9M 2015 passive income from S-REITs.

The stock market has declined a fair bit in the last three months. For a while, there was some panic. Even now, there is probably a lingering sense of unease in the air.


We must know what to do when presented with a situation. Knowing what to do depends on our own set of circumstances and also motivations. 

Recently, a reader asked me if she should sell a stock which she said she bought at a much higher price some time ago. 

I asked her to consider if she would buy that stock now at the current price if she didn't buy it at a much higher price earlier.

We want to buy at a price we would not sell at and to sell at a price we would not buy at.

There isn't a universal right or wrong answer. At least I do not believe there is. We could each have an opinion on something's value or the lack of it.

Anyway, what have I done in the last three months?

In the last three months, in the S-REIT space, I added IREIT Global to my portfolio as its unit price declined. I like the properties the REIT holds but I thought its IPO price unattractive.

To own freehold office buildings in Germany, arguably the strongest economy in Europe, is an attractive idea. At the current unit price, an 8% distribution yield is achievable.

My initial investment in the REIT is not a big one. In fact, it is relatively small and probably gives me only a toehold.

IREIT Global's relatively high gearing level and the weak Euro are pertinent concerns. 

However, IREIT Global's loans are in Euros. So, they do have a natural currency hedge. This is unlike LMIR's situation. 

Having said this, I feel that the largest decline in the Euro against the S$ could well be behind us. The S$ has weakened considerably as well. 

My reasoning here is really similar to my earlier reasoning on how we shouldn't see much more weakness in the JPY against the S$ when considering whether to invest in Saizen REIT or Croesus Retail Trust.

I also added to my long position in Soilbuild REIT at the end of August, paying 75c per unit, having avoided adding to my position as the REIT's unit price rose to the mid 80s earlier.

I like the fact that the REIT benefits from the shifting of certain commercial activities from office buildings to business parks which form a relatively big percentage of its assets.

I believe that Soilbuild REIT and AIMS AMP Capital Industrial REIT are well managed industrial properties S-REITs. They will face challenges as the economy soften but they should be more resilient than office REITs which predominantly have office space in Singapore's CBD.

Next, I think it is probably timely to comment on a development which has been gaining momentum in the S-REIT space.

Many S-REITs have DRPs (or DRIPs), Distribution Re-investment Plan. Some readers asked me if I would take part in these plans. 

My answer is that I invest in S-REITs for income. So, I would usually take the cash distributions unless there is a chance to benefit from arbitrage which happened once before for AIMS AMP Capital Industrial REIT and some might remember that I blogged about it.

We must stay realistic. Remember that S-REITs' unit prices could come under pressure in the short term. What is short term? Maybe, the next one or two years.

Many S-REITs' unit prices have already declined somewhat in recent months. This is probably in response to interest rates which have risen because the S$ has weakened quite significantly against the US$.

When the US Fed finally moves to increase interest rate by, say, 0.25%, before the end of the year we might see a knee jerk reaction which could send S-REITs' unit prices lower as risk free rate rises.

Taking distributions in cash would give us more resources to take advantage of such a situation if it should come to pass.

I do not think that S-REITs' distribution yields would rise to the levels seen a few years ago during the Global Financial Crisis but the possibility that we could see yield expansion happening exists.

To be sure, there is really no need to be pessimistic. S-REITs remain relevant tools for income investors. They are not going to go kaput. We should try to stay pragmatic.

How much? Oh, sorry, I have been rambling.

Total income from S-REITs for first 9 months in 2015: S$73,139.35.

This works out to be S$8,126.59 per month.

Related post:

6M 2015 passive income from S-REITs.

A financial strategy for the elderly with spare cash.

I am sure many of us are good children and worry for our parents.

Dear AK,

I have been reading your blog for a while and I do agree with a reader that there are many pieces of gold to pick up regardless how we traverse your site.

I would like to seek your thoughts on doing financial planning for elderly. To be specific, my mother (70 years old) has recently struck a windfall. As she is not good with her money and I believe that within one or two years, that money would have been vaporized if she were to donate some to temple, give some to children, grandchildren , overly indulge herself and so on.

She has stopped working few months ago and her children have been giving her monthly allowances (regardless if she is working or not). Her CPF does not give her monthly payout as she does not qualify for the minimum sum (the amount is $60,000 during her time).

I would like to help her draft out something such that she can still receive monthly 'salary' from her windfall. By having monthly salary, it would gives her the feeling of being independent and have control on what she wants to spend on, instead of relying on her children. Having said that, her children will still continue to give her the monthly allowance.

This amount of money, besides being able to give her monthly payout, would at the same time be earning interest and to 'grow' more money as well. I am not sure if she should do a voluntary top up to her CPF account such that she can receive monthly payout, or she should keep it in fixed deposits of varying duration.

Would appreciate if you could help to throw some light.

Thank you

Best regards

LT

Hi LT,

Your mom is very lucky to have good children. :)

OK, know that I am not a qualified financial adviser or something. I can only talk to myself:

"For the elderly, they should be more concerned about not losing money instead of growing money. They should not be taking too much risk.

"If they are not investment savvy, they could consider contributing to their CPF account. The money will be split into the OA, SA and MA. Since they are 55 years or older, they can withdraw the money when they need (except for money in the MA). If they don't need the money, leaving it in the CPF means getting 2.5% to 4% in interest income.

"For the more elderly, those who are 65 and older, I think this is a good enough option and is something I have asked my parents to do.

"For the younger seniors, those who have just turned 55, they could consider Top Ups to their CPF-RA if they believe in an annuity that will pay them a monthly income for life from age 65."

I hope I have not confused myself. -.-"

Best wishes,
AK

Also read this:
Improving retirement adequacy for my dad.

Related post:
Make my money last longer? A senior's example.