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First REIT: DPU increased 16.7% to 1.96c.

Saturday, October 26, 2013

On 26 July, I blogged about a 16.4% increase in First REIT's DPU. That was due primarily to contributions from 4 newly acquired properties. So, a continuation of the higher DPU through the quarter that ended 30 September should not come as a surprise.

Sometimes, in REITs, we see increases in net property income and distributable income but a lower or stagnant DPU. Of course, if the gearing level should be significantly reduced, it could be acceptable. Otherwise, all else being equal, it just means that we had an incompetent management.


When I initially invested in First REIT years ago, it had a relatively low gearing ratio. It was a bit more than 10%. Now, it is above 30%. So, the higher DPU has been achieved by leveraging up. Now, I am not saying that this is a bad thing.

However, to continue growing through acquisitions is going to be more difficult especially because the management wants to keep gearing at around 30%. This was also why I cautioned in an earlier blog post that we could expect a private placement if there should be another acquisition in the pipeline.

With the management saying that they are exploring AEIs to enhance income stream and to maximise returns to unitholders instead, the prospect of having a private placement is much weaker now. I view this as a good thing.


To have a private placement in order to strengthen the balance sheet making an acquisition or development less onerous might or might not result in a higher DPU. In the case of AIMS AMP Capital Industrial REIT, DPU improved while in the case of Cache Logistics Trust, DPU declined although marginally. So, in the case of First REIT, since we have a good thing in hand, why change it? The status quo is fine by me.

The CEO of First REIT's manager, Dr. Ronnie Tan, has a reputation for accumulating the REIT's units at all price levels. His interests are more aligned with unitholders', therefore. So, this is, perhaps, a reason why First REIT has been such a good investment for retail investors.

Related posts:
1. First REIT: DPU increased 16.4% (Part 1).
2. First REIT: DPU increased 16.4% (Part 2).

13 comments:

Tan said...

HI AK,

I hope there will be another right issues but changes are slim. :)

Gregg

AhJohn said...

Good news.

AhJohn said...

Btw, to share:
For Iskandar investors, think of the implications yourselves.

HIGHLIGHTS-Malaysia announces consumption, property taxes in 2014 budget | Reuters

REAL PROPERTY GAINS TAX
* Raise the minimum price of property that can be purchased by
foreigners to 1 million ringgit from 500,000 ringgit.
* For gains on properties disposed within the holding period of
up to 3 years, RPGT rate is increased to 30 percent.
* For disposals within the holding period up to 4 and 5 years,
the rates are increased to 20 percent and 15 percent,
respectively.

AK71 said...

Hi Gregg,

Generally, I would prefer to have a rights issue compared to a share placement if they have a good reason why they need more money.

I think First REIT is now in a sweet spot without any need to raise more funds. I am quite happy with the status quo and quite prepared to hold for a long, long time. :)

AK71 said...

Hi Ah John,

I guess you must be a fellow investor in First REIT. ;)

I am not in the know when it comes to investing in Malaysian real estate although I get the sense that it is a bit bubbly just like Singapore's market. -.-"

AhJohn said...

Hi Ak, consider to incorporate a private fund?

http://www.nextinsight.net/index.php/story-archive-mainmenu-60/919-2013/7553-what-ive-learnt-while-investing-for-the-past-4-years

Tan said...

Hi AK
The only concern I have is the finance cost ,it is 3mil for this quarter , let see how does 90mil fix loan from OCBC can bring down cost in coming quarter
Gregg

AK71 said...

Hi Ah John,

Wow! Start a private investment partnership? AK71 Asset Management? You can't be serious. People will laugh at me. :(

Thanks for the link though. An interesting read. $2.5m worth of AUM is not big at all. I wonder how is he able to be adequately compensated.

AK71 said...

Hi Gregg,

I am hopeful that finance cost will reduce as it is likely that any recent refinancing activity would have attracted lower costs. If I remember correctly, there won't be any refinancing need until 2016 now. This is good news. :)

chrisyoong said...

AK, will you be going for Saizen AGM this wed?

AK71 said...

Hi Chris,

I would like to go but unfortunately, my schedule does not permit. :(

If you are going, please feel free to share your thoughts here with us after the event. :)

chrisyoong said...

Hi AK,

I think there will be buying opportunity on the first day of consolidation.

AK71 said...

Hi Chris,

I don't know why there should be but if price should dip 10% because of consolidation and no other reason, it would be a good time to get some.

From a technical perspective, Saizen REIT's unit price has been range bound but a retest of a low at 16.8c or 84c (post consolidation) is not impossible. ;)

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