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First REIT: Partial divestment at 79c.

Tuesday, August 16, 2011

I was working late today. Trying to figure out some computer related stuff and trying to get used to a new software. This is likely to remain a challenge for me at least over the next few days. I am definitely one of the least IT savvy people around but this is life, I guess.


Although I would like to crash into bed right now, I thought I should blog about my sell order for First REIT at 79c which was partially filled today. Sold some First REIT at 79c? Why?

Given the volatility in the stock market, I guess it should be a prudent decision to lock in some gains if we could. After all, the REIT is not going to distribute income for at least another three months down the road and there is a chance of further downside with sentiments so weak.


The black candle today was formed on the back of relatively low volume, however. Selling lacks conviction although it does not mean that price cannot drift lower.

77c, the low of the day, is where we find the 100dMA. 77.5c, the closing price, is where we find the 200dMA. These prices are immediate supports. If these were to go, I would expect price to go lower.

79c is a natural candlestick support turned resistance. If it should break on the back of higher volume, we could see gap covering at 81c. Before that, 80c should provide some formidable resistance for various reasons, technical and fundamental.

Good luck to fellow unitholders.

24 comments:

flyingchicken said...

Oh my...I just bought it today at 0.78 :(

AK71 said...

Hi flyingchicken,

At 78c, you are looking at a distribution yield of about 8.2%. If you are investing for income and this was your maiden purchase, it is not too mean. :)

Informative Blogger said...

I sold my 79.5 when the 80c support broke

AK71 said...

Hi Informative Blogger,

There are many reasons why different people would sell something. As long as the reasons are well thought out, I guess there is nothing to worry about. :)

mark said...

R u still holding onto nol?

Its interesting to note counters like nol.. .yanlord.

Anonymous said...

Hi! AK,

Sell already, invest in what?
If portfolio cash is enought to sleep well at night, and First REIT expected to perform ok for the very long-term (>30years).

Then I guess it is ok to "own" some hospitals.

I also exited some other holdings because of volatility but waiting to buy back at a discount or higher yield as a reward for assuming market risk.

Jimmy

Paul said...

Yeah. I'm looking to buy into this as well after my recent divestment in Cambrige and Cityspring.

Leo78 said...

AK71

Haversting before the storm :P

AK71 said...

Hi Mark,

Yes, I still have some NOL. In deep freeze by now. Brr..

Interesting? Positive divergence coming, you think? ;)

AK71 said...

Hi Jimmy,

I feel that First REIT will perform better than "OK" over the next few years. Even at the current price, First REIT is somewhat undervalued but barely so.

Share prices are moved by sentiments and with sentiments somewhat shaky, leaning towards negative, taking some gains off the table is a good idea.

As for what would I invest in after this partial divestment, I think that question would be of some concern if First REIT were my only investment in the stock market.

With quite a big portfolio, I am already very much invested. So, I don't have to be in a hurry to re-invest. :)

AK71 said...

Hi Paul,

I look forward to welcoming you as a fellow First REIT unitholder. :)

AK71 said...

Hi Leo78,

Hardly a harvest. Ha ha..
Just pocket money. Nice to have. ;)

Marco said...

Do you use PE ratio as one of the indicator for REIT revaluation? Why?

AK71 said...

Hi Marco,

PE ratios are more meaningful for companies because we gauge their performance partly by looking at their earnings.

For REITs, it is more meaningful to look at income distribution (DPU), gearing and NAV/unit, for examples.

You might be interested in reading this earlier blog post:

High yields: Successes, failures and the in betweens.

Good luck. :)

Anonymous said...

Hi AK,

PE is fine if you are using the distributable income per share. A 7% dividend yield implies a core PER of 14.3. Here is where things get interesting - ppl would avoid buying cash-rich with 5% yield companies at PER > 12 but have no qualms loading highly debted REITs at PER > 15 haha ! Does a high payout ratio influence a company's valuation ? What do you think ? Or perhaps I am rambling some nonsense !

Cheers,
Nick

INVS 2.0 said...

Make sure DPU is on an uptrend.

Make sure gearing is low. I would personally prefer <40%.

