To protect our wealth, we have to take risk.

By end of March, we would have received all of the income distributions for the last three months of 2010 from the REITs we might be vested in. The next income distribution for those which are paid quarterly would be in the months of May and June.

Someone who recently became more concerned with inflation's wealth eroding strength asked me what could he do to make his savings work harder. He knows about the stock market but he fears losing his money in the stock market whereas his money is safe in a savings account with a local bank.

I explained that he would still have his money in nominal terms, perhaps, if he keeps it in a savings account with a local bank. However, his wealth is definitely eroding away as inflation outpaces interest earned. That caused him greater anxiety. 

So, quite calmly, I presented him the following options:

1. Leave his money in a savings account with a local bank and make 0.1% per annum.

2. Leave his money in a fixed deposit with a local bank and make 0.45% per annum and be subject to a lock up period of 12 months.

3. Invest in certain REITs without any lock up period.

REITs are, of course, traded on the stock market like any stock. We could make some money or lose some money as unit price would fluctuate. The nice thing about REITs is their regular income distributions which, in the current day environment, are pretty dependable.

I presented him with these REITs which would be distributing income in May or June:

1. AIMS AMP Capital Industrial REIT:  Possibly a much lower DPU of 0.215c payable in June due to an advanced distribution payable on 28 March. At the current price of 21c per unit, that is a 1% yield in about 3 months.

2. First REIT: Estimated DPU of 1.6c at the end of May. At the current price of 74c per unit, it would be a 2.16% yield in less than 3 months.

Basically, in the short term, distribution yield from these REITs would beat bank deposit rates by quite a bit and that got him sufficiently interested in investing for income. 

Of course, he asked the usual questions as to whether his money is safe in these REITs. 

Well, the risks might be higher than leaving his money in a local savings account but the rewards could also be much higher.

To have peace, be prepared for war. 

To protect our wealth, we have to take some risk.

Related posts:
1. AIMS AMP Capital Industrial REIT: Acquisition of Northtech.
2. First REIT: Is the bear just resting?
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S-REITs still a growth story - DBS Vickers. “While retail and industrial S-REITs continue to deliver single digit growth, office REITs reported weaker results both on year and on quarter, as passing rents remained below the peak rents signed in 2007-2008. We expect this trend to continue in the coming quarters, only to reverse in 2012.”  Wednesday, 09 March 2011

© 2011 - The Edge Singapore

Saizen REIT: Divestment of Kinyacho Grande.

Saizen REIT divested another property, Kinyacho Grande, which is located in Hiroshima, from the property portfolio of YK Shintoku. It was built in January 2004 and comprises 50 residential units and 8 parking lots.

The property was sold to an independent private investor for a cash consideration of JPY 390,000,000 (S$6.0 million).  This was at a 6.9% discount to the property's valuation of JPY 419m.

The original balance of the YK Shintoku Loan was JPY 7.953 billion (S$122.4 million). The application of (i) net sale proceeds totaling JPY 2.2 billion (S$33.8 million) from the divestments of 18 properties of YK Shintoku and (ii) operational cash flow of YK Shintoku of JPY 0.4 billion (S$6.2 million) towards loan repayment had reduced the balance of the YK Shintoku Loan to JPY 5.4 billion (S$83.1 million) as at the date hereof. Following loan repayment from sale proceeds of the Current Divestment, the remaining balance of the YK Shintoku Loan is estimated to be approximately JPY 5.1 billion (S$78.5 million).

Taking into account applicable cash reserves of JPY 0.4 billion (S$6.2 million) maintained by YK Shintoku under the loan agreement, the net outstanding loan of YK Shintoku amounts to approximately JPY 4.7 billion (S$72.3 million).

Lots of buying up of Saizen REIT units lately. This morning, it touched 17c/unit with 408 lots bought up at that price. Is the market warming up to the REIT once more?