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First REIT: XR and fair value.

Wednesday, December 1, 2010

A friend called me yesterday and said he might buy into First REIT with a view of getting more excess rights. I gave him my full support and told him he is likely to make money in this exercise. It turned out that he didn't get any yesterday.

Assuming that he had bought 4 lots at 98.5c /unit, his average price including rights units would be:

98.5 x 4 + 50c x 5  /9 = 71.55c /unit

At the estimated annualised DPU of 6.4c for 2011, it would mean a yield of 8.94%.  Not bad.  If he managed to get 1 lot of excess rights later on, the average price would be 69.4c which means a yield of 9.22%! I like this.

My expectation is for the REIT to trade closer to an 8% yield.  That means I expect the REIT to trade closer to 80c per unit with the estimated annualised DPU revised upwards to 6.4c for 2011.

I had people asking me if they should sell their First REIT units when it went CR. My advice to them was to keep the units and to accept and pay for their rights.  The proposed acquisitions and rights issue is a good thing for existing unit holders: a strong yield on investment with a good chance of capital gains.  Of course, there were still some who sold which allowed me to buy more at 95c /unit.

In an earlier blog post, I mentioned that I did not see any reason why the REIT should trade below the TERP of 70c, XR, and if it did, I would buy more. Today, it touched 70c only to bounce higher. It closed at 73.5c after touching a high of 74c. Congratulations to fellow unit holders!

Allow me a little indulgence as this is something I have always wanted to do:

Rating: BUY.
Fair value: 80c/unit.

Related posts:
First REIT: Rights issue.
First REIT: Bought more at 95c.

14 comments:

Rookie said...

Hi AK71, Thanks for your previous posts on First Reit. I bought it after reviewing your analysis.
Thanks!

Derek said...

Hi AK,

Can I double check if applying of rights will commence on 8 Dec?

AK71 said...

Hi Rookie,

I am happy for you. Congratulations. :)

AK71 said...

Hi Derek,

The trading of nil-paid rights will start on 8 Dec. I suppose we could accept and pay for our rights at the ATM then as well. Of course, we could also apply for excess rights. ;)

However, there is no hurry since trading of nil-paid rights closes on 16 Dec.

A friend asked me the same question and I advised him to wait for the package from CDP for the deadline for accepting and paying for our rights entitlement. :)

Newbie said...

Hi AK,

If I were to only buy into First REIT now,would the current price be viable?At the current price of 0.74,it would mean a yield of 6.4/74 *100 = 8.64% yield...Pretty attractive in my opinion.My understanding of your opinion is that any price below 80c would be a fair buy?Thanks in advance.

WK said...

can pay via internet banking??

keep us update if u receive something from the CDP ya...

AK71 said...

Hi Newbie,

Whether something is attractive depends on individual standards. If you feel that getting a yield of 8.64% from, primarily, Indonesian healthcare real estate is attractive, you could get some.

There could be some investors who think it is risky being Indonesian. Given the country's history, demanding a higher yield from investments in Indonesia is understandable.

Personally, I am quite comfortable with First REIT. So, it is your call. :)

AK71 said...

Hi WK,

Not that I know of. Only by Cashier's Order or through the ATMs, I remember.

Internet banking for rights acceptance and payment would be a big step forward. I would like to see that as well. :)

We will all receive the package from the CDP at about the same time, I believe. Look out for it. :)

Derek said...

Hi AK,

Thanks. I need to transfer funds over so need time.

Any particular reason why to wait for the package from CDP for the deadline for accepting and paying for our rights entitlement? Is it so that our money won't get lock up?

sleepingsiok said...

Hi AK71,

I like your blog. Thank you for sharing. I am a new passive income investor. Just started doing this 1 year ago. Reading your blog has answered a few question that has been bothering me. ie. should I focus in one industry or diversify.

I need to seek your wisdom.

I bought some Starthub with dividend of 9.3% last year. By now the price has gained 26%. I have observed that Starhub is going downtrend. I am thinking of selling Starhub and with the profit to buy into AIMSAMPReit.

My question is:
1. Should a dividend investor adjust thier portfolio in this way?

2. Is this way of adjusting your portfolio a wise move? Is there any advantages and disadvantages?
I think I will only do this once a year.

3. Or should I just leave it and ignoring prices go up or down and just collect dividend?

AK71 said...

Hi Derek,

One reason is because I do not know when is the deadline for acceptance and payment of the rights entitlement. Information was not published by First REIT in the rights issue's time table.

This should be made known to us together with how many lots of rights we have been alloted. We should have the package in a week or so.

The other reason is because I might actually be buying some nil-paid rights when they start trading on 8 Dec. This is only if they trade at 20c or lesser. I do not think it probable but if it does happen, I would buy some. :)

AK71 said...

Hi sleepingsiok,

Based on fundamental analysis, I would only sell an investment if I feel that it was above fair value. Fair value depends on how valuation was done in the first place.

For Starhub, if your main consideration is yield, at the current price, would you buy more of Starhub's shares?

If your investment is still delivering what you want (based on the current price and not your purchase price), is there a compelling reason to sell? Such a reason could arise from fundamental or techical analysis.

Simply put, buy at a price you would not sell at and sell at a price you would not buy at. :)

sleepingsiok said...

Hi AK71,

I like your answer. Stimulate a lot of thinking......I like your answer. :)

Thanks!

AK71 said...

Hi sleepingsiok,

You are welcomed. I am glad to share and look forward to hearing from you again. :)

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