Sunday, March 9, 2014

Journey To Retirement Part 2.2 -- First REIT

A milestone achieved in October 2013, dividend return hit 50% of vested capital !!!
(portfolio performance)

That's the reward for the patient, determination, perseverance and confident that I have put in since 2007.  First invested in 2007, onset of the bear market, rode through the bear market in 2008 and early part of 2009 ((at one point suffered paper losses) despite all those negative analysis about S-Reits.  Should I listen to those analysts and sell it off in 2008, I would not have achieved this milestone today.  As the name suggested First REIT, it is the first reits stock in my portfolio to have hit this milestone.  If the momentum continues, with every distribution (every quarters) reclaiming back 3% of the vested capital that would take another 4 more years to achieve the unbelievable of 100% return of vested capital; this would be another milestone in my investment journey.

While taking 6 years of holding (24 distributions) to reclaim back 50% of vested capital might not be the best return one ever seen in term of time frame but this is not about time frame (long-term investment has not time frame restriction or constraint), it is all about choosing the correct stock, believing in its fundamental, having the patient and perseverance to hold it and determination and confident to ride through bear cycle.  Of course by having all those do not necessary mean any stocks would eventually get you the reward, one very important aspect is "calculated risk".  This was also one of the deciding factor for me not to listen to any analysts' advice in 2008.  In fact since last year when talk about US Fed tapering (which eventually it started in January 2014), citing raising interest rate would impact S-Reits the hardest, most of the analysts still on the negative side of it and like 2008, I totally ignored those claims as the risks I saw (from a bigger picture, macroscopic view) are not high enough for me to fully divest out though at the moment I could get back a capital gain of at least 60% (apart from the 50% return from dividend alone).  This is where "calculated risk" plays an important role.

On the fundamental side of First REIT, nothing much have changed (to the worse) as the company is able to maintain or sustain its distribution to unit holders every quarters.  Many are looking for S-Reits in general to grow their assets through acquisition so that it could justify for the capital gain in the share price but this is a wrong concept when comes to investing in S-Reits.  S-Reits should not be treated like any other stock out there, S-Reits is an income stock in which the priority from the company is the ability to maintain and sustain consistence distribution back to unit holders.  It does not mean one must acquire more assets in more to maintain or sustain the distribution.  First REIT being a Reit in the health care sector (the most defensive of all sectors) has the ability to pass the higher cost to its tenants so as to maintain the distribution even through raising interest rate environment.  Just think simple, whether it is cheap or expensive, good economy or recession, when one is in need of medical treatment, one just have to pay the price to have it.  While it is good to see First REIT can be aggressive in acquire assets to grow the company but would prefer they take it slowly so that they only acquire the best of the best assets with a good valuation price and not over-stretching their debt level.  This is the type of good and credible management that need and must have in order to run the company successfully.

For the latest 2013 FY financial result, First REIT achieved a distribution per unit of 7.52 cents (that is 12.1% yield with reference to my vested price of $0.621), NAV of $0.966, Current Ratio of 1.12 and a gearing of 32.30%.  In fact since First REIT was listed in December 2006, it has for most of the time outperformed the FTSE STI and FTSE ST REIT Index.  Hence, the underlying fundamental still intact despite all the concerns and worries recently with the US Fed tapering and interest rate hike.

There is another aspect which need to highlight that is First REIT has embarked on its first Distribution Reinvestment Plan in the recent distribution (basically, unit holders have the option to choose between taking cash or units as a form of distribution).  Such a move is not new in Singapore as some of the S-Reits (Cambridge Industrial Trust for example) has done that in 2008.  The main aim of that is to help preserve cash for the company.  This is a positive step to me from the management to counteract on the raising interest rate scenario.

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