Saturday, September 22, 2012

First REIT: new acquistions

First REIT will be acquiring 2 new properties:
1) Siloam Hospitals Manado & Hotel Aryaduta Manado
This is an integrated hospital and hotel in Manado.
Average of 2 independent valuation: S$93.7M
Purchase consideration: S$83.6M
Discount to valuation: 10.78%
Financing: combination of committed debt and proceeds from a proposed private placement.

2) Siloam Hosppitals Makassar
This is a hospital in Makassar
 Average of 2 independent valuation: S$65.8M
Purchase consideration: S$59.3M
Discount to valuation: 9.81%
Financing: drawdown of committed debt

SGX Annoucement:$file/FR_MM_21Sep12_Final.pdf?openelement

Some pro forma numbers:
Before acquisitons:
DPU: 7.01c
NAV per unit: S$0.81

After acquisitons:
DPU: 7.45c
NAV per unit: S$0.84

A longer weighted average lease to expiry of 11.7 years as compared to the original 10.8 years will be observed.

Looking at the DPU of 7.45c and the last done price of 1.03, we will be looking at a yield of 7.23% per year. This is attractive as compared to other reits which has an average yield of 6.356%. Another advantage to take note is that the properties are being purchased at a discount as compared to its valuation.

It is a pity that there is no rights issue for existing investors to increase their stake in First REIT. The increase in yield from 7.01 to 7.45 is somewhat disappointing as it is only 6.25% increase in DPU. With the additional debt it is incurring, gearing will increase from its low 15.9%. I will need to relook at its increase in gearing as compared to its increase in yield again to assess if it is still a good buy.

In an earlier announcement, some of the calculations assumed the private placement being taken place at a price of $1. I guess if First REIT goes to $1 or lesser, I will top up on my stake in it. But for now, I will wait and see.

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