I remember when I first started on my financial freedom journey, I was so hungry for knowledge that I would spend weekends tearing apart company balance sheets to look for hidden liabilities not presented their gearing ratios. Today, a productive weekend afternoon would be if I flipped through a prepared investment analyst report or the business section of the news.
I think life today is more fast paced than every before, with videos and content being pushed to us across most entertainment channels, there is a real chance that one can get lazy and stop creating.
It was therefore serendipitous that I came across a video which told you what happens to people who stop creating. You can catch the video here
According to the video, an increased exposure to screen time content resulted in children having a lowered level of executive function skills. In fact, they found a negative correlation between a child’s future IQ and time spent on devices.
This is a timely reminder that we were created to use our brains productively and our senses wisely. To sedate them in binge watching Korean dramas or Netflix series, is not only unproductive but also makes us more passive.
I remember that it was just years ago, where I could spend a week or so cramming for an exam. I was productive then, I will continue to be as productive today.
ESR stated on 27 Feb that it was intending to issue 263m new shares to partially pay off debt as well as fund the purchase of the AMK property. The offer was at 199 units per 1000 existing units or 1 unit for every 5 existing.
Having previously elected to reinvest my dividends through the dividend reinvestment scheme (DRIP), this rights issue represents another opportunity to collect more shares at a reasonable price. If successful, I would be able to increase my existing holdings by 30%.
While the elephant in the room is definitely the ongoing merger talks with Viva Industrial Reit. I had to conservatively make my subscription decision based on the conservative assumption that the merger would be unsuccessful. Having said so, I am still cautiously optimistic of it being approved.
Here are some reasons why I chose to subscribe..
New Management – Since ESR took over Cambridge Reit, it has executed its strategy quickly, by selling older properties and cycling them into newer plots with higher growth potential, the Reit is better poised for growth. The new manager seems also savvier in tapping the financial markets to fund growth as seen in its perp issuance. Going forward the transformation of the AMK property is an important yardstick to see how effective the management is in transforming the physical properties and in executing their strategy of obtaining higher yields
Management buy in – I like the fact that the sponsors have also undertaken to subscribe up to SGD 125m in excess rights. While you can say they are scooping up shares on the cheap, (ESR trades below NAV), I am only heartened that retail investors are able to join in as well
Reasonable Price – At SGD 0.54 this represents one of the lowest prices that ESR has traded at. The subscription price is 8% below NAV after preferential offering. Being able to buy in at this price would allow me to further bring down my cost per share and while growing dividend yield.
Growth potential – While the industrial Reit sector is still generally soft and the oversupply in the last few years have definitely eroded earnings. But I think that this means more space for an uptick in the future. The 2019 industrial space supply slowdown is definitely going to improve rental rates going forward. Thus this is worth waiting and observing.
I think ESR Reit is definitely a long term play on the industrial land sub-sector. The last few years since the end of the oil crash has not been kind to the industrial leasing space. However, the sector has remained resilient and is beginning to show some value. I am vested for the longer term and this preferential offering represents a good opportunity to accumulate.
I repaid half of what I took from the CPF to pay for the first 5% + Stamp duty. Its quite a hit on my wallet, especially since I paid 75% of the total bill. But I’m sure the money + interest will come in useful again when the key collection is here. At 2.5% this was higher than the banks savings interest rate, prevailing SSB or short-term instruments that were available, so while I am cognizant that the returns are low, I’m glad I tried my best. Also, the extra 1% under 20k goes to feed the SA account.
I also coerced/forced my girlfriend to do the same with her withdrawn amount. She paid down >90% of her outstanding. Hopefully, we will both be able to cross the line smoothly come key collection day in 3 years time.
The amount was quite a significant one and might well affect my ability to meet the portfolio targets set out for the year, but heck, it wasn’t money I was prepared to lose.