity of the low condo price now and "hope" in few years it shall provide us some asset appreciation. Note: Selling our current 1 Bedroom condo will make a 50-60k loss because of the low demand in current market now. we would have made 25% loss on our initial downpayment.

3) take our savings and stay vested so we could have more passive income (my idea actually). If stay vested with REITS e.g saizen of $250k. we could have about 1-2k per month passive income. Cons is we wont have a bigger place (will need to stay with our parents) and there is risk of an economic downfall (my wife's worry) and i am not sure during the last subprime recession how much did Saizen drop to? Meaning if i used my savings for buying a property at least the pros is i could have something physical at hand during economic downturn. Am i making any sense?

4) lower our debt ratio and sell off when the market improves then rip the profit--> then buy in to a bigger place. ( by then may be the property market and outlook would have improved)

I know nobody can tell the future but i would sincerely hope if you can share your experience and expertise on the subject i have at hand currently.

Sincerely
B

Hi B,

All of us need a roof over our heads. How big or pricey a roof? That depends on each person's circumstances.

I like to approach situations such as yours by thinking about the needs:

In your case, the first question to ask is whether you really need more space or could you make do with what you have (i.e. your current one bedder condo)? If you could somehow make do with what you have, then, no issues. Think about possibly refinancing the housing loan if that could bring down the cost of servicing the loan.

If you absolutely cannot make do with what you have and really need more space now, then, sell your current place only if you are able to find a good value for money offer in a larger condo somewhere. Don't buy a larger condo unit just because you can afford it, always bearing in mind that our homes are consumption items and not investments. What about buying a resale HDB flat instead?

If you think you don't need more space now but will need more space in the future, then, selling your condo and moving in with your parents first while waiting for a couple of years before you could buy an Executive Condominium from a developer (or a BTO HDB flat if your combined salaries are not too high) will most probably give you the best value for money. In the meantime, you could invest some of the money in the stock market for some extra income.

In summary, what you decide to do at the end of the day should consider:

1. What you need.
2. When you need it.
3. What kind of housing is acceptable.

I hope my talking to myself is helpful to you. :)

Best wishes,
AK

Related posts:
1. Affordability and value for money.
2. Buying an apartment: Considerations.
3. Buying a property as an owner-occupier?

Letters on risk free, volatility free retirement funding.

Regular readers would have guessed what this blog post is about.

Letter number 1 from a lady:

Hi ASSI,

Sorry if I sent this email to the wrong email address, not sure if this is only meant for ad enquiries only.

I enjoy reading your blog and these few days I keep coming across CPF-SA on your blog. It got me thinking about whether I should transfer some $ from OA to SA.

I just realised I have abt $50k in my OA and $20k in SA. Is there a cap on the amount transfer-able from OA to SA? I read about a $7k limit but it seems to be voluntary contribution cap as well as tax deductible.

I'm in my 20s, married with kids and have a HDB loan but it is not serviced with my OA. Do you think it is advisable for me to transfer as much as possible to my SA account?

What should be the considerations I have for leaving the balance in OA vs transferring to my SA account?

From what I gather, it sounds advantageous for me to transfer those in excess of $20 from my OA (thinking since 1st $20k earns additional 1% interest) to SA.

should I have an aim of say x% dividend yield/captial gain given that money in SA is already earning 4% and it's risk-free.

Thank you.

Cheers,

Y

The ant stored food for the coming winter.

My reply:

Hi Y,

Welcome to my blog. :)

Well, if you don't have any use for the money in your CPF-OA, it would make sense to do an OA to SA transfer. Yes, leave $20K in your OA since it makes 3.5% per annum.

The first $40K in your SA will make 5% per annum. The rest will make 4% per annum.

OA to SA transfer and Minimum Sum Top Up to the SA will be limited by the ceiling imposed by the CPF. This year, it is $161K, I believe. So, people who have $161K in their SA already cannot do any transfer or top-up.

$7K in Minimum Sum Top Up to the SA each year is eligible for income tax relief. You could Top Up more than $7K but you won't get tax relief for anything more than $7K. There is no tax relief for OA to SA transfer.

There is a place for risk free and volatility free instruments in our investment portfolio, I firmly believe. I treat my CPF as the bond component of my portfolio. ;)

Best wishes,
AK

Risk free, volatility free retirement funding.

Letter number 2 from a gentleman:

Hello Bro,

I saw your blog and am very impressed with the article you wrote on CPF SA.

I was doing some calculation but unable to really get the correct numbers and have tried using CPF compound interest calculator but the numbers I get seems to be wrong....

Wondering if you can help ?

Case Scenario : Age 33 with $40K in SA and contribute $7K to SA for the next 12 years (Till Age 45)

How much SA will I have at age 55?

My calculation comes up to about $384K which is definitely wrong....

