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Investor psychology and beating our fears.

This blog is a follow up to an earlier blog titled: Increased investment in Religare Health Trust by more than 150% . This is in respons...

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"E-book" by AK

Second "e-book".

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2016 full year passive income from non-REITs (Part 2).

Saturday, December 31, 2016

UPDATE (20 Jan 17):
When I shared my full year results for non-REITs last year, I wondered if Religare Health Trust (RHT) might be privatised. Then, with Accordia Golf Trust's (AGT) sponsor being bought over by Korean investors, MBK, many asked what is going to happen to AGT? A reader, betta man, shared this with me:

https://www.smartkarma.com/insights/accordia-golf-agt-sp-high-conviction-family-office-favourite

There is nothing wrong with speculation as long as we know we are speculating. Me?
I am quite happy to hold on to my investment.

-----------------------------------------------------------------------------

As promised, this is Part 2 of a very long blog post. If you have not done so, read Part 1: HERE.
Let us start this blog post with some gossip. Wah! Is Religare Health Trust going to be delisted?

You say, I say, they say. Hmm. ;p

Anyway, three big things happened in the non-REIT space for me.

1. A big thing was receiving a much larger than usual distribution from Religare Health Trust (RHT) which I initiated a long position in sometime last year at 88c a unit. The special dividend (which gave me a yield of almost 30% based on cost) came from them disposing a share of an income generating asset due to regulatory requirement. Including regular distributions this year, RHT has been a very rewarding investment for me. I am quite happy to continue holding on to my investment in the Trust as it continues to generate income. 
See this chat with a reader:

2. Another big thing that took place in the non-REIT space was the internalisation of Croesus Retail Trust's management. There was a rights issue because of this. I took up my entitlement and also applied for excess rights. The rights units were priced at slightly under 80c a unit (and will enjoy a distribution yield of almost 9%). The size of my investment in the Trust increased by almost 6% as I took advantage of the exercise.

3. The third big thing is the offer to privatise ARA Asset Management at $1.78 a share. This is likely to be concluded by the middle of next year and based on my entry prices, I would get to enjoy reasonably attractive capital gains of 35% to 78% although I would miss the regular dividends.
As I had a fixed deposit maturing and with the much lower interest rates offered by the banks this year for fixed deposits compared to last year (1.1% per annum at UOB for 13 months, for example), I decided to buy more ARA shares at $1.71 a share in late November.

I believe that this is possibly an arbitrage opportunity which could give me an "interest rate" of about 4% over a period of, maybe, half a year. 

It could be higher because ARA pays dividends twice a year and another payout could happen in April or May. If it should happen, I could see a DPS of 2c to 3c if the privatisation process is not completed by then.

Of course, to be realistic, there is a chance that the offer might not be accepted as I know some shareholders feel that the offer of $1.78 a share still undervalues ARA. 


In such an instance, I would be quite contented to hold on to my latest purchase to receive regular dividends (for a 3% dividend yield based on a DPS of 5c or about 50% of EPS) as I also believe ARA is worth more and that its shares should trade at a higher price. 

Delist or stay listed, I am happy with ARA either way.

Total dividend income from non-REITs in 2016: 


S$ 105,641.29


This translates to S$ 8,803.44 per month.

Apart from dividend income, regular readers know that I used to trade stocks more actively. Earlier this month, I revealed on my Facebook wall as well as the comments section here in ASSI:
Source: A wealth building strategy that has worked for AK.

Although I enjoyed some capital gains from a few trades this year (and the most recent trades being in DBS as its share price rose significantly for a few weeks), it is due to an emphasis on investing for income that has ensured further improvement in my financial health.

On this note, I will now say something about APTT because it seems that many readers were attracted to APTT by the relatively high distribution yield of 10% and bought into it. Now, many of them are worried because the unit price plunged.
If we know the value of a stock, we would know if the price makes sense. If we didn't know the value of the stock, we would never know if the price makes sense. If we don't know this, price movements would make us emotional.
I said before that APTT's past DPU of 8c was unsustainable. Although the management reduced DPU to 6.5c, I said that it might be more prudent to have a DPU of 4c which, I felt, was more sustainable. That was because 4c would be closer to APTT's EPS. 

At 37.5c a unit, I decided to add to my investment in APTT recently. I know what some people might ask and here is my answer: 

I don't know if the unit price will decline further but if it should, knowing what I know and all else being equal, I would probably be buying more.

Investing in APTT, we are not investing for growth. We want its income generation ability. If you thought you were investing for growth when you got into APTT, you might have the wrong tool. 

Know what we want to do and use the right tools.