Make sure NAV is 10% - 20% below the NAV. A more accurate indicator is intrinsic value but very hard to calculate.

Well, that's my point of view. :)

AK71 said...

Hi Nick,

Hmmm.. I am wondering how you arrived at those numbers. There has to be some underlying assumptions which you did not mention. Taxing my old brain here. Sneaky fellow, you. ;)

PE needs to have EPS to calculate. Net income is required to calculate EPS. Total revenue - cost of sales/expenses/taxes = Net income.

DPU depends on the distribution policy of the REIT. This could be anywhere between 90% to 100% of the distributable income.

I might be a bit slow here but I don't understand how a 7% dividend yield (and I think you meant to say distribution yield) would imply a PER of 14.3x.

Finally, would I invest in a cash rich company with a dividend yield of only 5%, why not? I am, however, invested in some high yielding S-REITs now because of the very benign interest rate environment and supportive supply and demand conditions.

Money should go to where it is treated best. ;)

AK71 said...

Hi INVS 2.0,

Thanks for sharing. Useful input. :)

There are many more things to consider, of course, but I think the points you raised could form a nice platform to start from. :)

Anonymous said...

Hi AK,

The inverse of the PER gives the earning yield ie EPS / Share Price X 100%. This is similar to dividend yield ie DPS / Share Price X 100%. Since most REITs pay out 100% of their profits, the simple inverse of their dividend (or earning) yield gives the PER. So if I have a stock trading at $1.00 with 7 cents DPS, its PER is 1.00 / 0.07 = 14.3.

Companies on the other hand do not pay out 100% of their earnings - a figure of 30-50% is more common. If a company share price trades at $1.00 and its EPS is 7 cents, its earning yield is 7% with PER of 14.3. But let's assume it pays out 50% of its earnings to shareholder as a dividend implying a dividend yield of 3.5%.

Let's go further and argue that the REIT has a net debt to equity ratio of 30% while the company is net cash. Despite the similar numbers, it is often said that a growth coy with clean B/S trading at PER > 12 is fairly valued while a REIT at 7% yield is often a good buy !

Funny how the regularity of distribution and the level of dividend payout (which shouldn't play a role in the business fundamental) can create a distortion in our perception of what is cheap and what is expensive !

Please forgive my rambling haha ! I had this thought some weeks ago. Would welcome your thoughts here.

On another note, it is good to see that Bowspirit will most likely distribute FR's $8 mil one-off gain on disposal in the coming quarters.

Cheers,
Nick

AK71 said...

Hi Nick,

Thank you for fleshing out your earlier comment with more details and your assumptions. Always interesting to hear your ideas. :)

I would not go into comparing companies and REITs since the motivations for investing in the two are different; the former is more for growth and the latter is more for income.

So, when saying whether a company is fairly valued, it is meaningful to say this in comparison with other companies in the same sector. When saying whether a REIT is undervalued, it is meaningful to say this in comparison with other REITs of similar characteristics.

This answer is probably not a satisfying one for you since it is more a textbook sort of answer. You are ahead of me here, probably. ;)

Finally, yes, it was earlier mentioned by the management that divestment gains from its Adam Road property could be distributed to unit holders. Good news for us indeed. :)

INVS 2.0 said...

Hi AK71,

I am not into technical analysis. But a glance at the chart gives me this thinking - the 100MA represents a 50/50 possible downtrend while the 200mb represents a confirmed downtrend?

AK71 said...

Hi INVS 2.0,

Moving averages like the 100dMA and 200dMA are useful in showing possible resistance and supports. They are also useful in determining if a counter is in an uptrend or downtrend.

The 200dMA is a longer term MA and if price should break this MA to the downside, it can be said that the longer term uptrend is broken.

If you are interested in learning more about TA, "Investopedia" is a very good free online resource. :)

INVS 2.0 said...

Hi AK71,

I see. So from the chart, 100MA is the resistance and 200MA is the support. Breaking 100MA means uptrend and 200MA downtrend. Hmm...

Ya, I heard about investopedia. But I am currently on stockcharts.com and it is quite an informative website on TA. :)

AK71 said...

Hi INVS 2.0,

Stockcharts.com is very good too. I use it to track the price of silver. :)

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