Regards,

C

Sorry bro forgot to add that after age 33 to age 55, a constant contribution of just $300 to SA from employment and $7K is a cash topup. At age 45 the cash topup will stop with just $300 contribution to SA from employment.

Power of compounding.

My reply:

Hi C,

If you notice, in my blog, my math is usually very simple. I think if we can be approximately right, that is good enough.

If you contribute $300 to your CPF-SA each month from age 33 to 55, starting with a base of $40K at age 33, you would have $223,381 at age 55.

Principal: $119,200.
Total interest: $104,181.

I used the CPF Compound Interest Calculator.

Of course, you would probably end up with more than this because the first $40K in your SA will get 5% interest per annum and not 4%.

Now, if you were to do a $7K Minimum Sum Top Up to your CPF-SA every year from age 33 to 45, I don't know what you might end up with at age 55. I will say "a lot more". ;p

A lump sum $7K compounding at 4% per annum for 22 years will become $16,852. Total interest: $9,852. Since you plan to stop doing Minimum Sum Top Up after age 45. Then, your final contribution at age 45 will compound for 10 years which will give you $10,436. Total interest: $3,436.

You could do the rest of the calculations yourself (11 years to 21 years) and total them up.

You will have a lot of money in your CPF-SA at age 55. ;)

Best wishes,
AK

Related post:
How to upsize $100K to $225K?

AIMS AMP Capital Industrial REIT: An opinion. (UPDATED)

It has been a long time since I blogged about AIMS AMP Capital Industrial REIT which, till today, is still my largest investment in the S-REIT universe.





Reader says:

Dear AK,

I noticed from one of your recent posts that you invest quite a lot into AIMS AMP Capital Reit & 

I have heard a lot of good word about this reit too from other people & so I am interested to invest in it. 

However, I read somewhere that they were known as Macarthur Cook Industrial Reit & during the 08/09 financial crisis, they actually diluted the shares of the unitholders, causing dividend yield to drop. 

From what I know, that was due to the managers not seeing in alignment with the unitholders. 

What are your thoughts on this & do you think it'll happen again in another crisis? Thanks!

Best Regards,
J

My reply:

Hi J,

MI-REIT was a disaster because the management, then headed by Chris Calvert who went on to lead Cambridge Industrial Trust, did not secure financing for an asset they committed to buy. 

So, when the global financial crisis struck, credit dried up and MI-REIT was in big trouble.

Back then, George Wang led AIMS and AMP Capital from Australia to recapitalise MI-REIT. 





The recapitalisation exercise was accepted and AA REIT was formed but not without some drama. 

Of course, George Wang and partners got MI-REIT for a song. 

Why would they pump in their own money, otherwise?

Anyway, the important thing is that George Wang et. al. turned around an ailing REIT. 





They put in so much of their own money in the REIT, they must make sure the REIT adds value for investors over the years. :)

AA REIT is a very different animal from the old MI-REIT. 

The REIT's income is more diversified and its finances are also more resilient. 





The REIT is now bigger and better. 

I don't know what is going to happen in the next crisis but chances of the REIT coming out of one fully intact are much higher today than back in 08/09.

Best wishes,
AK





Related post:
6M 2015 passive income from S-REITs.

6M 2015 passive income from non-REITs.

What did I do in the non-REIT space in the first 6 months of 2015, specifically in stocks which pay dividends?

I added to my long position in Accordia Golf Trust which I initiated in late 2014. AGT's unit price fell to a level which I felt made it a fairly good investment for income. Of course, it has fallen to a lower level by now and I have been accumulating on weakness.

I added to my long positions in Hong Leong Finance and Singapura Finance (both trading at a discount to their NAVs) as I believe that a rising interest rate environment should benefit them because their NIMs should improve. Interest income forms about 80% of their total income. So, they are not as resilient as the 3 local banks but they should benefit disproportionally when interest rates are higher.

Singapura Finance

I added to my long position in Wilmar International which, if we have been following its many developments, is a bigger and more dynamic creature now than a few years ago. There are many things to like about Wilmar, including its relatively depressed stock price which incentivises me to buy more. So, I bought more when its stock price dipped slightly below its NAV earlier this year.

I added to my long position in ST Engineering which is one of the founding members of my investment portfolio. Although they will pay only 75% of their earnings as dividends instead of 100% when I first became an investor donkey years ago at $1.55 a share, it doesn't bother me. The fact that the company has grown and enlarged their footprint in the USA over the years is good news to me now with the US$ set to strengthen against the S$.

I added to my long position in SembCorp Industries and reduced exposure, both actions within 2 or 3 months of each other. For the full story, read related post at the end of this blog post. I believe that SembCorp Industries and SembCorp Marine have both hit a speed hump but I don't think they are going kaput.

SembCorp Industries

The world will still need crude oil and other products derived from crude oil. The world will still need energy. The world will still need clean water. SembCorp Industries should be more resilient than SembCorp Marine, obviously, but since I believe that they will both do well enough given time, I am willing to wait and be paid while I wait.

