Strategy Of REITs Investment

elmo said...

I don’t know if LaBrooy, the CEO of AXREIT is speaking for himself or for the general REIT market.

REIT is rather new in this country and most of us have no experience in handling them. I have some AXREIT shares at low entry cost. The return at that entry price is around 12-13%. But tread carefully don’t get euphoric when the index shoots beyond 1300 like today when we can boast about our “gain” in both the dividend income as well as property appreciation.

Let me take you back to some one and half years ago when the market was down. AXREIT being one of the toughest guy in the block was hammered down from above RM1.70 to a bare RM1.00 per share. As we know, market index, like tides floats up and down. We should rebalance our portfolios when the tides are high lest one fine day when the tide goes out we realise that none of us have our pants on!

Now lets question ourselves here. Shall I get into AXREIT at RM2.10 now (KLCI>1300) or am I going to take a chance for the chips to go down (which may not happen for a long long time) and lost the dividend income before I jump in?

Just my 2 sens. When you are confused like I often was, take youself down the path of Zen..."Patience". Trust your instinct. Pick your choice. Lastly, Remember the phrase "Margin of safety".

July 21, 2010 9:01:00 AM GMT+08:00

horse said...

elmo,

probably LaBrooy has tonned on hand waiting to dispose ?? haha

anyhow personally i think REITs investment should not treat as normal share, we should adopt/embark DCA strategy if one really serious of investing in REITs. No right or wrong, just sharing my view. coz, dealing with REIT our ultimate goal is to earn regular interest (DPU) higher than FD.

Ok. this exactly how it work....

1) first set your target of DPU return rate, say anything more than 8% DPU, you will invest else u will not trigger any purchase on REIT.

2) investment time frame should be fairly long (5 to 7 years)

3) invest at regular intervals (1 a month, 1 a quarter or 1 a year)

4) invest at each of those intervals in equal amount or size of lots

5) these regular investments should continue through all kind of market conditions – good, bad and indifferent

e.g say you've 60K, you gradually invest 60K for 5 years. You can opt for 1K a month, d remaining put in FD. 1K a month for REIT that give > 8%, drawdown from FD every month untill it turn ZERO.

You will notice the advantage of having the actual "True Average Cost".

So, this is something for us to consider in future since the REIT industry is gradually bigger in size in M'sia.

elmo - i think above will addressed your hesistation in REIT investment whether to carry out now or later or scare of lost of dividend income.

Anyone else have any better method ??

July 21, 2010 10:08:00 PM GMT+08:00

elmo said...

I sort of liken investment in REIT as to purchase a small unit of Rental Business Property. As usual, the prices of this property in a long run will just appreciate if it’s location remains in the prime business area. O.K. location of a premise is static but the center of activity migrates with time. That’s point number one.

Two, the market prices of any REIT floats with the market sentiment as a whole. As I have mentioned, take AXIS for example (I am more familiar with this one) before the subprime crisis Axis worked it’s way up to RM1.70 per share but sinks to just less than RM1.00 /share! Such a variation has happened and I bet it will happen again.

We all have limited Cash so we have to work it out where is our entry point for taking up REIT investment. I think you will agree with me not anytime is the best time for entry. Definitely not any price is a good price to take up the investment. Why buy a shoplot for RM1 million at KLCI 1300 when you may be able to get one for RM750,000 some 3 years down the road when KLCI say sinks below 900?

Having said that I think of all, yes ALL the REITs counters, AXIS is the best bet at this point in time. … so long as this CEO (LaBrooy) is running the show. BUT do keep an eye (or two) on their policy. AXIS is very aggressive, keep acquiring more and more properties over a short period of time. Good and bad. The gearing mustn’t be too high and when economy slides, even a very little bit, the strain will show. Here the Market Interest Rate is very important to this sector. (Our monetary policy is upward pressure on interest rate so far). They, AXIS, do not have much reserve. 90% of rental income distributed quarterly. To expand, they raise more money!

Also, one thing I hate about AXIS is that when the company raise money to acquire new properties, they do not offer the new shares to the existing share holders. I never was offered. Then when the “deal” is done, there is an increased in the number of total shares in the company with each new acquisition! How was the shares sold? A big question mark?

 

July 22, 2010 10:07:00 AM GMT+08:00