Sunday, June 18, 2017

10 Years As A Passive S-Reits Investor Recap

2017 is a special year for me as couple of milestones (in regard to investing or trading in stock market) have been reached.  One of those is being a decade of passive S-Reits investor.  Prior to 2007, I did invest in S-Reits but mostly on a short to mid term basis in which after getting dividend and seeing some capital gain just sold it off.  However, a personal experience then got me decide to become a real passive S-Reits investor.

Then S-Reits were considered defensive stock (as for now whether that still valid I'm not sure) given that the company has to give out at least 90% of their earning as dividend for tax incentive.  With an average dividend yield of around 5% for the S-Reits, some even can get as high as 8% - 10%, that was very attractive compared to bank saving rate and dividend from defensive stocks (like SPH, ComfortDelGro, SingPost, etc) then.  As such, my primary objective then was to just collect dividend annually and aim for that eventually one day the amount of dividend that was collected along the way allow me to get back the initial capital that I have put in.

The first S-Reits that went into my passive investment portfolio is First Reits followed by Cambridge Industrial Trust both in 2007.  I have to ride through the 2008 GFC with those two despite their stock prices fell below my holding price, injecting more capital to take out their right issues against the concern by analysts about their debt level and ability to pay dividend.  All this was because I BELIEVE in S-Reits and now I still believe in them.  Then when GFC recovered in 2009, I slowly added in more S-Reits to my portfolio with the like of CapitaMall Trust (2009), Mapletree Industrial Trust (2010), Kep Reit (2013), Kep DC Reit (2014) and Frasers Centrepoint Trust (2016).  Along the way I have to admit I missed out some of the better fundamental S-Reits when I have to opportunity to get them real cheap from the period of 2009 to 2012.  The like of Ascendasreit when I once bought around $1.20+ level during the GFC but sold it off after getting some gain as with my limited capital I could only choose between either CapitaMall Trust or Ascendasreit.  MapletreeCom Trust IPO was another that I have overlooked as then I already have CapitaMall Trust as a retail reits and see no point in getting more of the same sector.  Similarly, that was the reason for missing out on Parkway Life too (same sector as in First Reit).  However, I have made up some ground with some of those missed out S-Reits in 2015 when I started the Strategic section according to 孙子兵法, acquiring S-Reits with either $0 cost or a very low cost.  Now, my S-Reits base has included FrasersCom Trust (2015), MapletreeCom Trust (2015), Mapletreelog Trust (2015) and CapitaR China Trust (2016).  I do not rule out the possibility of getting more S-Reits (Ascendasreit, Parkway Life, CapitaComm Trust, MapletreeGCCT, Frasers L&T, and etc) into my portfolio just a matter whether I want to use cash to invest in my non-Strategic section or the $0 cost (or low cost) Strategic section.

The reward for being a decade as a passive S-Reits investor is the return (unrealized for capital gain and realized gain for dividend) that I have achieved.  As according to the closing price on 16th Jun 2017,

First Reit  --  Capital Return 117.07%, Dividend Return 96.97%

Cambridge Industrial Trust  --  Divested in 2015 with Capital Return 6.93%, Dividend Return 42.08%

CapitaMall Trust  --  Capital Return 66.59%, Dividend Return 69.85%

MapletreeInd Trust  --  Capital Return 107.14%, Dividend Return 56.42%

Kep DC Reit  --  Capital Return 35.01%, Dividend Return 11.06%

Frasers Cpt Trust  --  Capital Return 27.03%, Dividend Return 10.49%.

Kep Reit, FrasersCom Trust, MapletreeCom Trust, Mapletreelog Trust and CapitaR China Trust (all under Strategic section)  --  Capital Return 4102.85%, Dividend Return 134.47%.

Try not to read some much into the Capital Return and Dividend Return of the Strategic section (as those figure are meaningless to me), what important to me is the market value now for the Strategic section is 17.22% of the non-Strategic capital cost.  That is to say with the Strategic section, the cost of my non-Strategic section is cut by 17.22% or in another view, I am having an unrealized gain of 17.22% addition for the non-Strategic section.  That was my intention of having the Strategic section though it is still under constructing.  The progress is only about 13.34% and that means should the build up is 100% complete, the reward is very very attractive.

