3 reasons to bet on Croesus Retail Trust

Gone were the days where Croesus Retail Trust lingered at below its IPO price of S$0.93 around one year ago. It has been on an upswing recently, up almost 8% in a month. This can be due to the positive news where it still has the first right of refusal to 2 additional malls in Japan.

Other than that, there are 3 compelling reasons why Croesus Retail Trust is worth another look:

1. Strong Financials: Besides reporting Actual results that out-performed forecasts in 3 straight quarters, it is offering a dividend yield of 7.37%.
2. Right Place, Right Time: Croesus Retail trust properties are all situated in Japan, a country where many asset values have fallen drastically for the past decade. Nevertheless, under Abenomics, the middle income crowd seems to be getting back into shape.
3. Awards: Winning the title of "Best Small Cap Company" drives in the notion that management team is delivering a good job in steering the company to greater heights.
4. Growth Plans: Opportunities of Rental Reversions are intact. With accretive acquisitions & rental increases -> it can lead to higher distributions in the future too.

Nevertheless, investors will have to take note of the high gearing ratio (53.5% as of 31 March 2014) which seems to be more than the average REITs in the market. If you are interested about the company, you can read more here.

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Different types of Alternative Investments

As i browsed through the financial readings for the night, I saw this particular watch that is selling for an astonishing price I can ever imagine.

Guess the Price?

Its selling in The Hour Glass for S$150,700! I can only use one word to describe - disbelief. S$150k can buy me a car straight or used as downpayment for a condo or something... And what if you drop it on the floor accidentally? Ouch!

Then again, it spurred my thoughts to head another way - Alternative Investments.

Types of Alternative Investments

Offhand, I can name just a few like Gold, Wine, Watches, Collectible Coins etc... Wanting to know more, i did a search and i realize basically; An alternative investment is any investment other than the three traditional asset classes: stocks, bonds and cash!

So practically many other things like fine art, private equity or real estate are considered alternative investments too! 

Let's take a look at some of the popular ones most investors will pursue (considering hedge funds, private equity are only limited to accredited investors with S$1million or more):

Coins

The collectible coins are valued, not for their weight in precious metals, but because of their scarcity. Popular collectible coins include Morgan dollars, Walking Liberty half dollars and certain Buffalo Nickels. 

Many factors influence how valuable a particular coin can be such as:

1) condition, 

2) which mint mark it carries and 

3) the year of issue. 

Mint condition coins are always more valuable than coins that are heavily worn. Certain years of coins had fewer mintings, making them more rare and valuable [source: Coin World]. For example, some 1918/7-D Buffalo Nickels could be worth as much as $285,000 because the coins were printed with overdates when then 1917 die was impressed with a 1918 hub.

In the coin market, the rarest coins tend to provide huge returns (upwards of 100 percent of their value in a year), while more marginally rare coins provide only modest returns (sometimes as low as 0 percent in a given year). With any investment coins, find a dealer with a good reputation and inspect the coins carefully before making a purchase, as there are always forgeries circulating.

Commodities

There are tons of commodities traded in the futures markets including resources like crops and livestock, fossil fuels such as oil and coal, and precious metals like copper and gold. Nevertheless, the most 2 common commodities people keep a tab on are Oil and Gold prices. 

Do you still remember the financial crisis from the U.S. sub-prime era? During the period, everyone was worried of the hefty debt levels in the U.S. and sought safety in gold; thus Gold sky-rocketed in the aftermath and investors who bought into it early would have seen impressive returns. On the other hand, economies across the globe aren't doing well, and leading to a drag on the oil prices.

There are various ways to buy into commodities (you don't have to buy the actual stuff and store in your house!). One is to buy into commodity futures through a broker which involves leverage or stocks/companies that are into the mining or supply of the relevant commodities. 

Lastly, if you wish to seek diversification, you can also go for exchange traded funds (ETFs) where you can purchase several different commodities at one go, rather than focusing on one. ETFs can eliminate some of the uncertainty from choosing which commodities might rise and fall at a given moment too.

Real Estate/Property

Historically, real estate has been a very popular alternative investment especially in Singapore as people view it as a form of retirement scheme. History has proven itself as many rich people in Singapore do that due to the rise in property prices in the past few decades. 

Buying rental property can usually provide steady, reliable income if you find the right tenants. What's better than having someone else pay for your housing loan and to own a house debt-free at the end of it? This is a way to beat inflation and to take advantage of leverage in the best form, provided that the "ingredients" are well in place.

In contrast, if you are afraid of the hassle of owning a physical property, you can always turn to real estate investment trusts (REITs). They offer a more hands-off, low-risk method of investing in real estate. 

An REIT is a group that invests in various real estate properties, and receives preferential tax treatment from the government in exchange for paying most of its income to shareholders. Investors can purchase shares of REITs on public exchanges, making them one of the more liquid alternative investments. Another upside is that, like stocks, shares in REITs pay out regular dividends.

