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To protect our wealth, we have to take risk.

Wednesday, March 9, 2011

By end of March, we would have received all of the income distributions for the last three months of 2010 from the REITs we might be vested in. The next income distribution for those which are paid quarterly would be in the months of May and June.

Someone who recently became more concerned with inflation's wealth eroding strength asked me what could he do to make his savings work harder. He knows about the stock market but he fears losing his money in the stock market whereas his money is safe in a savings account with a local bank.

I explained that he would still have his money in nominal terms, perhaps, if he keeps it in a savings account with a local bank. However, his wealth is definitely eroding away as inflation outpaces interest earned. That caused him greater anxiety. 

So, quite calmly, I presented him the following options:


1. Leave his money in a savings account with a local bank and make 0.1% per annum.

2. Leave his money in a fixed deposit with a local bank and make 0.45% per annum and be subject to a lock up period of 12 months.

3. Invest in certain REITs without any lock up period.


REITs are, of course, traded on the stock market like any stock. We could make some money or lose some money as unit price would fluctuate. The nice thing about REITs is their regular income distributions which, in the current day environment, are pretty dependable.

I presented him with these REITs which would be distributing income in May or June:


1. AIMS AMP Capital Industrial REIT:  Possibly a much lower DPU of 0.215c payable in June due to an advanced distribution payable on 28 March. At the current price of 21c per unit, that is a 1% yield in about 3 months.

2. First REIT: Estimated DPU of 1.6c at the end of May. At the current price of 74c per unit, it would be a 2.16% yield in less than 3 months.


Basically, in the short term, distribution yield from these REITs would beat bank deposit rates by quite a bit and that got him sufficiently interested in investing for income. 

Of course, he asked the usual questions as to whether his money is safe in these REITs. 

Well, the risks might be higher than leaving his money in a local savings account but the rewards could also be much higher.

To have peace, be prepared for war. 

To protect our wealth, we have to take some risk.

Related posts:
1. AIMS AMP Capital Industrial REIT: Acquisition of Northtech.
2. First REIT: Is the bear just resting?
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7 comments:

Anonymous said...

hello AK,

how do u derived estimated DPU for First Reit? or for matter of fact, how do you calculate future estimated DPU for most of the reits?
much appreciated
KM

AK71 said...

Hi KM,

The management of First REIT provided a guidance of 6.4c DPU for 2011.

Usually, we could just pluck the last quarter's DPU and expect the same distribution for the next quarter, everything remaining equal.

Distributable income is quite predictable since rental income is recurring, again, all else remaining equal. :)

Anonymous said...

hello AK

What about SABANA REIT. at current price of 0.955 cents. The yield is about 9 %. Worth to accumulate more ?

Anonymous said...

Hi AK

I understand i read elsewhere that you said we are in a bull rally in a secular bear mkt. Am i right?Does your opinion still valid?
If it still does, then how are you going to sell your hugh porfolio of reit and stock i found in your "my investment?

Thank.

AK71 said...

Hi Anonymous,

Soon after its IPO, the price of Sabana REIT sank below its offer price. It still is below its IPO price, I believe.

I was lucky to correctly call its bottom and was waiting with a buy queue at 92.5c but it was not filled. If there should be a retest of this low, yes, I could buy some. :)

Thanks for the reminder. ;)

AK71 said...

Hi Anonymous,

At last count, I have almost 1000 blog posts in ASSI by now. I tried looking for a blog post titled "My Investment" but I had to give up.

However, you are right in that I have a huge portfolio. In fact, I have more than one portfolio if we count the frozen portfolio as well.

I do not know if any of my ideas are valid. However, I certainly believe that we are in a powerful cyclical bull market and that we are still caught in a secular bear market. This is always at the back of my mind.

How am I going to sell my huge portfolio of REITs and stocks? I think you meant 'when'. Am I right?

Answer: When things look toppish, I would start liquidating.

At the moment, it looks like the bull still has legs. So, I am staying invested.

Things are looking especially benign for REITs with low interest rates on loans still a reality. In the last correction, REITs generally held firm while stocks were sold down.

I hope I have answered your question. Also, could you include your name or initials in future comments? Thanks.

AK71 said...

I said this in March 2011.

Today, almost 6 years later, I will say it again.

Those clinging on to the perceived safety of being 100% in cash will continue to experience wealth erosion.

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