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A simple way to a double digit yielding portfolio.

Wednesday, January 22, 2014

Regular readers know that First REIT is one of my oldest investments in my portfolio of S-REITs. 

One of my earliest blog posts said how this was an investment for keeps. 

That was in March 2010. 

Time really flies. It has been almost 4 years.
First REIT: This one is for keeps.

Over the last few years, I made use of opportunities to buy more units of First REIT's. 

These opportunities were in the form of a rights issue and market corrections.
Bloodbath continues and AK71 went shopping!
First REIT: Rights issue.

I became an investor of First REIT's in 2007. The price was 75c a unit.

During the Global Financial Crisis (GFC), I bought more at 42c a unit.

When it had a rights issue at 50c a unit, I took up my allotment and even bought nil-paid rights from unit holders who didn't want to fork out 50c a piece for their rights units. 

Those cost me 66c a unit in total.

During a fierce correction in 2011 which people called a bloodbath, I bought more from 74.5 to 77c a unit. 

It was a decision which I used Technical Analysis to help me in, with the belief that there was nothing wrong with the fundamentals of the REIT.

Some may ask why would I buy at those prices which were higher than what I paid during the GFC or rights issue. 

Perhaps, an old blog post will throw light on this.
First REIT: XR and fair value.

As income investors, we are, no doubt, interested in distribution yields. 

With Q4 DPU coming in at 1.97c, the annualised distribution yields on costs now work out to be 10.23% to 18.76% per annum.

Although the unit price of First REIT has retreated from a high seen sometime middle of last year, sharing the same fate of all S-REITs' after a mention of "tapering" by Mr. Ben Bernanke, a unit price of $1.06 today is still 1.37x to 2.52x my entry prices.

Is there any purpose in sharing these numbers with you? 

Well, if we ask what did I do to make these numbers an integral part of financial security for me today, we will have our answer.

Although some might feel that I am revealing a secret, what I am doing is just sharing a process. 

There is nothing sacred about this. It is just the way I think:

1. Know our motivations. Are we investing or trading?

2. If we are investing, are we investing for growth or income?

3. Will REITs help meet our objectives?

4. What are the fair values of the REITs in question?

5. Fair values are most probably subjective but without any idea of fair value, we will not know when to buy and avoid overpaying.

6. Know our investment well and stay updated. Know the strengths and weaknesses. Know the benefits and risks.

7. If we are investing for income, we could still trade around our long position while staying mostly invested. This could enhance returns.

See? Nothing magical. 

Anyone can do this.

Now, some have asked me if they should buy into First REIT at the current price. 

Questions like this are always difficult to answer, for obvious reasons.

Personally, I always like to buy cheaper. 

So, I like to buy a good REIT when there is a discount to NAV and when distribution yield is higher, all else remaining equal.

First REIT's NAV/unit is now 96.64c.

Of course, if people are investing for income, finding the yield acceptable and the fundamentals good, they could initiate a long position in the REIT, bearing in mind the risks involved. 

Don't just focus on what is good. 

Know also what could go wrong and if it is acceptable to us. 

It is only natural that people would have different levels of risk appetite.
REITs: When to buy?

Do the right things and the rights things will have a higher chance of happening for us.

So, is there a simple way to a double digit yield? 

Yes. Not easy perhaps but simple.

Related posts:
1. First REIT: Revelation.
2. Are you ready to come out on top from a recession?
3. Motivations and methods in investing.
4. 3 points in stocks investing.
5. The mystical art of wealth accumulation.


Gary said...

Nice article and I share the same sentiment as you. We need to internalise ourselves on what we want to achieve for that particular investment. For me, my main objective for investing in REIT is to collect dividends so as to increase my passive income. As such, capital gains from REITS is not my top priority. Also the fact that since 90% of the income earned from the REIT manager is distributed to shareholders. Hence, it is also likely that retained earnings is going to be "kosong"! So if I want growth, I would aim for stocks instead of REITs. One example will be Old Chang Kee, and maybe Marco Polo! =) said...

