A strategy to grow wealth and augment income (2013).

I am primarily investing for income and in my last blog post, in what has become a yearly practice, I revealed my full year income from S-REITs as well as how they fit into my investment strategy. They are relevant to income investors but with the spectre of rising interest rates in the years ahead as well as a peaking in the real estate cycle here, it is sensible not to be overly optimistic about S-REITs in general.

So, apart from a large purchase made in Saizen REIT in the middle of 2012, I have devoted most of my resources to stocks. These should be undervalued and are likely to continue growing for years to come. Since I want to have income from my investments, I would also like for these stocks to pay dividends.

Marco Polo Marine's yard in Batam.

Now, with these stocks, the main strategy is to buy and hold. However, I am not averse to trading around my investments. So, I could divest partially or fully if it is a good idea to do so. For 9M 2013, I revealed that I locked in gains of S$188,625.13. Has the number changed?

Well, I mentioned that I partially divested my investment in Sabana REIT last month. This added S$12,860.03 to gains from trading in 2013.

So, total trading gains in 2013 is S$201,485.16.

What about adding to my long positions?

What I hope to do primarily is to identify good companies, initiate long positions in them at fairly good prices and then wait to add to these positions if there should be bad news which send their share prices down. These are companies which I am comfortable to stay invested in for years, knowing that they possess some competitive advantages which differentiate them.

Warren Buffett famously said that we should invest with the thought that the stock market could close the next day and not reopen for five years. What does this mean?

Invest in stocks of companies which we are confident will do better over the next five years. We wouldn't be bothered by any volatility in their stock prices in the meantime unless it is to add to our long positions with greater margins of safety. If we understand this, we will know what stocks to avoid. How? Do an inversion.


With this in mind, in the last three months, I added to my long positions in NeraTel and Yongnam as their share prices declined due to bad news which I believe are neither long term nor recurring in nature. I have received fairly good dividends from these stocks and I also made some money trading these stocks earlier in the year.

I also added to my long position in SPH. I was paid both the special dividend and the year end dividend for this as well.

Marco Polo Marine is still my single largest investment although its share price has not declined significantly enough for me to add to my long position. The much higher dividend per share paid out recently was a bonus.

I also retain long positions in CapitaMalls Asia and Wilmar International. These are strong companies and leaders in their fields. They are likely to do better in future.

So, was anything new added to my portfolio?

I initiated a long position in Croesus Retail Trust and even added to this position by using funds freed from a partial divestment of Sabana REIT.

Wait a minute? Didn't I say that I am wary of rising interest rates and a possible peaking of the real estate cycle? Yes, I did but Croesus Retail Trust owns malls in Japan and the BOJ is bent on keeping interest rates really low. Abenomics demand this. The Trust has a relatively low cost of debt which is locked in for 5 years.

Luz Shinsaibashi.

Japan has also suffered from continual deflation for 20 years. If anything, the real estate cycle should have a greater chance of bottoming than peaking. Anecdotal evidence tells of a recovering real estate market in recent months that is likely to pick up speed in future.

Although my strategy, with a generous dose of luck, has worked well this year, I can only hope that it will continue to work in the new year.

To grow wealth and augment income? Yes, indeed, that is the plan.

Related posts:
1. 2013 full year income from S-REITs.
2. Yongnam: Substantial shareholder increased stake.
3. NeraTel: Added to my long position.
4. Marco Polo Marine: Exciting times ahead.

AIMS AMP Capital Industrial REIT: Optus Centre.

I know I said in my last blog post that the next one will be on my other investments going into 2014 but I received a circular from AIMS AMP Capital Industrial REIT last night and I thought I should blog about this first. Change, the only constant in life.

Optus Centre in New South Wales, Australia, will be the REIT's first property outside Singapore. The proposed acquisition is for a 49% interest in the property.

The purchase will be fully funded by debt and, post acquisition, we will see leverage at 37.4%. This is comfortably under 40% and unless the REIT intends to have further acquisitions, I do not see a need for any fund raising in the near future.

As an investor for income, I am, of course, interested in how the acquisition might affect my income. Looking at the pro forma numbers, I am quite pleased with the whole deal.

The REIT's existing portfolio brings in S$59.75m in NPI annually while the property will bring in S$16.78m in NPI. The NPI yield of the REIT's existing portfolio is 6.2% while the NPI yield of the property to be purchased is 8.1%. I am happy to see that the acquisition is NPI yield accretive.

Sometimes, we see acquisitions which are DPU accretive and DPU yield accretive but are actually not NPI yield accretive. These are less desirable as it means that funds are being used to buy properties which will add to gross income but at a lower rate of return.

My confidence in the management of AIMS AMP Capital Industrial REIT's has strengthened with this acquisition. They have demonstrated their competence in all that they have done so far.

Although AIMS AMP Capital Industrial REIT has proven itself to be a well run REIT, with its NAV at approximately $1.48 per unit, post acquisition, to buy at a 10% discount to valuation would mean buying at $1.33 a unit. Yes, we all love margins of safety, I am sure, especially with the spectre of rising interest rates over the next few years.

At the current price level, I will not be adding to my long position in AIMS AMP Capital Industrial REIT. However, I see no reason to divest either because it has proven to be a good investment and is likely to continue delivering the goods.

As my single largest investment in the S-REITs universe, AIMS AMP Capital Industrial REIT will probably be making a slightly more significant contribution to income generated by my portfolio of S-REITs in 2014.

Related post:
1. Made and still making money.
2. 2013 full year income from S-REITs.