Passive Income Update (November 2020)
Welcome to my November 2020 monthly passive income update!
Where you’ll find out how much passive income I made, the new investments I purchased (and why) and how much these will contribute to my passive income going forward.
You’ll also find out about my sales, the reasons for which I sold and the impact on my forward passive income.
In doing these updates, I hope to inspire you to start investing to generate passive income or, for those of you already on your journey, to help you stay on course.
I am also indirectly benefiting myself as it forces me to review the performance of my holdings and check that I’m staying true to my investment strategy.
Tallying up the total passive income I receive on a monthly basis and seeing it grow over time is a constant reminder of the reason why I invest for income (and not only for growth).
After all, this is a marathon and not a sprint. Patience and discipline are key.
And, with that said, let’s go right into my Passive Income Update for November 2020!
Passive Income received in November 2020
The total passive income received during the month was €370 or $448 for those who prefer dealing in USD.
Following my record month last month, November was quite underwhelming, but hey, income is income and €370 is definitely nothing to sneeze at.
I’m still unsure if I’ll reach my target of averaging €500 a month over the entire year 2020 and November definitely doesn’t help.
I’m counting on you December. Only 1 passive income report left!
Let’s now go deeper into the different components of my November passive income stream.
Equities and Funds (listed securities)
As always, let’s start with my listed securities (i.e. those that trade on a stock exchange). These are made up of stocks, preferred shares and funds:
In total this adds up to $339.85 and £24.35.
Leading the pack this month is dividend powerhouse AT&T. A must have in any income focused portfolio.
One of the most reliable 6-7% yielders out there. I may need to add a bit more to my position so as to get me over the $100 quarterly income mark.
The runner up this month was one of my world ETFs, the HSBC MSCI World UCITS ETF. As a reminder, I diversify across World ETF providers given my substantial allocation to this index.
Overkill I know, but I guess I’m a bit compulsive when it comes to diversification.
Rounding up the podium is Main Street Capital, one of the rare monthly dividend payers and the best run Business Development Company out there.
It must be a low paying month if your 3rd highest contributor comes from a monthly income security.
As usual, my monthly paying Closed-End Funds as well as my other monthly dividend paying stock, Realty Income, have continued to deliver that monthly cash-flow.
I did get a small monthly dividend cut from EFR but I’m not too worried because it invests in floating rate securities, and we all know how interest rates have been trending.
None of my bonds payed out this month. I might go on a bond research spree during the holidays to see if I can find any opportunities, especially if we get a holiday pull-back.
I also received €62.47 of passive income from P2P lending comprised of €54.95 from Mintos and €7.52 from EstateGuru.
I’ve noticed that I have a couple of loans on EstateGuru in default, so I sure hope the recovery process will go smoothly.
In any case I think I’ll need to re-evaluate continuing to invest in the platform. I have so little invested in it and getting such a small income from it that it adds complexity to my life for not much benefit.
Either I will add more or I’ll completely withdraw.
I’ll decide when I review my portfolio in more detail during the holiday period.
Let’s end this section with the breakdown of the €370 of passive income I received for November 2020:
Investment purchases (and sales) in November 2020
As usual, let’s go over the transactions for the month, starting with my investment purchases:
WP Carey Inc will bring in a very welcome $167.04 in forward gross annual income.
I invested less than usual in November because I invested a lot more than usual last month and couldn’t find any clear opportunities to put extra money to work in.
Let’s now go over my sales for the month.
My sales of Aroundtown and EPR Properties Trust will only result in a combined foregone gross annual income of €29.12.
Aroundtown had cut its dividend earlier this year but decided to reinstate it, at a much lower level, after I sold it on the 6th of November.
Overall, my transactions in November will yield me around €110 in net forward gross annual income. Definitely less than usual but still somewhat respectable.
Let’s now briefly go over the rationale of my purchases and sales, where I will provide more details.
Rationale of November 2020 purchases and sales
As you probably know by now, I include as part of my monthly updates, the rationale for the individual purchases and sales I have made during the month.
The aim is to provide even more value to you. Either as an extra source of investment ideas or through providing some glimpses into my thought process when buying, or selling.
And with that said, let’s start with the sales.
You’ve probably never heard of Aroundtown.
It is one of the largest European REITs with a market cap of nearly 10B euros at the time of writing.
Aroundtown is a diversified REIT, both in terms of type of real estate it buys and in terms of geography, with properties across Europe.
It is primarily invested in Office buildings (52%) but it also has almost 25% of its portfolio in hotels with the balance being spread across residential, industrial and retail properties.
Germany is by far their largest market.
I invested in Aroundtown before the pandemic as I wanted more exposure to European REITs given my frustrations in not being able to find a rental property to buy.
I was primarily attracted by the stock valuation, its property portfolio and its diversified nature.
I decided to sell because it cut its dividend during the pandemic and also because I only had a very small position in it. The fact that I was no longer very confident in the future of the office property market was also definitely a factor.
