In 2020, the first REIT units had the worst performance. Investors will be watching Indonesia closely over the next 18 months, but the REIT’s manager is optimistic about the country’s recovery.
While most healthcare assets have grown in value as a result of the epidemic, the unit price of First Real Estate Investment Trust (REIT), which mostly owns hospital facilities in Indonesia, has remained at record lows.
Its shares were last traded at S$0.21 on March 3, down from S$0.89 a year ago. Rental income plummeted 30.9 percent to around S$79.6 million in the past financial year ended December 31, while distribution per unit was cut in half to S$4.15. Tenant rental relief and the broader deterioration in economic conditions during the pandemic took a toll on income, as it did for most other REITs.
However, First REIT’s poor performance is mostly attributable to its former parent, Lippo Karawaci, one of Indonesia’s major real estate corporations, which has 11 hospital master lease agreements (MLAs) with the company. In the fiscal year 2019, these leases accounted for over 72% of First REIT’s revenue.
Covid-19 and the depreciation of Indonesia’s currency, the Rupiah, had a negative impact on Lippo Karawaci. Last year, the company, whose CEO is third-generation John Riady, totally sold its investment in First REIT to obtain funds for its operations. He is also a member of the Lippo Group’s board of directors.
First REIT Management Limited, which is 60% owned by OUE Limited and 40% held by OUE Lippo Healthcare Limited, manages the REIT (OUELH). The REIT’s sponsor or principal stakeholder is OUELH, a unit of OUE. Itochu Corp. of Japan is another REIT shareholder and strategic partner.
Restructure of lease agreement
Late last year, First REIT and Lippo Karawaci agreed to renegotiate their lease arrangement, resulting in lower yearly rental income for the leases. According to a Fitch assessment published in January, Lippo Karawaci would pay roughly IDR550 billion ($39 million) starting in 2021, albeit at a 4.5 percent annual escalation rate rather than the previous 2.0 percent and with a longer tenor.
“We expect Lippo’s overall rent assistance payments to drop to roughly IDR800 billion in 2021-2022, down from around IDR1 trillion in 2019,” the report added. The updated arrangement also protects Lippo Karawaci from currency risk. Lippo Karawaci’s outlook has been upgraded from “negative” to “stable” as its cash flow improves as a result of decreased rental payments, asset sales, and property presales.
To meet its debt covenants, First REIT issued a rights offering to raise S$158.2 million. OUELH now indirectly holds around 15.4 percent of the entire number of First REIT units in issue, or about 246.9 million units, once the rights issue is completed.
Diversification Plans
“Our gearing will be decreased as a result of the recapitalisation, and we will have debt headroom in excess of S$300 million. This positions First REIT to seize yield-accretive acquisition opportunities outside of Indonesia and drive diversification efforts, either through our sponsor, OUE Lippo Healthcare Limited’s Pan-Asian healthcare network, which spans countries like Japan, China, and Myanmar, or from third parties,” Victor Yan, the REIT’s manager, said at the REIT’s full-year financial statement presentation in January.
However, according to a January 29 Moody’s credit outlook, Lippo Karawaci’s liquidity at the holding company level is insufficient “Because of the maturity of its IDR970 billion short-term loan facilities, the IDR will be “poor” over the next 18 months. Nonetheless, Lippo Karawaci has a history of rolling over its short-term loan lines, according to the report. “In addition, the corporation has increased its liquidity.
buffer of available-for-sale financial assets, including its Lippo Malls Indonesia Retail Trust investment. With its next big loan maturity only in 2025, we expect Lippo Karawaci’s near-term refinancing risk to be manageable,” it said.
Regardless of Lippo Karawaci’s financial situation, Tan of First REIT is optimistic about the REIT’s prospects, particularly after unitholders approved its recapitalization and restructuring proposal.
“Both in Indonesia and globally, the healthcare sector has a bright future. Furthermore, we remain optimistic about First REIT’s future because we have a strong and recognized hospital operator in PT Siloam International Hospitals Tbk, Indonesia’s most progressive and inventive healthcare provider. We expect it to continue to outperform its Indonesian competitors, resulting in long-term growth for our hospitals. First REIT’s cash flows and valuations will be more predictable as a result of the proposed MLAs restructuring,” Tan stated.
Is REIT a good investment now?
The best real estate investment trusts (REITs) are those that can provide investors with market-beating total returns, which are made up of dividend yield and stock price gain as their market capitalization rises. To achieve those gains, a REIT must be able to boost its dividend by growing the income generated by its real estate assets. An income investor can buy three top REITs with outsized upside potential this month.
Can you get rich off REITs?
There is no such thing as a guaranteed get-rich-quick strategy when it comes to real estate equities (or pretty much any other sort of investment). Sure, some real estate investment trusts (REITs) could double in value by 2021, but they could also swing in the opposite direction.
However, there is a proven way to earn rich slowly by investing in REITs. Purchase REITs that are meant to grow and compound your money over time, then sit back and let them handle the heavy lifting. Realty Income (NYSE: O), Digital Realty Trust (NYSE: DLR), and Vanguard Real Estate ETF are three REIT stocks in particular that are about the closest things you’ll find to guaranteed ways to make rich over time (NYSEMKT: VNQ).
Who owns First REIT?
First REIT is Singapore’s first healthcare real estate investment trust, having been listed on the Singapore Exchange Securities Trading Limited on December 11, 2006. Its Asian investment strategy consists of a wide portfolio of yield-enhancing healthcare and healthcare-related real estate assets.
The Trust has effectively created a high-quality and diverse asset portfolio of 19 properties, 16 of which are in Indonesia and three in Singapore, over the years. As of 31 December 2020, the properties are worth a total of S$939.7 million*. The stable income-producing portfolio includes hospitals, nursing homes, rehabilitation centers, and other healthcare-related properties.
