Would I sell my REITs?

Federal Reserve’s Chairman announced tapering of bond-buying program in June 2013. That was the start of rising Treasury bond yields. Fed raising interest rates some time this year also affects real estate investment trusts (REIT) that borrow heavily for their operations. As a consequence, REITs underperformed since 2013. Prices continue to drop for REITS.

I owned two REITs namely Keppel REIT and SPH REIT. Keppel REITs were bought in May 2013 and SPH REITs were bought in July (IPO) and August 2013.

The price movements were shown in the table.

Counter Bought at cost Current Price Price Movement (%)
Keppel REIT $1.484 $1.19 -19.8
SPH REIT $0.947 $1.08 +14.0

Keppel REIT lost 19.8% at current price while SPH REIT gained 14.0%.

Would I sell both REITs now? This will depend on the dividend distributions to the unitholders. Distribution to unitholders depends on the operation of these REITs and to a large extent the borrowing costs of these REITs (which depend on interest rates moving up).

On a historical basis, I tracked the distributions received in 2014 (full year).

Counter Bought at cost Total Distributions in 2014 Dividend Yield (%)
Keppel REIT $7,420 $542.10 7.3
SPH REIT $7,576 $479.20 6.3

In 2014, the dividend yields based on my costs of purchase were a decent 7.3% and 6.3%. I ignored the daily price movement in this calculation since cost of purchase is key for my decision-making.

This year 2015 turns out to be a weak first half with regard to distribution to unitholders. I was getting less than in 2014. We will see what happens for the rest of the year. In the meantime, I continue to hold onto both REITs without any intention to offload them. Price gains in SPH REIT offset some of the price loss in Keppel REIT.

Copyright © 2015, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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