老查理的投資札記

Given the the counterparty risk of FIRST REIT (more than 80% rental revenue is from the sponsor, PT Lippo Karawaci), I've cut 2/3 of my holdings and reduced my exposure to FIRST REIT. I am still bullish on FIRST REIT. Given the sponsor's cash position and liquidity issues, it is better to be prudent and keep a peace of mind. 

The sponsor has significant USD-denominated debts, which is negative to the depreciating Indonesian Rubiah against USD. The sponsor also has other businesses that need capex to grow. Not an ideal situation to bet on REIT yields, which is interlinked to the sponsor's credit situations in the current market environment. Luckily, AREIT's price dropped as a result of the private placement, creating an opportunity to add more units. AREIT has a capable team, proven execution capability and a wild number of tenants in the industrial, business centers. 

In the past week, I've added more units in Capitaland Retail China Trust (CRCT) at S$1.44, given the attractive yield at the current price. The REIT is generating 7% yield p.a. CRCT is catergorized as neighborhood malls, attracting traffic from nearby communities. It is less impacted by the business cycle and ecommerce as people need to eat and entertain all the time and is not affected by the external factors such as the China-US trade war. The only negative factor is currency as CRCT receives RMB in China and RMB is on the depreciating trend. However, strong rental revisions offer great comfort. 

The five core SREITs are integral parts of building the passive income for the future.

I recalled vividly how I really started to look at REITs as a potential new asset class. I had a conversation with one of our interns over his prior internship expereince. He mentioned he spent time compling data and preparing analysis on one speicialized Singapore REIT: Keppel DC REIT, a REIT focused on managing data centres globally. Given the trends of big data and IOT, the demand for data centres is on the rise. As the only specialized REIT focusing on this particular sector, I did do a bit of analysis and decided to invest for the first time in the SREIT. It started my journey of researching the broader market. I did exit the investment for a decent profit but it would be even better if I contiue to hold on to it. Over time, I have get more and more familiar with the asset class and decide to build a cash-flow machine based on investing in SREITs.

A little backround of SREITs. To be classified as REITs and enjoy the benefits of the tax-efficient vehicle, the managers are required to distribute at least 90% of their taxible income to unitholders/ investors. Due to the nature of REITs (subject to different sub-types), the recurring dividends which are more or less reliable based on the lease for the period of 2-10 years or more are a great attribute to build a cashflow machine for retirement. REITs are bond-like equity risk profile with risks associated with business environment, property markets, rise of interest rates, downward rental revisions, creditability of tenants in the event of default or being unable to honor the tenancy agreement, etc. The upside comes from the managers' ability to manage the property well to attract high quality tenants and implement the add-on acquisitions to acquire new properties. REITs in general has a easy-to-understand underlying business with relatively predictable cashflows and distributions per unit ("DPU"). We generally sacrifice roller coaster upside (in a short period of time) to gradually increasing DPUs and/or unit price. We need to put it in mind that when it comes to investment, there are always risks. The SREITs generally have an average of DPU at between 5-7%, relatively higher in comparison to other REITs in Asia. The SGX has tremoundoues disclosures requirements (?) for REITS or SREITs in general have very good disclosure practices, issueing quarterly reports/ presentations in great details and more frequent distributions (either quarterly or semi-annually). Good managers are expected to grow DPUs over time and thus will have positive impacts on unit price.