Thursday 30 January 2014

Redefine Your Portfolio (Portfolio Buy)

Fish or fowl?
Each portfolio purchase you make redefines your strategy - either confirming an existing pattern or providing a variation on your investment style. Each purchase can also balance or unbalance your asset mix - it can be part of an organic process of portfolio mutation.

One of the great things about being a DIY Income Investor is that there are regular opportunities for reinvestment. My selling strategy also throws up lumps of cash that can be used to correct or adjust the direction of the portfolio. Or even try something new...

I have bought a chunk of Redefine International PLC (LSE: RDI), which is:
  • a small-cap company
  • REIT (Real Estate Investment Trust) - but only recently

Both of these characteristics mark it out as slightly unusual in the portfolio. I don't currently hold any  REITs, although I've held them in the past (and sold at a profit). At least it has a good yield: 6.3%, so it is firmly in the high-yield territory. The dividend cover is just 0.8 but in the world of REITs, which must pay out 90% of their income, this is hopefully not a sign of future problems but more the result of a turbulent year of two, including capital raising in 2013.

Small-caps can be flaky, because they often lack the resources to withstand a major internal or external shock. The company in its present form only dates from 2011. And although RDI was only the 14th largest UK-quoted REIT in December 2013, it still had a £1 billion portfolio of office, retail, industrial and hotel assets in the UK, Europe and Australia.

To quote their website: "In making investments Redefine International will seek to achieve a reasonable level of diversification across a spread of assets and geographies.  The Group currently has investments in the United Kingdom, Switzerland, Germany the Netherlands, the Channel Islands and Australia concentrating on the retail, government, commercial (office and industrial) and hotel property sectors."

Their loan-to-value was fairly comfortable, at around 50%. Moreover,  "Redefine International’s directors intend that Redefine International’s level of borrowing will be between 50% and 65% of the gross value of its total assets through the cycle but will not exceed 85% of the gross value of Redefine International’s total assets at any point in time."

The company also has a secondary listing in Johannesburg; This strikes me as odd, but maybe that's just me...

[Note for those new to REITs: the income can come in the form of Property Income Distribution (PID) that are potentially fully taxable (for UK tax purposes) in shareholders hands as property letting income or as non-PID income that will be treated in the same way as dividends paid by non-UK-REIT companies. I invest in tax-exempt ISAs and SIPPs, so avoiding any tax liability.]

This looks like a company has *redefined* itself quite effectively and could be well placed to benefit from an economic upturn. In the meantime, the yield will help to raise the average of the DIY Income Investor portfolio.

So what does the latest portfolio buy mean for the strategy? It is a bit of a hybrid between shares and fixed-income and, although London-based, it has international operations. So this probably does not change a lot in the strategy - although the numbers are a little shaky and the future for property is as uncertain as the economies of the various countries (and currencies) involved. Small-caps have stormed ahead for the past couple of years - with a bit of luck, RDI will take off.

[Purchase price: £0.5075]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. Nice buy.

    I hold Primary Health Properties as my REIT. I chose this as their properties are GP's surgeries, pharmacies, clinics etc, and therefore the tenants are paid by the government which I believe protects the rental income somewhat.

    Like you say I have regular opportunities to invest more money due to dividend income, and at present have to choose where I will be investing my latest batch of dividend payments.

    As my last blog post refers to, I am quite happy with the recent market falls as it will allow me to buy more shares in my selected company.

    Happy Investing
    FI UK

  2. Most of the investment of RDI are in shopping centres, considering most of the shops are done online these days , there is a high probability that more high street shops to be shut down and the shops to be left empty with no occupant.
    as a matter of interest why did you rule out e.g. JRIC with %6.2 yield ?
    also looking at the premium /discount, RDI look a bit expensive.

    1. JRIC didn't hit my radar - but having looked at it, basically it is Japanese residential properties. An interesting yield but a bit too specialised for me...