I also added two dividend paying stocks to my non-REIT income portfolio as their stock prices retreated from their highs: Tai Sin Electric and Starhub. For the stories, read related posts at the end of this blog post.

For the first 6 months of 2015, I received dividends and distributions from the following non-REITs:

1. SingTel
2. APTT
3. SPH
4. Croesus Retail Trust
5. OUE Limited
6. SembCorp Industries
7. SembCorp Marine
8. Wilmar
9. NeraTel
10. Hock Lian Seng
11. ST Engineering
12. Hong Leong Finance
13. Ascendas H-Trust
14. QAF
15. Accordia Golf Trust

SPH retains majority ownership of SPH Trust.

I need to remember that that Hock Lian Seng's dividend included a special dividend and it is, therefore, extraordinary. I must not think that it is going to recur although they do have a lot of cash on hand. The sale of Skywoods condominium is chugging along well enough and it is by now almost 70% sold. With a packed order book, Hock Lian Seng should continue to deliver good results in years to come.



Oops. I almost forgot.

For the first 6 months of 2015, passive income received from non-REITs is S$38,925.57 which works out to be $6,487.59 per month.

Related posts:
1. 2014 full year income from non-REITs.
2. SembCorp Industries: Partial divestment.
3. Tai Sin Electric: Nibbling for yield.
4. Starhub: A nibble at $3.85 a share.
5. Hock Lian Seng: Robust order book.
6. 6M 2015 passive income from S-REITs.
7. AK says create your own Dividend Machines.

6M 2015 passive income from S-REITs.

I shared how and why I reduced my investment in Sabana REIT substantially and the much lower level of passive income received from my S-REIT portfolio last year was mostly due to this. I retain a very small position in Sabana REIT as a reminder or incentive for me to track new developments, if any. The REIT could become a good investment again in future if the management get their act together.

I feel that although the distribution yield looks relatively attractive for Sabana REIT now, investors want to be cautious and remember that there are only a few months "before the expiry of 11 master leases (and) the Manager is working towards renewing or securing new master leases for 7 of them. The remaining 4 will likely be converted into multi-tenanted buildings." Occupancy level will most likely fall and DPU will most likely take a hit, all else remaining equal.

I am still rather happy with AIMS AMP Capital Industrial REIT. They are doing the right things to add value for unitholders, especially in the way they go about re-developing their properties to max out their plot ratios. I really like how they secure pre-commitment before embarking on such projects and I like the fact that insiders have a meaningful stake in the REIT too. This REIT is definitely one up on Sabana REIT.

I haven't really made any changes to my portfolio of S-REITs (from July 2014 to June 2015) apart from initiating a long position in Soilbuild REIT. The expectation that the REIT would benefit from commercial entities moving their activities (like call centres and IT departments) to business parks should pan out nicely.

So, although industrial properties S-REITs are expected to face challenges from more supply of industrial space in the next 2 years or so, Soilbuild REIT should weather this relatively well.

What about my investment in Saizen REIT? Well, there is some talk on how residential property prices in Japan have gone up in recent times because foreigners are more enthusiastically investing in Japan again. There is also some talk about how prices have gone up too much because rentals have not gone up in tandem. So, some are saying that prices must come down and maybe they would.

Now, perhaps, it is timely to remind ourselves that Japanese residential property prices continually fell for two decades and the fall in prices had been much sharper than the fall in rental in those twenty years.

Something I blogged about in December 2009: here.

The increase in property prices since the introduction of Abenomics is just a bump in comparison to the fall off the cliff in those twenty years. Saizen REIT remains very undervalued and should be a natural beneficiary of the recovery of the Japanese housing market.

My three largest investments in S-REITs are still:

1. AIMS AMP Capital Industrial REIT
2. First REIT
3. Saizen REIT

They account for the bulk of my passive income from S-REITs.

I also have smaller long positions in the following S-REITs:

4. Sabana REIT
5. FCOT
6. Suntec REIT
7. LMIR
8. Cambridge Industrial Trust
9. Cache Logistics Trust
10. Keppel REIT
11. Soilbuild REIT



Half year (2015) passive income from S-REITs: $45,626.80.

On a monthly basis, this works out to be $7,604.46 a month. The slight improvement compared to 2014 is probably due to the addition of Soilbuild REIT to my portfolio.

Although interest rates are expected to rise in the near future, it would be a mistake to think that S-REITs will all go the way of the Dodo. Remember that S-REITs might be bond-like but they are not bonds.

S-REITs are really property leasing businesses and they are more likely to do better compared to bonds in a rising interest rate environment. S-REITs are, generally speaking, still relevant instruments for income investors.

Related posts:
1. 2014 full year income from S-REITs.
2. AK says create your own Dividend Machines.