With most regard S-Reits as defensive investment, I have further classified a sub-level for the S-Reits in term of their defensiveness.  Health care S-Reits is the mother of all defensive, Retail (referring to those suburban assets) and Data Center are the second most defensive among the S-Reits.  Third is Industrial S-Reits, fourth is Office S-Reits (or commercial maybe some refer to) and the least defensive of all is the Hospitality S-Reit.  With this classification, I have put a restriction on my S-Reit investment of not investing in Hospitality S-Reits given that their business is very cyclical in nature and even if gives out a very high dividend yield still not worth for me to take the risk.

Being passive S-Reits investor is not an easy task as some of the time you have to resist divesting due to negative analysis from analysts like in 2013 when US Fed decided to start taping on its QE and embarked on hiking rate and analysts started to weigh in concern on the impact on S-Reits earning and their distribution.  You also have to resist to divest when you see the price of S-Reits rose to some super high level despite the fact that you see at that price level it is unsustainable.

As mentioned earlier, my primary objective for S-Reits investing was collecting dividend as a form of constant income and also hoping one day the amount of dividend collected equal to the capital I have put in.  However, in recent years that have changed.  I realized that if I want S-Reits dividend as a form on constant income say $2,000 per month, that is $24,000 a year and if the dividend yield is 5%, I would have to put in $480,000 in total, if dividend yield is 7%, the capital requirement would be about $343,000 and if lucky enough if the dividend yield is 10% then the capital requirement is $240,000.  Now the question is with a capital of $480,000 (a sum one can easily fully paid up a new 4 Rm HDB without taking a single cent of mortgage loan) do I want to just dump everything into S-Reits when the very basis of investing is not putting all the eggs in one basket and adopt diversification instead.  As such, in recent years especially after I adopted 孙子兵法 approach in investing I have completely dropped the objective of investing S-Reits as a form of constant income and I will also not constantly inject capital (I see a lot of people doing that so that they could invest in more S-Reits to eventually hit that constant income amount they are aiming for).  I am GOING FOR THE KILL in investing S-Reits ie putting in the minimum amount of capital and getting the maximum amount of return.  Isn't that what investing is all about ? Multiply up you money with little money and not keep putting in more money.

Since today is Father's Day, I will include the message I have for my children

Human Beings love and yearn for power and wealth, finding various means to achieve that.  Once they got it, they will trying ways to maintain or hold on to it as long as they want.  Unfortunately, not many can still maintain that purest, innocent and noble character and integrity they once used to have.  As such, I have chosen the most difficult task in life -- to live a simple life.

4 comments:

  1. Hello CCLoh,

    Congrats for a strategy that pays off handsomely.

    How do you resist selling "to preserve capital" to "cut loss" during late 2008 and early 2009?

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    1. i only have 2 reits then, First Reit and Cambridge. First Reit due to some personal experience (which I will write about next month) I knew I was on the right boat despite then the boat sank a bit. As for Cambridge, then the market value dropped to more than 50% of my holding price but I see no wrong because the then CEO started to restructure the company to reduce its debt and I have confident of what he was going to do. On top of that, I normally don't bother much about what analysts wrote as almost everything they were wrong. Moreover, the quality of analysts in Singapore is really suck, they just followed the wind, when market is down, they wrote negative or even extreme negative analysis and when market is up, the opposite happens. What an analysts should be and must do is to analyzed in a very rational way.

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  2. Interesting perspective on investing ; "putting in the minimum amount of capital and getting the maximum amount of return". So is your next step physical property investment?

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    1. sorry i do not and will not do property investment. to me property investment (if get it right can be very attractive but if get it wrong stuck for long long time) is very risky even riskier than stocks. not many can afford pay up the property fully without taking a mortgage loan (unlike stocks) and relied on renting out to help service the loan. in property and stock, if need to cut-loss no need for me to say stock is having every advantage over property. moreover, in stock i have the ability to overturn a loss position to recover but not in property.

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