Another quarter has passed and it’s time for another update.
For a change, I’ll reveal the numbers first.
Third quarter 2024 Passive income:
$85,223.17
This is a slight decline, year over year, as well Third quarter 2023 Passive income was:
$85,307.78
The difference is almost negligible but it is still a decline.
The reason for this is the much lower shareholding from Sabana REIT which has reduced my exposure significantly.
The REIT used to be one of my biggest investments but that is no longer the case.
Losing one of my largest investments would certainly have a significant impact on my passive income.
However, as the blog title suggests, thanks to the high dividends I received from my investments in banks, the impact has been mitigated.
The money from the sale of Sabana REIT was used to bolster my treasury ladder which is of course my war chest.
I am in no rush to distribute the money because I am already heavily invested in the stock market.
Looking at the investments that contributed the most to my passive income in Q3 2024:
1. OCBC
2. DBS
3. University of Opp
No surprises here given that OCBC is my largest investment and is roughly the same size as my investments in DBS and UOB combined.
DBS will generate more passive income for me due to the bonus version which actually gives a 10% increase in profits received.
UOB is UOB.
Conservative and plodding but still more than decent enough.
In a recent video, I said that I would not be adding to my investments in banks as their stock prices reached all-time highs.
I will wait for prices to decline before adding.
To be fair, at 1.2x, 1.3x or so book value, OCBC and UOB’s common shares don’t look that expensive.
So, if I haven’t invested in local banks yet, these will be the banks I invest my money in first.
4. ERET Global
In a recent response to a comment on REIT, I said this:
“The IREIT property in Berlin will be vacant for 12 to 18 months very soon.
There is no income to be generated through this asset after that.
So, expect income to be affected.
There’s also the point you (the reader) raised, which is a point I’ve made several times in relation to REITs.
The refinancing will take place in a higher interest rate environment although up to 6 or 7 interest rate cuts will be made by the end of 2025.
I made a video about a year ago talking about all of this and said I wouldn’t add to my IREIT investment unless the unit price dropped a lot.
However, there were readers who added between 32 to 36 cents per unit.
To be fair, it’s not just IREIT, and I’m not interested in putting more money into any REIT right now.
My recent video on banks and REITs made this very clear.
My focus is on income and valuation, not prices.”
I recently did a podcast with The Fifth Person and there was a segment on whether banks or REITs are more attractive as income investments.
If you’re interested, here’s the video:
In its latest update, IREIT Global said it is in the final stages of pre-leasing the Berlin property to another hotel and hospitality operator.
They expect to double the asking rent, which I think is realistic since property in Berlin is significantly under-rented.
I feel that Berlin real estate is currently undervalued, and if the REIT management does a good job, we should see the value unlock.
IREIT Global’s gearing ratio remains very low but its borrowing costs are likely to increase in 2026 when it refinances.
This is despite the fact that we will likely see several rounds of interest rate cuts before then, as interest rates will still be higher than we saw in the years following the global financial crisis.
However, the REIT’s relatively low debt level should help lessen the hit that rising interest rates bring.
Not long ago I disclosed that my investment in IREIT Global suffered a significant loss in securities.
I use the word “nursing” and not “suffering” because the REIT still pays me big dividends even when Mr. Market is pessimistic about it.
At the current unit price, the distribution yield is around 8%, and since I feel it is undervalued, there is no reason to sell.
I’m very happy to have the money while I wait for things to improve.
However, if Mr. Market entered a major depression and offered me a 10% distribution yield, all other things being equal, I would probably buy more.
This would be very similar to the dividend yields offered by our local banks at the time.
All investments are good investments at the right price.
The right price is not a fixed number.
It must change if the circumstances affecting it change.
5. AIMS APAC REIT
I can’t end this blog post without mentioning AIMS APAC REIT.
It is still one of the biggest sources of passive income after many years.
For me, this is a risk-free investment as I made all my capital back many years ago.
The unit price can go up or down and it won’t affect me at all.
For people who have recently invested in a REIT, please note that the REIT holds perpetual bonds which means their effective readiness level is higher than their stated readiness level.
Invest in a real estate investment trust (REIT) only if we are comfortable with it.
Having said that, the REIT is well-managed and has significant gains as the logistics properties that the REIT revolves around mostly remain in high demand.
Remember, if AK can do it, you can too!