Bottom-Line

Historically, many of these alternative investments have been more popular among high-net-worth individuals and institutional investors. That's because many alternative investments require larger initial investments than stocks or bonds and are usually less liquid. 

But despite that, there are some advantages to alternative investments. Read on to find out those advantages, and educate yourself before you dip your toes into those murky waters.

Diversification with High Income Yields' Plays

Chance upon a very good article written by a Money Morning Writer... It focuses on the type of income generating instruments and their risks + how you can diversify away the risks.

I didn't really notice there are so many income generating instruments so let me share with you the list here:

1. REITs
2. MLPs (more popular in USA)
3. High yielding mortgage REITs
4. Shipping Trusts
5. Utility (think Telecommunications / Electricity... people cant live without)
6. Financial Service Sectors
7. International Funds
8. Big Stable Companies with steady, progressing annual dividends

Meanwhile, Enjoy the article below :)

How to Be Safely Diversified and Earn Hefty Yields
If you're not at all concerned about yield, diversified income investing is easy. 

The market is full of consumer goods companies offering 3-4% yields some of which have staggering records of dividend increases for 30, 40 or even 50 years.

Provided these companies are not overpriced, they make very good long-term "heirloom" investments since they are very nearly recession-proof. What's more, once companies like these have established a track record of dividend increases for several decades, they take pains to keep it.

But the truth is a 3-4% yield on its own simply doesn't cut it for most income-seeking investors.

In Ben Bernanke's rotten world, a few select high-yield investments are practically a necessity these days.

After all, if you are looking to establish a $100,000 income stream, you'd need nearly $3 million in principal if your yield is in the 3-4% range. For many income investors, it's just not enough.

The problem is once you start to look for companies with a 5% yield or better, the selection of investible companies becomes much more narrow.

And here's what I know about narrow: it tends to concentrate your investments in a few sectors, which can be risky.

The good news is this diversification problem can be overcome. Let me explain.

The Search for Attractive Yields

In today's market, there are two types of companies that offer attractive dividends in the 7-10% yield range. They are real estate investment trusts (REITs) and energy/resources master limited partnerships (MLPs).

Both these investments benefit from special tax treatment, which means they don't pay corporate tax, provided they pass their income through to investors as dividends.

Although they are tied to the real estate cycle in apartments, offices, warehouses or retail buildings, equity REITs make solid investments.

They're not to be confused with the high yielding mortgage REITs that currently benefit from the Ben Bernanke yield curve.

The largest of these are American Capital Agency Inc. (Nasdaq: AGNC) and Annaly Capital Management(NYSE:NLY) both of which pay yields in excess of 13%. They invest in long-term fixed rate mortgages and finance themselves in the short-term repo market.

That's a very dangerous game, which promises to blow up when interest rates eventually rise. So don't get fooled by those gigantic yields, stick the property REITs.

On the other hand, MLPs offer investors the chance to benefit from the resource extraction business, whether oil, gas or mining. MLPs routinely pay yields over 6%, with some into the double-digits.

The snag to watch here is that income stream for most of them is tied to a finite pool of assets, or will expire in a finite period of time.

Since your investment is essentially "on the clock" that means that what you see is not precisely what you get; you have to look closely under the hood.

In this case investors need to make sure the yield is high enough and the pool of assets or life of the company long enough to justify the overall investment.

Another sector that offers high dividend yields is shipping.

With a 9% yield, companies like Safe Bulkers (NYSE:SB) offer investors the return from a fleet of ships, operated as bulk carriers (in SB's case) or as tankers.

The problem here is that shipping is a highly cyclical business. It depends not only on world trade and the strength of the world economy, but also on the shipbuilding cycle. In good years, the world's shipyards all operate at full blast and produce too many ships for the amount of trade available which eventually weakens the shipping market.

Even More Ways to Spread the Risk

Income oriented investors are thus likely to end up with a portfolio heavily weighted in real estate, resource MLPs and shipping. That's a start but doesn't quite do the job.

They will have nothing in tech, little in emerging markets, and not much in consumer staples (which typically yield in the 3-4% range).

They may have a few investments in electric utilities which can yield above 7% if the market is depressed. But the wise investor will be careful here - utilities' returns often have a maximum, imposed by the local regulators, but no minimum. If storms, earthquakes or unusual costs hit, utility profits and dividends can be decimated.

To be properly diversified, investors should consider these two sectors as well.

One is the financial services sector, where a number of companies making mezzanine debt and equity investments pay good dividends - a typical example is BlackRock Kelso Capital Corporation (Nasdaq: BKCC) which yields over 10%.

Here investors need to avoid companies that dilute net asset value by frequent share issues, since the managers of such companies typically make their return on assets under management. A couple of insurance companies also pay good dividends and can from time to time be interesting.

The other source of diversification is the international funds sector. There are a number of closed-end funds, such as the Mexico Fund (NYSE:MXF) which pay out a substantial percentage in "dividends" each year.

