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First REIT: To sell or not to sell?

Friday, March 16, 2012



I have received questions from readers and friends if they should sell their units in First REIT given its stellar performance of late. I can't really advise if they should sell or hold on to their investments. I am not qualified to give advisories and neither do I have the inclination to do so.

I would say the following:

Fundamentally, First REIT is rock solid. One should, however, remember that its bumper income distributions in the last two quarters were due to contribution from the sale of its Adam Road property. If this contribution were removed, we are more likely to see a DPU of 1.6c per quarter. This means an annualised DPU of 6.4c. At today's high of 87c per unit, that would be a base distribution yield of 7.35%. Its larger peer, Parkway Life REIT, has a distribution yield of about 5.26% at a unit price of $1.825.



Technically, First REIT's unit price is continuing its march higher on strong volumes. There is vigorous accumulation going on if the OBV is anything to go by and although price action looks like it is becoming parabolic, the bullish momentum could push price higher to test 88c or even 89c. However, fatigue would very likely set in and a pull back to support at 82c could take place in time.

My remaining investment in First REIT is part of a core investment for passive income. It is unlikely that I would sell my remaining position. If I were trading First REIT, however, 87c to 89c would seem like very attractive prices for divestment. There, I have said it.

Related post:
First REIT: FY2011 results.

14 comments:

OT83 said...

Hi Ak,

It close at 89.5.

High is 89.5.

Amazing! Pity I sold long ago. Haha

Howyuan said...

The recent strength was a shocker, especially today. Wonder what will happen if there is a slight negative news in the west.

AK71 said...

Hi OT,

It is good that you are laughing. You have conquered seller's remorse. :)

When a friend SMS me and told me to check out First REIT's closing price, I was on my way home. Checked the price once I got home. Wow! :D

I let go of all my trading position weeks ago and retain only my core investment which is mainly for passive income. If the REIT's unit price continues climbing, however, I would be sorely tempted to liquidate partially.

AK71 said...

Hi Howyuan,

In the past few weeks, I have been more impressed than shocked. Today, however, I was a bit shocked. Well, in a nice way. :)

Climbing to where it is now, the new support for First REIT's unit price is at 82c. That is some way to fall if momentum should weaken. So, I won't be surprised if even the most ardent of supporters are thinking of locking in some gains. ;)

Ray said...

haha AK.
I just came by to ask if you have any thoughts about AIMS and First chionging uphill and realized you already had two blog posts about them! :D

I sold both too low! (on hindsight of coz) but went in for First at 0.845 after I couldnt stand seeing it chiong higher and higher...

Do you have any urge to accumulate a stock as it rise higher and higher? how do you control this urge (if applicable)? :)

AK71 said...

Hi Ray,

Use hindsight to accumulate experience and nothing else. Hindsight could be detrimental to our health. ;)

I could buy more of a stock at supports on retracement if it has a clear uptrend. Usually, however, I do not have any urge to add to my long position for a stock forming new highs. :)

Ray said...

Hmm, a bearish Hirami pattern formed for First REIT today. A correction in place?

Also, what's with the STI today? After lunch it just dropped after a good climb in the morning. it's like it ate something wrong for lunch.

AK71 said...

Hi Ray,

After a parabolic movement in price, a pull back is not unreasonable. We could see the REIT's unit price pulling back to support before attempting to move higher.

Only Mr. Market knows why the STI moved the way it did. I am clueless. ;p

Drizzt said...

if ta is as simple then you should be able to tell how it goes isnt it?

AK71 said...

Hi Drizzt,

You are getting mixed up.

I said TA can be simple. I did not say it is simple.

In my reply to your comment in another blog post, I said it is Mr. Market that is complicated.

Since Mr. Market is complicated, no TA whether simple or not can tell with certainty which way prices would go and I make this very clear in almost every single blog post on TA.

Ray said...

Actually I find TA quite simple. It's simple enough to guess what might happen tomorrow but to put all your money on it will be suididal. Because the market is perverse esp when VIX is high.

AK71 said...

Hi Ray,

I believe you have neatly encapsulated the correct attitude towards TA in just a few words! :)

SHF said...

Hi AK,

Can you kindly enlighten me why First Reit dividend yield as reported in The Straits Time (4th March 2012) is 9.59% while DBS Vickers is only showing it as 5.817%? Pardon me if this question sound silly to you as I am a beginner investor. Great site and thank you.

AK71 said...

Hi SHF,

Don't trust the numbers you see. Do you own number crunching. ;)

Distribution yield is simple enough to calculate. Take the DPU per quarter, annualise it and divide that by the current unit price of the REIT.

So, distribution yield would vary depending on the annualised DPU the analyst comes up with and what is the unit price at that point in time.

Personally, I take in a normalised DPU of 1.6c per quarter for First REIT because recent bumper distributions of almost 2c per quarter would come to a stop once its divestment gains from selling its Adam Road property is depleted. Anything higher than 1.6c per quarter would be a pleasant bonus. :)

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