For those of us who invested in APTT for income, ask if anything has happened which has damaged its ability to generate income significantly and, if something has happened, is the damage long lasting? Then, do what you have to do.

Know what am I going to say? 

Yes, if AK can do it, so can you!

HAPPY NEW YEAR!

And I hope you have found my blogs this year to be inspiring and helpful on your own journey towards financial freedom.


Let me know if I should continue talking to myself next year. ;)
LOL. From my FB wall (1 Jan 17).

Related posts:
3. Made $1m investing for income.
4. 2016 FY income from S-REITs.

Outlook for 2017 
(by OCBC Investment Research):
While the overhang from Brexit and the US presidential election is over for now, heading into 2017, we expect continued weakness in oil-related stocks, softness in the property sector and higher impairment charges for banks to be some of the factors that will dent investor confidence in the Singapore market. While interest rates are likely to head higher, we believe the hunt for yield is not completely over and investors are still likely to accumulate quality high-dividend stocks. We expect banks to report low- to mid-single-digit earnings growth, and the outlook for the residential property sector is still soft after numerous quarters of decline and with no clear pickup in demand or selling prices. The oil and gas sector is still saddled with refinancing issues as well as a lack of orders and earnings. The telecommunications sector is also facing the threat of a new player.
-----------------------------------------
Watch from the 22nd minute for the discussion on Singapore banks:

45 comments:

Happydoggy said...

hello AK,

Impressive results! Something out of the topic here. May i know when will the interest of the CPF be credited into our CPF accounts (for all 3)? Today is 31st Dec liao and i am anxious to see my interests! Haha. If you know rough when it will be credited, please share with me ok? I have been logging in my CPF account to check. :(

Regards
Happy Doggy =)

Happydoggy said...

hello AK,

Impressive results! Something out of the topic here. May i know when will the interest of the CPF be credited into our CPF accounts (for all 3)? Today is 31st Dec liao and i am anxious to see my interests! Haha. If you know rough when it will be credited, please share with me ok? I have been logging in my CPF account to check. :(

Regards
Happy Doggy =)

Shiwei Foo said...

Hi AK,

Please continue to talk to yourself, i am truly inspired by your sharing!

Thanks!

F4FF said...

With this post, i think aptt will gap up on tues already. Haha

Tony C said...

Yes, please continue to talk to yourself! Always silently listening in. very inspirational.

K said...

Hi AK,

Thanks for your blogs. Is it possible for you to share with us approxiately what is your average yield for your total portfolio (REITs + non-REITs)? This is just a referencing point for me to access my own returns.

Thanks.

AK71 said...

Hi HD,

"Interest crediting is in progress and will be completed by the 4th working day."

I believe it is the 4th working day of the new year. :)

AK71 said...

Hi SW,

I am glad. Gambatte! :)

myinvestmentmachine said...

Yes, pl keep talking to yourself =)

AK71 said...

Hi F4FF,

I hope not. I would like to buy more on the cheap. -.-"

Anyway, I don't think my blog has that kind of reach. ;p

AK71 said...

Hi Tony,

I recently found out that my blog does not sit well with some people and actually got on their nerves. It is fantastic what having a page on FB can do because whatever people do is collected as data. This includes negative feedback.

Since I am unlikely to change my blogging style, I want a feel as to whether readers like what I am doing now.

Thanks for the affirmation. :)

AK71 said...

Hi K,

Years ago, when I was asked to share information on my portfolio, I didn't want to because I didn't want to reveal how much money I had invested.

However, after some thought, I was OK with letting readers have a peek and to inspire them as to what they can do. I decided on revealing dollar value (because cash flow is what should matter most to us in life).

Of course, if you are curious and hardworking enough, you could do some CSI in my blog and get quite a good estimate. A few readers have done that before in the past.

Don't find out more about my portfolio in order to assess your own performance (returns). If you are doing better year after year, that's good enough. :)

AK71 said...

Hi MIM,

If readers still like me to continue talking to myself, I will do so (whenever I am not feeling lazy). ;)

Lennard said...

Please continue talking to yourself to inspire others. There will always be naysayers, but I'm positively sure that those who appreciate your blog post far exceed those who don't.

Happy New Year!

AK71 said...

Hi Lennard,

If readers are happy enough with inspirational blogs, I am happy to keep blogging. :)

Those expecting more could be disappointed as I prepare for a lazy year ahead. Er. OK, to be more accurate, a lazier year ahead. ;p

Bad AK! Bad AK! -.-"

Lim Pang Ooi said...

My dearest and one and only AK

Please continue talking to yourself on your stock purchase in your blog. You have inspired to save money like you and to buy income generating assets. So please please please continue. You are the one and only blogger I follow.