I also wanted to consolidate my portfolio by reducing some of my non-core positions and rotate the proceeds into WP Carey Inc., on which I’ve had my eye on for a while (I’ll present WP Carey Inc. when I will present my purchases).
I sold Aroudtown at the worst possible time. The trading day before the COVID vaccine announcement on the 9th of November, when it shot up and continued trending up.
Luckily the amount I had invested in it was relatively small and I sold at a small loss. But I could have waited a bit and locked in a 25% gain instead.
Alas that is how markets work, I never imagined that the vaccine news would come one trading day later.
I guess that’s why they say that hindsight is 20/20. Nothing you can do about it, just take it on the chin and look forward.
EPR Properties Trust
EPR Properties Trust is a leader in experiential real estate and I don’t know of any other REITs in this space who provide exposure to cinemas, golfing, amusement/water parks and ski resorts.
They also have an allocation to schools that has recently been reduced. That’s a shame because I was really attracted to this property type as well.
I had decided to invest in EPR because of its unique proposition in the REIT space, the quality of its management and my firm belief that people, especially millennials will continue to increasingly value experiences over material objects.
Then the pandemic hit and EPR, who had such a good track record got hit incredibly badly and its share price tanked and it completely cut its very juicy and dividend, which it used to pay monthly I might add.
An income investor’s worst nightmare. The double whammy, paper capital losses and no income.
I had initially decided to hold on to my shares because EPR luckily had a lot of cash on hand pre-pandemic and I was confident that it was enough to tide it over to the other side of this pandemic.
However, I also knew that its greatest exposure was to cinemas and that its largest tenant, cinema chain AMC is struggling. And struggling is an understatement here.
When the second wave hit and when EPR announced a lease restructuring agreement with AMC (that would reduce EPR’s cashflows going forward) I started looking for an opportune time to exit.
On the 9th of November, I was ready to buy WPC Carey Inc with partial proceeds from Aroundtown and some cash I had on hand, when I realized that EPR had shot up by a huge amount.
20-30%, if my memory serves me well, due to that very same vaccine news that made me miss out on Aroundtown.
What’s more, it had shot up much more than WPC so I decided to sell it and consolidate my position.
I did sell at a substantial loss but it was a lot less than the 70% loss I had at one point.
I decided that it wasn’t worth waiting to see how the pandemic and AMC story would pan out, especially since EPR had cut its dividend and had made agreements with some of its creditors to not pay any dividends in 2021 either.
It also lost its investment grade credit rating meaning that going forward, borrowing will be more expensive.
Definitely no regrets in selling EPR, even though I’m pretty sure that it will eventually recover in the medium term.
WP Carey Inc.
As I mentioned, I rolled my sales of Aroundtown and EPR into WP Carey Inc.
WP Carey Inc, ticker WPC, is the second largest Net Lease REIT in the U.S. after Realty Income.
WPC’s portfolio, as per their Q3 2020 investor presentation, is comprised of 1,215 net lease properties that are leased out to 351 tenants.
The portfolio is very well diversified across property types with Industrial and Warehouse properties comprising around 47% of Annual Base Rent with the balance allocated to Office, Retail, Self-storage and Other.
I much prefer the portfolio allocation of WPC Carey Inc. than Aroundtown.
Industrial properties have been on a tear in recent years due to the shift to ecommerce, which has only accelerated in the context of the pandemic.
What I also like about WPC is the fact that it’s one of the few U.S. REITs with a significant exposure to Europe (35%), a market in which WPC has a longstanding experience of over 20 years.
I was also buoyed by the news that Realty Income very recently started acquiring properties in the continent demonstrating the attractiveness of the market.
WPC is also much diversified across tenant industries and has relatively little exposure to those most impacted by the pandemic.
I’ve had my eye on WPC for a while but the price had run up quite a bit before the onset of the pandemic.
I was also a bit concerned by the fact that only around 29% of its Annual Base Rent comes from Investment Grade tenants.
And when the pandemic hit, I was almost certain that this would significantly impact rent collections, which is why I refrained from investing at the depth of the crisis in March and April.
However, it looks like I was wrong and as of Q3 2020 only 1% of rent was deferred and another 1% of rent has not been paid. Exceptional results, especially when compared to other net lease REITs.
Same story when it comes to Occupancy levels, WPC has demonstrated a consistent quality in ensuring very high levels of occupancy across a long period of time, spanning several crises.
I was also attracted to WPC’s investment grade credit rating, the fact that it has a decent balance sheet and that it still had a relatively attractive valuation with Price to Funds from Operations (the P/E ratio used for REITs) of around 15.
Especially in this frothy market.
But most of all, what I really like about WPC is its very juicy yield of above 6% and its enviable track record of over 20 years of consistent dividend growth. This is Here Income after all, so it should come as no surprise.
While dividend growth rates have been low as of late, I feel that I more than compensated for that by the already high yield and fair to slightly undervalued valuation metrics.
Having missed the opportunities to WPC at yields as high as 8% in the depth of the pandemic, I have only initiated a partial allocation to WPC, which I plan to increase when I get the chance to buy at a yield closer to 7%.