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An exchange of emails with AK on REITs.

Tuesday, July 26, 2016

Hi Ak,

I've been a religious reader of your blog since 2015 and after doing some reading up to get myself more knowledge of investing for income, I'm ready to put some money to work.

As this is my first time, I'm limiting my self to $10,000 and split 50/50 between 2 REITs (AA REIT and MCT) for dividend income, and as I learn more I can invest more. I would welcome your thoughts on this. Appreciate it.


Regards,
E




Hi E,

I am not sure what to say but splitting your funds between 2 REITs avoids putting all your eggs in one basket. Seems like a prudent move. :)

Best wishes,
AK







Hi AK,

Thanks for taking time to reply. I'm sure you get a lot of emails like this.

One time I'm unclear is that how do you account for the increase/decrease in stock pricing over time to calculate your yield on your investment? Currently all yields are based on current market price.


Regards,
E





Hi E,

It depends on what we are trying to do.

If we are looking at REITs as fixed income, then, yield based on cost (i.e. like a FD) is OK.

If we look at REITs like real estate investments, then, we want to look at yield based on market prices. Then, we know when we might want to sell some.

Best wishes,
AK






Hi AK,

So deciding when to enter the market will determine your costs. I've read on the subject of on buying and sell ex-dividend dates. So correct me if I'm wrong, if you trust in the business, the best time to enter would be right after ex-dividend date as normally stock price will drop by the same amount as the dividend?

Thank you for your insight.

Regards,
E





Hi E,

I don't do that.
If an investment is a good long term income generator and if I am holding for the long term for income, as long as I pay what I feel is a fair price or better than fair price, it is good enough for me.

Best wishes,
AK



Related post:
A chit chat session with AK on REITs.

2 comments:

ScOpIoN said...

This 'fair value' is really tough to determine. I've discussed this with a friend and he looks at anything under PB 0.8 is considered fair value. As for me, I look at their lowest and highest before making the decision. If a REIT is always in the 0.9-1.0, 0.8 is still a discount but suddenly it doesn't feel so much.

AK71 said...

There will always be an element of subjectivity in determining fair values. This is not surprising when even professional analysts could differ.

As for looking to invest in anything that is under 0.8x book value, I would say it is important to see if the valuation is realistic. We might end up buying something only to see impairment of fair value in the next quarter.

When I got into Saizen REIT at 0.55x book value, for example, I was sure that the valuation of their assets was realistic because they were selling their assets at valuation, small discounts or, in fact, a premium to valuation.

So, although persistently trading at a huge discount and avoided by many, it became my second largest investment in S-REITs for many years.

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