First REIT Management Limited, which is 60% owned by OUE Limited and 40% held by OUE Lippo Healthcare Limited, manages the REIT (“OUELH”). PT Lippo Karawaci Tbk (“Lippo Karawaci”), Indonesia’s largest broad-based listed property business, has granted First REIT the right-of-first-refusal (“ROFR”) to the pipeline of hospitals in Indonesia. First REIT also has another ROFR from OUELH, as well as potential to tap into the company’s expanding healthcare network in Asia.
Why did First REIT drop?
The manager of First Real Estate Investment Trust (First Reit) proposed a rights issue at an indicative issue price of 20 Singapore cents per unit on Monday, causing the trust’s units to plummet.
The stock was trading at 27.5 cents at lunchtime, down 32.1 percent or 13 cents from its previous closing. Earlier in the morning, it had dropped as much as 33.3 percent, or 13.5 cents, to 27 cents.
By noon, more than 29.4 million shares valued at S$9.4 million had changed hands, more than 12 times the average daily volume of 2.4 million units traded in this quarter.
Is REIT a good investment in 2021?
Three primary causes, in my opinion, are driving investor cash toward REITs.
The S&P 500 yields a pitiful 1.37 percent, which is near to its all-time low. Even corporate bonds have been bid up to the point that they now yield a poor return compared to the risk they pose.
REITs are the last resort for investors looking for a decent yield, and demographics support greater yield-seeking behavior. As people near retirement, they typically begin to desire dividend income, and the same silver tsunami that is expected to raise healthcare demand is also expected to increase dividend demand.
The REIT index’s 2.72 percent yield isn’t as high as it once was, but it’s still far better than the alternatives. A considerably greater dividend yield can be obtained by being choosy about the REITs one purchases, and higher yielding REITs have outperformed in 2021.
What are the safest REITs?
These three REITs are unlikely to appeal to investors with a value inclination. When things are uncertain, though, it is generally wise to stick with the biggest and most powerful names. Within the REIT industry, Realty Income, AvalonBay, and Prologis all fall more generally into that category, as well as within their specific property specialties.
These REITs are likely to have the capital access they need to outperform at the company level in both good and bad times. This capacity should help them expand their leadership positions and back consistent profits over time. That’s the kind of investment that will allow you to sleep comfortably at night, which is probably a cost worth paying for conservative sorts.
Can you retire off REITs?
Real estate is one of the few asset groups that is well-suited to retirement portfolios. A portfolio of real estate investment trusts (REITs) can provide a continuous stream of retirement income for a lifetime if managed properly.
To begin, the tax code encourages REITs to pay large dividends. REITs are exempt from federal corporate taxes if they distribute at least 90% of their taxable revenue as dividends to their shareholders. The corporation tax rate in the United States is a whopping 35%, so we’re talking about a substantial sum of money.
A good retirement income portfolio, on the other hand, demands more than a high dividend yield. You’ll also need a lot of stability. You can’t afford a dividend decrease or a severe business setback if you plan to live on cash from your investments. As a result, the best REITs for retirement are moderate yielders in non-cyclical subsectors. Experience is also important here; you should trust REITs that have made it through at least one recession with their payouts intact.
We’ll take a look at 15 of the greatest REITs for generating long-term retirement income today. Certain categories, such as malls and office buildings, are missing; these are too sensitive to economic swings, and their major players dropped dividends during the 2007-09 recession and its aftermath. Instead, you’ll find 15 dependable firms that should keep paying their dividends on time, no matter what happens to the economy.
The information is current as of November 21, 2017. Dividend yields are computed by dividing the most recent quarterly dividend by the share price and annualizing the result. For current share prices and more, click on the ticker-symbol links in each slide.
Why are REITs a bad investment?
Real estate investment trusts (REITs) are not for everyone. This is the section for you if you’re wondering why REITs are a bad investment for you.
The major disadvantage of REITs is that they don’t provide much in the way of capital appreciation. This is because REITs must return 90 percent of their taxable income to investors, limiting their capacity to reinvest in properties to increase their value or acquire new holdings.
Another disadvantage is that REITs have very expensive management and transaction costs due to their structure.
REITs have also become increasingly connected with the larger stock market over time. As a result, one of the previous advantages has faded in value as your portfolio becomes more vulnerable to market fluctuations.
What was the first REIT?
After President Dwight D. Eisenhower signed Public Law 86-779, also known as the Cigar Excise Tax Extension of 1960, REITs were established in the United States. The law was passed to allow all investors to purchase and sell liquid securities in order to invest in large-scale, diversified portfolios of income-producing real estate in the same manner they do in other asset classes. American Realty Trust was the first REIT, created in 1961 by Thomas J. Broyhill, cousin of Virginia U.S. Congressman Joel Broyhill, who advocated for its creation during Eisenhower’s presidency.
At least 39 countries around the world have developed REITs as of 2021. The FTSE EPRA/Nareit Global Real Estate Index Series, produced jointly by the index provider FTSE Group, Nareit, and the European Public Real Estate Association in October 2001, is a comprehensive index for the REIT and global listed property market (EPRA). The worldwide index comprises 490 stock exchange-listed real estate businesses from 39 countries as of January 29, 2021, with an equity market valuation of $1.7 trillion.
What is first REIT R?
The First Real Estate Investment Trust (First REIT) is a healthcare real estate investment trust located in Singapore (REIT). The Trust’s primary investment emphasis is on healthcare and healthcare-related real estate assets in Asia. Pacific Healthcare Nursing Home and The Lentor Residence are two of its Singapore facilities.
