Why First REIT and why worry?

I get asked from time to time why I invest in First REIT and not Parkway Life REIT?

Actually, more accurately, people should ask why did I invest in First REIT and not Parkway Life REIT?

Yes, asking when a decision was made matters.






When I was deciding between First REIT and Parkway Life REIT, the choice was a much simpler one.

First REIT was trading at a big discount to NAV and its distribution yield was much higher compared to Parkway Life REIT.

Money should go to where it is treated best, I told myself then.






So, if you guess my entry prices were very low, you are right.

Actually, no need to guess because I have blogged about this before.

As First REIT's unit price has been declining, many readers have asked me if it is a good time to buy more.

My response was rather predictable.






"I don't know if it is a good time to buy more for you.

"I only know it is not a good time to buy more for me.

"Have a plan, your own plan."

It does not fit into my plan to buy more First REIT but I am more than happy to hold on to what I have.








Even if First REIT should see a 20% decline in unit price or even a 30% in unit price today, it would still be higher than my entry prices.

However, for someone who decides to invest in First REIT today, surely, he would not feel indifferent if such big declines in the REIT's unit price should happen.

A big decline in unit price could happen if First REIT's largest tenant, LPKR, which is feeling the strain of a falling Rupiah, should default on rental payment

For sure, I do not know if this is going to happen.




I do know that investing in First REIT, more than ever, investors have to be ready for rights issues with a new pipeline of assets in Japan, China and Malaysia from OUE Lippo Healthcare which is taking over the management of the REIT.

If we believe that First REIT's income stream is in peril and if we do not like the idea of a big rights issue, then, we should not be investing in First REIT.

Why worry?





Related post:
Free income producing assets.

3Q 2018 passive income (S-REITs).

In 2Q 2018, there was a bit of action in the S-REITs space for me and one of the things I did was to add to my investment in Starhill Global REIT at 64c a piece.

In 3Q 2018, I was ready to add to my investment in Starhill Global REIT if Mr. Market's pessimism should worsen.

However, Mr. Market felt better about the REIT's prospects and the unit price rebounded.






To understand why I bought more of Starhill Global REIT when I did and how it became one of my larger smaller investments, go to the related post at the end of this blog.

The top 3 income contributors from my investments in S-REITs in 3Q 2018 were:

1. AIMS AMP Capital Industrial REIT

2. First REIT

3. IREIT Global

I often get asked whether we should continue investing in S-REITs since interest rates are on the rise.

I am aware that this is really another way of asking what is going to happen to the unit prices of S-REITs in future.

I don't know how the prices will move in future.

I only know that investing in bona fide income producing assets has been rewarding and it should continue to be rewarding.






If we believe that real estate has intrinsic value, then, buying at a discount to valuation, we should have some margin of safety.

Also, we have to ask whether the management is honest and capable enough to unlock value for shareholders too.

Of course, S-REITs are not perfect nor are they the only tool available to investors for income.

We also want to be careful not to be overly reliant on S-REITs as the higher yield comes at a price.

Remember, S-REITs pay out 100% of their cash flow most of the time and have no retained earnings.

So, investing in S-REITs, we have to be prepared for the possibility of rights issues.

Those who are fully invested and dependent on S-REITs for income should beware.





This is especially if the dependence on S-REITs for passive income is absolute and critical.

"Absolute" means that these investors have no other sources of passive income.

"Critical" means that any reduction in passive income from S-REITs would be a life altering event for these investors.





Remember, how we invest and what we invest in should depend on our personal circumstances and what we hope to achieve.

It is never my way or the highway.

You should have a plan, your own plan.

However, to have a plan that works for you, you must know what you want and what you are capable of and willing to do.




For example, in middle of September this year, a reader asked me about investing in Soilbuild REIT again.

blazingruby60 said...
I remembered you mentioned that all investment is good investment at the right price.

looking at soilbuild i have sold after reading this article here and wondering would you consider buying soilbuild again at 58 cents?

considering soilbuild has ventured overseas to australia to acquire some properties and all.

thanks n cheers.






AK said... 
I was thinking about it but I decided not to invest in Soilbuild REIT now because

1. I already have a pretty large exposure to industrial property S-REITs which also have exposure to the Australian economy (AIMS AMP Capital Industrial REIT and Fraser Logistics Trust).

2. I would like to have a much bigger percentage of my portfolio in non-REITs to reduce reliance on S-REITs for income.

Of course, things could change in future. :)

Investing in S-REITs for income, we have to take in a bigger picture and, to be realistic, your picture could be quite different from mine.

My total 3Q 2018 passive income from S-REITs was:

S$ 19,884.80

AA REIT 10-year Anniversary 
- Celebrating 10 years of Partnership!

On a per month basis, it works out to be about S$6,628.00 a month.

Related post:
2Q 2018 passive income from S-REITs.