Provided the market in which the fund invests is healthy, this can be a good way of boosting income, while offering exposure to an interesting international market -Mexico itself is currently attractive. While purists will argue that part of these dividends is paid from capital, they at least offer the investor a good cash flow from a source outside the real estate, energy and shipping sectors.

Finally, another approach to income investing is to mix the 7-12% dividend yields from real estate, MLPs and shipping with "heirloom" blue-chips from other sectors yielding 3-4%, giving a blended cash flow yield of perhaps 6%.

For the safety-conscious yield-seeker, this may be the best strategy of all.

Good Investing,

Martin Hutchinson, Editor 
Permanent Wealth Investor

Singapore REITs safer than houses

Gotten an email from my stock broker again.. a very detailed analysis on why 

REITs 

are safer than houses?!

You can have access here: http://www.mediafire.com/?f2egf1j4tec8eh6

The 4 key points they talked about are summarized below:

1. Earnings and balance sheets resilient; A low interest rate environment and a firming SGD should continue to support yield compression
2. REITs delivering steady and dependable 13% DPU growth in 2Q
3. Sector gearing remains comfortable, at 31%, providing flexibility for acquisitions.
4. Valuations returning to long-term averages; risk perception to pre-crisis levels 

My Two Cents

Although REITs are still showing that they can deliver good returns to the investors; the distribution yield will become lesser if the price of the REITs go up. 

Thus, I believe when you are choosing your REITs, you will still do better in selecting REITs with constant progression in yield and has room for growth.

Going forward, capital appreciation of REITs may not be as robust as before since all the mid-caps are experiencing high volumes -> with risk appetites going up -> less people will turn to REITs for stable yield.

Nevertheless, they are still good for passive investing; especially for ladies who want to get higher returns but not interested (or will lose sleep) upon seeing the fluctations of the stock markets... (Monday and Tuesday is one such good example =p)

Hope you like my post and can do me a favour by "Like"-ing my facebook page at www.facebook.com/kissinvesting. Thanks & HUAT AH!

Benefits of Investing in REITs

Here's a sneak preview of my Ebook Launch soon! Stay tuned for more information!

Benefits of Investing in REITs

Although REITs are already there in USA for around 50 years, they haven’t surface in Singapore until recently. Meanwhile, people frustrated of their hard-earned savings being eroded by inflation has only the few usual investments to choose from: stocks, mutual funds, fixed deposit.

REITs emerged as an excellent alternative and have attracted many layman investors (many ladies) due to its advantages which I will go through here…

1.   

         High Yield

For many investors, the main attraction of REITs is their dividend yield. The average 6% p.a. returns notably run down savings and fixed deposits rates of below 1%!

Also, REIT dividends are secured by stable rents from long-term leases, and many REIT managers employ conservative leverage on the balance sheet.

2.    Double Tax Avoidance

REITs are exempt from taxes at the corporate level because of their legal structure as they agree to give 90% of their profits to investors.

Uniquely in Singapore, there is also no tax at the personal level for either dividends collected or capital gains when you sell the REITs!

Double taxation avoided leads to lower costs and allow more of your money to compound!

3.    Liquidity

Remember that a REIT combines qualities of real estate and stock? One major advantage a REIT has over real estate is that REITs are liquid on SGX.

Unlike real estate directly held by the investor, REITs are a liquid asset that can be sold fairly quickly to raise cash or take advantage of other investment opportunities.

4.    Diversification

Using REITs, investors with only a few thousand dollars available can diversify their holdings between various geographic areas and property specializations, depending on the REIT’s portfolio.

In the case of direct property ownership, this would not be financial feasible unless the investor took on excessive leverage or business partners.

Thus, a greater amount of diversification is generated as the trust companies are able to buy numerous properties and reduce the negative effects of problems with a single asset.

In short, investors are able to reap benefits of a diversified property portfolio for a small investment.

5.    Professional Management

A professional, dedicated management team responsible for the day-to-day operation of the business is able to provide the investor with expertise beyond his or her own knowledge base.

This is very important as they can also increase distribution through clever management strategies [e.g. draw in anchor tenants, renovating property for a fresh look, hosting events and promotions] which a single investor is fairly limited to.

Lastly, as the REIT manager would handle many properties concurrently, there are economies of scale to be harvested in the process.

6.    Easy Due Diligence

The best part about most REITs in Singapore is that it is easy to conduct due diligence (treat it as detective work, exciting yeah?!) on the REIT.

If you are looking at retail malls REIT, you can pay a visit to the malls to check out the crowd and gauge whether tenants are profitable. (profitable tenants = profitable REIT = $$$ for investors!)

If it is an office, you can easily view the condition and general maintenance of the building, its level of security, how conducive it is for tenants and how many vacancies there are in the building.

A short interview with the tenants may reveal to you their stance towards the management and the building.


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Singapore Reits Classified in Different Categories

Here is a Breakdown of the Singapore Reits into its various Categories.


You can zoom in on the more important indicators like "Annualized Yield", "Leverage Ratio" & "Price/Book Value" to select your desired Reit. :)


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