Hi AK,

As always, very good post with the "Panda Kungfu kick"! :) As I just started investing in REITS mid-2013, I always excited to buy REITs at Great Singapore Sales price. Lol

You mentioned: "If we are investing for income, we could still trade around our long position while staying mostly invested. This could enhance returns." Can you kindly elaborate a little bit more? What is and how to trade around long position?

Still a pre-school boy trying to learn the "Panda Kungfu kick" from Shifu. Thanks!

Benson said...

I have always wanted to invest in REITs. I like their dividend yield. I am investing for income. But REITs is so different from a stock. The fundermentals are difficult to understand. But thanks for sharing. At least i am learning bit by bit.

AK71 said...

Hi Gary,

A fellow shareholder of Old Chang Kee's? Marco Polo Marine's too? ;)

People sometimes feel very confused as to how to build their investment portfolio and one reason could be because they don't have clear objectives.

"I want to make money" is too vague. :)

AK71 said...

Hi boonchin,

You know I invest in quite a few stocks and REITs. These have fair values which can be calculated. These values are subjective and will probably differ from one person to another but they are there.

They also have prices which are determined by Mr. Market on a daily basis. So, when Mr. Market is feeling very happy and wants to buy from me at a higher price, I could sell. When Mr. Market is feeling depressed and wants to sell to me at a lower price, I could buy. This buying and selling is 'trading'.

To trade, it would be good if we have knowledge of Technical Analysis. If we don't want to trade, then, knowledge of Fundamental Analysis would suffice.

If I have a REIT or stock which I want to invest for a longer term either for income or growth, I could hold a core position. This core is not for trading. In addition to this, I could have a trading position. This is 'trading around a long position'. ;)

This is a good strategy also because we do not know if prices will go much higher after rising or lower after falling. Technical Analysis tells us probability of something happening, not certainty.

So, I am never fully invested or fully divested. :)

AK71 said...

Hi Benson,

I have blogged extensively about investing in REITs in the last 4 years. So, you could find my blog useful if you want to find out more. :)

REITs are actually not difficult to analyse. Compared to some bigger companies, REITs can be considered easy.

Well, I hope you like what you see here. ;)

SGYI said...

First reit... on my watchlist waiting and still waiting. Still a bit expensive to me now. :)
Japan reits are better choices now. Hehe

AK71 said...


So, I guess you are a fellow unit holder in Saizen REIT and Croesus Retail Trust now? ;)

SGYI said...

Hi AK,

Spot on!! Both are still priced rather attractively now esp saizen reit. May the Japan story continue to flourish ;)

AK71 said...


Welcome, fellow unit holder. :)

Buying into Saizen REIT now means you bought properties which are below replacement cost in Japan at below market valuation! You good! ;)

Richard Chu said...

Great article! Thanks AK. Like ur inspirational words. Hope many more to come!

opal said...

Anyone plans to receive distributions in new units instead?
The positive thing is some of the key executives of First REIT is opting it. And that shows their commitment and confidence

INVS 2.0 said...

I am eyeing on First now but $1.06 now is unworthy. I prefer <$1 to invest.

Any idea on Sabana? They just released results.

Gary said...

Hi AK,

I'm a shareholder of Marco Polo Marine. I'm going to attend their AGM. Will you be attending?

As for Old Chang Kee, I think the current share price is a bit pricey. Need to wait patiently for good opportunities. I just tried their newly launched finger food which is honey herbal drumlet. Didn't feel that the taste could fuse together! Hahaha! Perhaps buy one lot n then provide feedback to management on this finger food??? Wondering if they would throw me out of the room

SnOOpy168 said...

Time flies. it has been 4 yrs already ? still remembered how nervous i was in getting the rights & excess subscription done correctly. many thanks to ASSI & AK's blog for this help.

