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Wednesday, April 18, 2018

Close shave

Luck plays a huge role in successful investing. Don't let any one tell you otherwise.

In my last post, I had identified Lippo Malls Reit as a potential addition to my portfolio in view of its recent correction to 40 cents and its attractive trailing yield of close to 9%. Ultimately I did not go with Lippo, and instead opted to increase my holdings in Ascendas htrust.

My reasoning was mainly that I did not fancy the IDR-based income and felt that the share remain overvalued compared to its NAV.

This proved to be a close shave.

Just days after my purchase, the Indonesian Government announced a new 10% tax on rental income obtained from land leases. This is expected to reduce DPU by 7.2%.   By the reit manager's own estimate, the DPU per share for 2017 would have dropped to 3.19 cents had these regulations been put in place at the start of 2017.  Did not see that coming.

The market's reaction appears to be severe. The share price has corrected from 39 cents to 32.5 cents at the time of writing.

This means the trailing yield of Lippo now is close to 10% (even based on the reduced DPU). It is often said that any investment can be a good investment at the right price.

I may initiate a position into Lippo if it falls under 28 cents.

The basis for 28 cents is because the expected DPU (minus income support from sponsor) is around 2.72 cents a share. Taking into account the new tax regulations, we ought to further reduce the real DPU by 7%, which is 2.52 cents a share. In order to provide a 9% yield, the share price should be around 28 cents.

Caveat emptor

Onward to FI!

Monday, April 9, 2018

Ascendas hTrust

In a previous post, I alluded to the surrender of an investment linked life policy which i have held since i started working. The cheque came in last week. A respectable S$31,076  after 10 years of servicing my monthly premiums.

To be honest, I do not recommend investment-linked policies to anyone. Sub-par returns after management fees. If I had invested all those premiums with a blue chip like DBS/Singtel since 2007, the returns would have been far more erm... substantial.

I also do not recommend life policies for anyone unless their (untimely) demise would somehow bring their immediate family to the brink of financial ruin - hard to imagine this would be "most Singaporeans". Hence, life policies are really for a fractional minority, whose circumstances fall into the above described category.  For everyone else, they are just acting as ultra low yield, capital-non-guaranteed, bondholders to the financial juggernauts. Short, short end of the stick.

This fresh injection of funds into my warchest prompted a review of my REIT watchlist. REITS are relatively less overvalued now following a recent correction.

I narrowed my selection to:

Lippo Malls (yield >9%)
Ascendas hTrust (Slightly undervalued, moderate gearing ratio, close to 7% yield)
Starhill Global Reit (Very undervalued, moderate gearing ratio, 6.4% yield)

Lippo recently corrected to below $0.40 a share and has a trailing yield approaching 9%. Even with this correction, it remains overvalued (its NAV per share being 0.32). Furthermore, investors would do well to demand a higher yield from a REIT whose income is in IDR, since any weakening of the Rupiah would send yields tumbling faster than the viewership of Tanglin. Additionally, there have been murmurs in the market that Lippo may raise its gearing or issue rights to strengthen its balance sheet.  In the end, despite the attractive yield, I said no.

The choice boiled down to Ascendas and Starhill.  Those who follow my blog would know that I currently hold both Reits although Starhill constitutes a very small fraction of my portfolio. Conventional wisdom dictates that I should diversify my holdings and increase my Starhill investment.  However, I am not very persuaded that the dark days of Orchard Road are behind it. Footfall has been dropping despite tourism in Singapore picking up. One should bear in mind that tourists these days have far more options than the 1990s-2000s.  The Marina Bay area, in particular, with its iconic architecture and Gardens arguably generate more interest than the (now aged) Omotesando of Singapore.  That said, I think the YTL management is shrewd and has done well by locking in escalating rents in their crown jewel asset that is Wistma Atria. While past rejuvenation efforts have been lack lustre, one should never doubt the tenacity (and resources) of the Singapore Government.

On the other hand, the good thing about Ascendas hTrust is that its hotel properties are substantially diversified by geography.  Distribution has slowly grown over the last few years despite the general downturn in the hospitality sector, which may be testament to the quality of the properties (if not the management). I last bought into the trust at 81 cents a share and it is currently trading at 79 cents.  Well, if i thought it was a good deal back then, surely there is no reason to turn down the market's generous discount.  At 79 cents, the trailing yield is at a respectable 7%.  Hopefully, the DPU would be maintained (if not increased) going forward.

With the above in mind, I purchased another 65000 shares of Ascendas hTrust @ S$0.790 on 6 April 2018. This investment is expected to generate S$ 3600 in dividends this year, or around S$300 a month.

Onward to FI!!