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Email exchange with a reader on some REITs.

Saturday, November 20, 2010

I have been receiving more emails from readers in the last few weeks. Although I try to answer all of them in a timely manner, it might get harder to do so in time. So, apologies in advance for late replies.  

Having said this, certain emails posed questions to which the answers could be found in my blog. Just use the Search function at the top of my blog and chances are you would find the answers. Thanks for helping me to help you. :-)

Here are some bits from an email exchange I had with a reader recently on certain REITs which might be of interest to some of us:

Reader (R): 
I was wondering about Saizen, with the price at 16.5c now.. is it still feasable to enter or is it too high? 

AK:
Saizen REIT? Well, at 16.5c, I am still not a seller but I am not a buyer too as I am already vested. If I were not vested in the REIT now and if I am happy with a 6.5% yield on freehold Japanese properties, I would buy some first. That's just me. Disclaimer applies.

R:
Hey ak very sorry i have so many questions :) May i know how the 6.5% yield for saizen reit is calculated? Thanks. Appreciate it.

AK: 

R:
Hey thx!! Yea saizen would be more affordable for me than first REIT.. Which is stronger from ur point of view? Thx :)


AK:
Stronger? Hmm.. They are in two different sectors and countries. Cannot compare. They have different benefits and risks.

R:
Also, Another small question would be, do you think that the jpy/sgd exchange rate will affect the earning numbers for saizen reit in the near future?

AK:
I expect the JPY to stay strong against major currencies in the near future. Over a longer period, it is harder to say. Stay nimble.

R:
I see, i agree with that, lets say i have 10k investable assets atm how much would u say i put into reit?

how much of each reit do you own? Im really interested in Saizen and Aims but im not too sure which would be better.

AK: 
If you have $10k in cash and it is money you do not need in the next few years, you could consider putting all of it into REITs if you are after a regular income.

Saizen REIT is my largest investment although its distribution yield is estimated at only 6.5%. This is because I think the Japanese real estate market has limited downside from here and things would get better very soon.

It is also because the properties are freehold in nature. So, they are perpetual income generators. Once the last CMBS is refinanced, it would probably lead to an upgrade by rating agencies and we could see some capital appreciation too. It should trade at a 5% distribution yield in line with most REITs in Japan which means there could be a 20% upside in unit price.

AIMS AMP Capital Industrial REIT is my second largest investment. Its forecast DPU for 2011 is 2.08c.  At the current unit price of 22.5c, distribution yield is a nice 9.24%. This could possibly explain partially the recent buying interest. Many pension funds are invested in this REIT. These are long term investors and provide stability to the REIT's price. 

However, we have to remember that the REIT is invested in relatively short term leasehold properties in Singapore (where most industrial properties have land leases of 30 years). The REIT has to continually renew its leases but this could take the form of acquisitions to keep the average lease of its portfolio healthy. More fund raising? Yes, I think so. 

So, the yield of 9.24% is not real and we have to give some of that back. However, comparing apples with apples, if Sabana REIT is able to price its IPO at $1.05/unit which means a yield of 8% or so, we could see AIMS trading closer to an 8% yield eventually and this means there could be a 10% upside in price.

I would not put all my money in a single REIT or in any one single company. That is risky. You have to decide how much you would put in each. Good luck.

6 comments:

Singapore Stock Analysis said...

Hi Ak,
This is Chan :)
My estimated average price for 5 lots of first reits
per lot = 0.682

0.955 x 2000 = 1910
2.5 entitled rights + 0.5
=0.5x 3000 =1500

total 3410

per lot= 3410/5=682
average price = 0.682

Nav after dilution of rights issue = 0.77

so the discount =
0.09/0.77x 100=11%

regards chan

AK71 said...

Hi Chan,

Thanks for sharing your calculations with us here. So, you bought some First REIT recently at 95.5c, I see. :)

Getting the 0.5 lot of excess rights would bring your average price below the TERP of 70c/unit. Nice! ;)

Drizzt said...

boss you gotta do something about your RSS feeds because its been littered with alot of html tags!

must be some advance thing you doing to the feeds that is making it less enjoyable

AK71 said...

Hi Drizzt,

You have to help me out here.

As you know, I am not very IT savvy but I do not see any HTML tags. I am using Firefox and IE8. Shows up OK.

I haven't done anything to the feed. Being such an IT dinosaur, I try not to make any changes if I can help it. ;)

Drizzt said...

ah i see if i can figure it out man.

AK71 said...

Hi Drizzt,

Thanks! You're the man. :)

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