FR is now my top holdings. Liked the sgd rental they received, the high barrier to entry & atas-position in captive market. will load more when the opportunities comes.

AK71 said...

Hi Richard,

If you are inspired, this blog has done its job. ;)

Average people like you and I can create a second source of income through investing prudently in the stock market. It doesn't have to be about making big capital gains. In fact, usually, it isn't. :)

AK71 said...

Hi opal,

I am confident of First REIT's prospects. However, I believe that there could be a better time to buy more units. Also, I am primarily invested for income. So, I will take the dividends in cash. :)

AK71 said...

Hi INVS 2.0,

Sabana REIT? Well, as expected, occupancy fell. 91.2%.

DPU fell, year on year, by 9.1% to 2.19c. This is also expected.

Now trading at its NAV/unit of $1.07, unless its management is able to inspire more confidence in Mr. Market, I expect unit price to languish.

The management's priority is now to fill up vacant space. Simple.

If I have to choose between Sabana REIT and AIMS AMP Capital Industrial REIT at this point in time, I will go with the latter.

AK71 said...

Hi Gary,

Unfortunately, I won't be able to attend MPM's AGM. :(

OCK's current share price is not yummy at all. LOL. There could be a better time to buy into OCK although it seems pretty difficult these days to get a good price. The stock used to be somewhat overlooked and its price never did go higher than 30+c in those days.

AK71 said...

Hi SnOOpy168,

Time really does fly. :)

Happy that things have worked out nicely for us all. :) said...

Hi AK,

Haha, I'm going to be bias. I'm not going to comment on diversification etc. Yes First REIT rocks!! LoL. At one point in time it was the biggest portion in my puny portfolio. I have since sold part of it for other REITs /Trusts. The remainder are actually free due to the profits made.

A big thank you for sharing your thoughts. It has been invaluable. I think I may model my portfolio after yours - when AK sneezes my portfolio will catch a cold. :P


AK71 said...

Hi Derek,

Yikes! Pressure. -.-"

Lucky I never reveal my investment portfolio in detail. How to model after something lacking details? ;p

Yes, free is best. Have free units from First REIT that is delivering income to you in perpetuity is even better. Gong xi, gong xi. :) said...

Hahaha. AK, that's why its time to have "Tea with AK: Sharing your portfolio".


AK71 said...

Hi Derek,

If I didn't know better, I would have suspected that you are trying to get me in trouble. ;)

That wouldn't be "Tea with AK71", that would have to be "Vodka with AK71". Must get me really drunk to write something like that. LOL. ;p said...

Hi AK,

That's a great idea! I should have a "Vodka with ..." with other bloggers too. I will drop you a mail.


AK71 said...

Hi Derek,

I am kiddiiiiing! Oh, no. I have created a monster. -.-"

AC said...

Hi AK,

Thank you for your article. I love your clarity and simplicity. I accidentally came across this blog while trying to read up on OUE REIT IPO. After lot of deliberation, I gave it a pass. I am trying to build a corpus for the downpayment of a condo that I intend to buy two years from now..hence stocks are not an option and Fixed Deposit (my current choice) yield is next to nothing. Any recommendations for parking funds for next two years in a relatively non volatile option would be much appreciated. Thanks...AC

AK71 said...

Hi AC,

If it is money you will need in the very near future, you cannot afford to risk any capital losses.

To make sure of this, other than the option of a 12 or 13 months Fixed Deposit which could pay between 1% to 1.1% per annum in interest income (check with UOB and OCBC), there isn't any other option I can think of.

Even a short, 2 year, Singapore Government Security will get you less than a 0.5% coupon.

I provided a link to the Daily SGS Rates in an earlier blog post: Daily SGS prices.

All the best. :)

AC said...

Thanks AK. Fixed Deposit it is then!

AK71 said...

Hi AC,

If you stay or work in Jurong, RHB Bank in Westgate is now offering 1.2% per annum for 3 months FD. ;)

AC said...

