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Sold First REIT to raise funds.

Friday, November 2, 2018

The plan was to blog about this together with my quarterly passive income report (4Q 2018) but I decided to take some time off from Neverwinter to do this earlier.

I have been invested in First REIT since before the Global Financial Crisis and, increasing my investment during the crisis and Mr. Market's bouts of depression, it became a rather significant investment in my portfolio.

First REIT has been an amply rewarding investment for income as I did nothing but received income distributions in the following 10 years and more, enjoying yield very much in excess of 10% per year.

As an investment for income, First REIT's performance has been stellar.

Why then did I decide to sell my investment in the REIT?

I said in my last blog on First REIT that if we feel that the REIT's income stream is in peril or if we are not ready for rights issues, we should not invest in the REIT.

The concern that LPKR (which accounts for more than 80% of the REIT's income) might default is a reasonable one as they are struggling with a weak Rupiah.

Although I do not feel that there is any risk of an imminent default and LPKR has also announced plans to improve its financial health which includes sale of assets, realistically, LPKR must negotiate to pay a lower rent to First REIT as long as the Rupiah remains weak.

Naturally, everything else remaining equal, when this happens, it should translate to a lower DPU.

Don't ask me when it might happen or how much the reduction might be but investors should be prepared for the eventuality.

As for rights issues, investors in First REIT should be prepared too because OUE's strategy is to go asset light and OUE Lippo Healthcare's relatively big portfolio of assets in Malaysia, China and Japan will eventually be sold to First REIT.

Although First REIT's current gearing level is relatively healthy and it will be able to take on more debt for acquisitions, it will still need to do some equity fund raising which means either private placements or rights issues.

Yes, in the plural.

In my last blog on First REIT, I said I was not adding to my investment in the REIT but I was quite happy to hold on to my investment.

My investment in First REIT has been free of cost for quite a while now and a lower DPU does not really worry me.

I am always ready for rights issues and the prospect of a rights issue or a few does not worry me either.

However, recently, Mr. Market made me too many tempting offers in the non-REITs space and unwilling to dig deeper into my war chest, I decided to sell my investment in First REIT to raise funds instead.

Why not reduce my investment in AIMS AMP Capital Industrial REIT which is quite a bit larger than my investment in First REIT?

Well, if I must choose, I would always choose to sell what I feel is a more uncertain investment and First REIT's future income seems less certain compared to AIMS AMP Capital Industrial REIT's.

What have I been buying recently?


Back to Neverwinter for me now.

Related post:
Why First REIT and why worry?


AK71 said...

Wong Yao Keng says...
Others take time off from work to do something. AK took time off games to blog 🤣

AK says...
It is a big sacrifice :p

Laurence said...

Eeeeekssssss...... run for our lives !!!!!
(panic sells away First Reit at any price)

;) :)

Jimmy L said...

just wondering, ocbc at this current price is around 3%+ only. is it wise ?

AK71 said...

Hi Laurence and Jimmy,

Everyone should do their own due diligence and decide for themselves. ;)

G said...

Hi AK, seems like reits have been showing weakness in their prices (FTSE Reits Index has been going down). I have just added Ascendas Reit and MLT Reit recently in October ($20k), no too sure if I should continue to hold them, cut or add to average down. Would you be adding on anymore reits given the future outlook, especially with the increasing interest rate hikes and trade war concerns outlook?

AK71 said...

Hi G,

I remind myself that all investments are good at the right price.

If you refer to my past blogs on S-REITs, you will get an idea of what I mean. :)

haven11 said...

I returned to read a little... :)
Jimmy L --> I am not sure if I saw suggestions to OCBC, I may have seen a kid keeping money in a piggy bank... patiently waiting...

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