In an environment where everyone seem to be reaching for higher yield, an India Healthcare business trust looks to be an easy sell.
Its even a better sell if its marketed as 8-9% yielders.
The prospectus can be [view here]
This business trust invest in 11 healthcare related establishment and earned income by leasing them to their Sponsor Fortis.
In the future they would like to invest in Asia and Australia healthcare assets.
Plus points are that the lease terms of healthcare assets are long term 15 years with the view of renewing for another 15 years. Healthcare is a defensive sector that should be cash generating in all times.
Most of the assets are free hold or long term lease hold. So the lifespan is long. A targeted 20-30% leverage is a comfortable range to boost the income but not over commit.
However, there are many downsides. There are currency risks involved. Unlike First REIT, the majority of the earnings are in Rupees. Rupees have not been doing well for some time.
Think it doesn’t matter? Look to Ascendas India Trust. Although, Ascendas did a swell job managing it, the losses due to the strong SGD vs Rupee have limit the income earned.
Another example will be LMIR.
The 8-9% yield looks appealing but there could be some financial engineering involved. The sponsors are forfeiting their share of dividend for the first two years. Thus they can pay out more.
From page 99, the yield is based on DPU due to waiver by sponsor of their entitlement for FY13 (Mar) and FY14 (Mar) + 100% payout ie. inflated by ~2.5% due to this waiver. From FY15 onwards, no more sponsor waiver + 90% payout – that means earnings have to grow to give similar yields. -valuebuddies
8-9% looks high but if you think about it India 10 year government bond yield is around 8%. Which would be the better buy?
I got really scarred by HPH Trust IPO. As much as I like a hospital operator (vested in First REIT), the currency risk and the spurt of IPO recently seems to indicate this would not be priced cheaply.
For any REIT or Business Trust, the management is very important. MIIF have shown how incompetent management cannot risk manage or take advantage of opportunities. Perhaps the same for GIL.
This company may eventually proved to be a good buy just like HPH Trust at USD 50-60 cents. At IPO not so much.
Price is what you pay, value is what you get. Give time to assess the management. At this moment if you look at 8-9% yield, HPH might be a more worth while target to investigate.