I live in East my friend. Checked with OCBC..they are giving 1.05%

AK71 said...

Hi AC,

That is more than double the coupon you will get from a 2 year SGS. Not bad. ;)

SnOOpy168 said...

In this dividends payout, I had opted for partial cash & scripts.

Hoped that they accept my odd numbers election of the existing units into scripts & cash. Rounded to nearest 1k scripts to avoid odd lots.

AK71 said...

Hi SnOOpy168,

You must have your reasons for taking part in the DRP. I suspect you feel that the unit price is already very low. Yes? :)

weide said...

Hi AK,

Could I understand how did you go about evaluation the NAV of the reit?

AK71 said...

Hi weide,

This information is usually available in the REITs' quarterly reports.

However, if you want to calculate this yourself, take the total assets less liabilities. This gives you the NAV.

AK71 said...

"I bought First REIT at $1.17 a few months ago. Missed selling it when it hit $1.29 last month. The price is dropping. Do you think I should sell or hold?"
Usually, I get asked which stocks to buy. This is a nice change.
However, you will still get the typical AK response. ;p
Really, don't ask me because my price is much lower and I almost never sell.
How come liddat? AK is lazy lor... -.-"


AK71 said...

First REIT, my second largest investment in the S-REITs universe. I love this REIT and it is easy to understand why. Now, I am enjoying distribution yields of 11.3% to 20.3%. :)

"First REIT (FREIT) reported a stable set of 4Q16 results which met our expectations. Gross revenue and NPI rose 5.1% and 5.2% YoY to S$27.0m and S$26.7m, respectively, and this was driven largely by contribution from its Siloam Hospitals Kupang & Lippo Plaza Kupang property which was acquired in Dec 2015.

"DPU increased 1.9% to 2.13 S cents. For FY16, FREIT’s gross revenue grew 6.3% to S$107.0m and its NPI was up 6.6% to S$105.8m, with the latter forming 99.0% of our full-year forecast. DPU of 8.47 S cents represented growth of 2.0% and made up 99.4% of our FY16 projection. In terms of portfolio valuation, FREIT recorded a net fair value loss of S$8.9m for its investment properties in FY16 as the valuers ascribed more conservative growth rates for its Indonesian properties.

"Rolling forward our valuations, our fair value estimate is lowered from S$1.36 to S$1.32. While we like FREIT for its healthy balance sheet (gearing of 30.8% as at end-FY16) and exposure to Indonesia’s robust healthcare sector, we maintain our HOLD rating on the stock as we see limited upside potential at current price level."

Source: OCBC Research - 19 Jan 2017

AK71 said...

Aik Keong Koh:
I remember reading somewhere, "if you see anyone boasting double digit returns per year, run the opposite direction." Haha...

I am not boasting. Really. :(

AK71 said...

If u don’t have so much first REIT, would u buy now?

I like. I would probably buy some 😉
However, I find it hard to buy more now also because of an anchoring effect.
I started buying when it was 70+ cents and bought more when it declined all the way to 42c a unit donkey years ago.
Its distribution yield has compressed so much.
So, probably a nibble and nothing more... 😛

AK71 said...

From its initial public offering (IPO) in 2007 till 31 July 2018, this real estate investment trust (REIT) has produced an annualised total return of 20.6%. At that rate, your money would double every 3.5 years.

The phenomenal return has real backing. Since 2007, the REIT’s gross revenue and net property income have each grown by 14.7% per year. Its distributable income has increased from S$19.3 million in 2007 to S$66.7 million in 2017, an impressive annual growth rate of 13.2%.

The REIT I’m talking about is First Real Estate Investment Trust (SGX: AW9U), Singapore’s first healthcare REIT. First REIT currently owns 20 properties — mostly healthcare-related — that are located in Indonesia, Singapore and South Korea. In Indonesia, it has 16 assets.


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