The plan was to blog about this together with my quarterly passive income report (4Q 2018) but I decided to take some time off from Neverwinter to do this earlier.
I have been invested in First REIT since before the Global Financial Crisis and, increasing my investment during the crisis and Mr. Market’s bouts of depression, it became a rather significant investment in my portfolio.
First REIT has been an amply rewarding investment for income as I did nothing but received income distributions in the following 10 years and more, enjoying yield very much in excess of 10% per year.
As an investment for income, First REIT’s performance has been stellar.
Why then did I decide to sell my investment in the REIT?
I said in my last blog on First REIT that if we feel that the REIT’s income stream is in peril or if we are not ready for rights issues, we should not invest in the REIT.
The concern that LPKR (which accounts for more than 80% of the REIT’s income) might default is a reasonable one as they are struggling with a weak Rupiah.
Although I do not feel that there is any risk of an imminent default and LPKR has also announced plans to improve its financial health which includes sale of assets, realistically, LPKR must negotiate to pay a lower rent to First REIT as long as the Rupiah remains weak.
Naturally, everything else remaining equal, when this happens, it should translate to a lower DPU.
Don’t ask me when it might happen or how much the reduction might be but investors should be prepared for the eventuality.
As for rights issues, investors in First REIT should be prepared too because OUE’s strategy is to go