AK71 said...

Hi LPO,

Dun bluff. ;)

K said...

Hi AK,

Is 6% yield a fair target to strive for, based on SGX?

Thanks.

AK71 said...

Hi K,

I don't like to strive. It sounds laborious and I am a lazy guy. I wait for Mr. Market to make me offers I find attractive most of the time. ;)

Is 6% yield fair today? I think that is a difficult question to answer. There are so many factors to take into consideration. It could be a fantastic yield for certain stocks and it might not compensate for the risk we have to take for some other stocks.

If you do not have the inclination to research individual stocks, you might want to buy into an STI ETF (a basket of stocks) which gave in most years since 2008 a yield of about 3%.

Lim Pang Ooi said...

Hi AK

Would to hear your comments on APTT. I did a rough calculation on the Free Cash Flow of APTT, it is about 2.3 cents per unit. So would like to hear your views even if APTT were to give 4 cents, it may still be not sustainable??

AK71 said...

Hi LPO,

Can share how did you calculate the FCF?

I calculated the Funds From Operations (FFO).

EPS is about 3c but FFO per unit is higher as we add depreciation and amortisation expenses to the number since these are non-cash expenses. FFO should be about 6.5c per unit. So, although the EPS has fallen to about 3c, a DPU of 4c should be sustainable as FFO is still higher.

AK71 said...

Hi LPO,

I should mention that APTT has cautioned there would be additional CAPEX in 2017. This would impact FFO. Even so, I estimated FFO per unit should decline to about 5c in such an instance. The current 6.5c DPU could be reduced further but if we are expecting a more realistic DPU of 4c, I think we probably would be able to rest easy.

Lim Pang Ooi said...

Hi AK

I took the net cash from operations + interest received - interest paid - Capex to get the Free cash Flow. In this instance, I got 34 million. Then I divide by the number of shares outstanding which is then equal to 2.3 cents.

I thought we should use Free Cash Flow to get the sustainability of dividends rather than funds from operation?

Lim Pang Ooi said...

Hi AK

I took the net cash from operations + interest received - interest paid - Capex to get the Free cash Flow. In this instance, I got 34 million. Then I divide by the number of shares outstanding which is then equal to 2.3 cents.

I thought we should use Free Cash Flow to get the sustainability of dividends rather than funds from operation or even EPS?

AK71 said...

Hi LPO,

For you, I think the number that is the determinant is CAPEX. This is not a constant number and I am assuming CAPEX in 2017 to be $40 million.

Investing in business trusts and REITs is for income. It is better to use FFO as a gauge. Where would the money for depreciation and amortisation go to, otherwise, if not paid to unitholders? I know, it should be put aside for asset renewal and that's how regular businesses would work. ;)

So, to be conservative, we can use EPS instead of FFO to see what is more sustainable. :)

Tanya said...

Nice... your portfolio is generating so much each year! Wish I can do the same. I think the storm is coming for my company. I've got a feeling they'll announce a round of retrenchment and people like me might be on the list :(

AK71 said...

Hi Tanya,

You said your investment properties generate enough income to meet all your expenses. You are financially free too. Don't be greedy. ;p

You are better prepared for retrenchment (if it should happen) than many people like some of your colleagues with more than a million dollars of debt and their luxury cars. Mentally and financially prepared for retrenchment.

Whatever will be will be. Rest easy. :)

Tanya said...

Hi AK,

Perhaps maybe can use this excuse to be a stay home housewife. :)

AK71 said...

Hi Tanya,

SAHW? Oh, sneaky! You good!

OK, let me be the bad guy here.

Wait till you become a SAHM! That's a full time job! ;p

Glen Ang said...

Hi AK,

I'm 22 this year and just starting my investment journey. I'm very intrigued by income investing and would like to know if you have some books or information for me to learn more about this?

I hope to generate as much passive income as you in the future too! Great job!

AK71 said...

Hi Glen,

Look for the box titled "Food for thought" in the right side bar of my blog. You will find links to some books there.

Down the blog, you will also find boxes titled "Passive Income: A Journey" and "My methods and Philosophy". No books. Just me talking to myself.

Aiyoh, don't use me as a benchmark. Stress. -.-"

Glen Ang said...

Hi AK,

Thank you for the direction! I'll be on my way to devour the wisdom and get started soon!

No need stress lah. You've been doing really well! I was actually thinking of doing income investing in the US market but I see from you that it's possible in SG too.

Lim Pang Ooi said...

Hi AK

Thank you for your comments and views on APTT. This further affirm that you are the one and only blogger I follow and also my most beloved and darling blogger.

