The second part of my investment portfolio in which objective is to create wealth to retire.
Stock : First REIT
Vested in 2007 after it was listed in December 2006 with an IPO price of $0.71. First REIT is a REIT in the health care sector. As a REIT, it is required to return at least 90% of its profit to unitholders as a form of distribution ( dividend payout ) hence making REIT in general a defensive sector in a whole array of stocks. Furthermore, with its business in health care, it has become the most defensive among REITs. Reasoning being, regarding good or bad economy conditions, health care is always in demand and not something that can shun away from. When one is sick, regardless poor or rich, he/she still have to seek medical treatment. First REIT when it was listed in 2006 consisted on mainly hospital in Indonesia only and hence have a slight premium in its dividend yield as compared with any locally health care REITs/stocks. Since vested in 2007 at price of $0.78 and after last November/December rights issue ( 5-for-4 @ $0.50 ), current holding price is at $0.6212. With an annual DPU projected to be 6.79 cents for 2011 according to its latest October 2011 earning report, that translates to 10.93% dividend yield with reference to holding price of $0.6212. In addition, its assets have also grew with acquisitions in Indonesia, Singapore and South Korea. It has a gearing of 16.4% even with the latest acquisition of Indonesia assets which makes it as one of the lowest gearing among the REITs stocks listed in SGX. First REIT to me is classified as "income stock" due to its constant and stable quarterly dividend payout on top of its defensiveness in business.
Potential Upside :
Health care is essential and considered part of basic necessities nowadays. The demand in health care is rising given human lifespan is increasing. As a defensive business in the form of health care, it is able to weather stormy economy condition better than any other business. The growth of First REIT will depend on how aggressive the management has to acquire more yield-accretive assets. By doing so, it will able to boost its rental income and hence ability to growth its annual distribution payout to its unitholders.
Potential Downside :
First REIT originally from Indonesia and with its majority of assets still in Indonesia despite having those in Singapore and South Korea, the downside risk will be those assets in Indonesia. Unlike Singapore, Indonesia is a country prone to natural disaster like earthquake or volcano eruption. Should natural disasters hit its assets ( which believe should have been insurance ), this would affect the income of First REIT. Another possible downside risk is due to competition, management fails to acquire yield-accretive assets to grow and should such a case happens, the rental income will be saturated and eventually capped the capital appreciation of the stock price.
Personal Expectation :
Expectation will be for the management to acquire more yield-accretive assets without stretching its gearing to growth the REIT. Since taking first step to acquire Singapore and South Korea assets outside of Indonesia, expectation will be for the management to look into other countries like Japan, China and Malaysia for more assets to boost its portfolio. Another aspect of personal expectation for First REIT would be its annual distribution is able to sustain despite bad economy conditions. From valuation perspective, as a form of "income stock", capital appreciation is not on priority list.
First REIT