This is also affirm that you must really continue talking to yourself with so many supporters behind you and not forgetting your darling here.

AK71 said...

Hi Glen,

When you listen to someone talking to himself, beware. That someone could be mental. ;p

AK71 said...

Hi LPO,

Mr. Market was probably overly pessimistic about APTT. His mood seems to have improved. APTT is 41c a unit now. ;p

Time for me to take a break. LOL.

AK71 said...

Internally managed to improve alignment and removes one barrier to a takeover. We maintain our BUY call with a higher TP of S$0.99. We believe the perception of a greater alignment between the interest of Croesus Retail Trust (CRT)’s unitholders and management following CRT’s move to be the first internally managed trust will help close the discount to our TP.

In addition, with CRT no longer having an external trustee-manager, we believe this may remove a hurdle to a potential takeover by a J-REIT as speculated by some market participants due to CRT’s persistent high yield and discount to its NAV.

Boost from recent acquisitions. Going forward, CRT should benefit from the full-year contribution from the acquisition of Torius property in Fukuoka (7.8% yield based on net property income (NPI)) in Sep15 and recent purchase of three retail malls (Fuji Grand Natalie, Mallage Saga and Feeeal Asahikawa) on 7.1% NPI yield.

Medium-term upside potential from asset enhancement initiatives (AEIs). Over the medium term, CRT should also receive a boost from potential AEI and/or tenant remixing at One’s Mall, Torius Mall and Feeeal Asahikawa.

Source:
DBS Research

betta man said...

Nibbled APTT at $0.38 today as price retreated. Hope it is a good entry price.

AK71 said...

Hi betta man,

There is always hope. I hope so too. ;)

AK71 said...

"Presently trading at 0.7x P/B, we are recommending a BUY on Accordia Golf Trust (AGT) with a target price of S$0.77 based on 0.8x P/B. AGT would be able to dish out higher distributions by 13.8% for 1H17 just from favourable FX movements alone, based on our SGD/JPY assumption of 75. Valuations for AGT also seem attractive as its 89 golf courses have an appraisal value of JPY150.98bln (approximately S$2bln), which is much higher as compared to its market capitalisation of S$747.4mln and NAV of JPY80.59bln. Coupled with its low P/B of 0.7x and high dividend yield of 9.8% as compared to the FTSE Straits Times REIT Index which trades at 1.0x P/B and 5.6% dividend yield, we thus believe that AGT should trade up to 0.8x P/B which represents a signifi cant 20% discount to the sector average." LIM & TAN.

AK71 said...

"AGT’s sponsor is the number one golf course operator in Japan and has a stabilised portfolio of some 26 golf courses available for acquisition. AGT’s target is to acquire ¥50bn worth of golf courses by end-Mar 17. Its loan-to-valuation (LTV) ratio currently stands at 28.8%. The maximum LTV ratio that AGT can leverage up to is 60.0%. AGT is still in negotiations with its sponsor and the company believes that its ability to conclude some accretive acquisitions could re-rate its share price." CIMB

Potatoish said...

Hey AK,

check this out!They are going digital :D

http://www.chinapost.com.tw/taiwan/national/national-news/2016/01/26/457034/Hon-Hai.htm

looks like Hon Hai boss is buying 'em up too. APTT prices seem to have stablised at this rang for now. At 38cents and a possible DPU reduction to around 3-4cents which I can accept, i am vested small.

Gong xi fa cai!
JQ

AK71 said...

Hi JQ,

It is reasonable to believe that all investments are good at the right price.

Gong Xi Fa Cai!

AK71 said...

Reader:
"... been thinking whether to sell my small investment in appt when a fren asked me to read your blog... can share how much did you buy at 37.5c?"

AK:
"You really have to ask if APTT has become a more attractive investment for you at 37.5c? Is it doing the job you expect it to do? Anyway, I more than doubled my investment in APTT when I bought more at 37.5c and, later, 38c a unit recently. You should remember that this should have no bearing on your decision making process."

betta man said...

APTT FY2016 results key highlights:

- Revenue for the year of $319.2 million
-EBITDA for the year of $189.3 million
- Distribution of 1.625 cents per unit declared for the quarter ended 31 December 2016; distributions declared totalling 6.5 cents per unit for the year ended 31 December 2016
- Distribution guidance of 6.5 cents per unit for the year ending 31 December 2017

Looks like your thrust in APTT has been validated.

AK71 said...

Hi betta man,

I don't know if I trust APTT but I definitely thought that Mr. Market was overly pessimistic and that APTT was oversold when I added to my investment. :)

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