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First REIT acquires SH Bali and Simatupang–Asset Dumping?

This morning we got news that First REIT will acquire two more properties from parent Lippo Group.

You can see the announcement here. Details here.

The details of the acquisition are as follows

  1. Acquired at 12.5 – 13.3% discounts to last valuation
  2. Initial NPI Yield of 9%
  3. It will be funded by debt facility and issuing new units to parent sponsor Lippo Group
  4. New NAV at 90 cents thus new Price to NAV is 1.36 times

We will not know the new DPU but the annualized Q3 2012 Net Distribution Income (NDI) is  42.2 mil (This is the most untainted NDI as no Adam Road distribution and no Sept 2012 acquisition distribution)

September acquisition NDI = 5.1mil

Bali and Simatupang NDI = 7.6 mil

Estimate new NDI = 42.2 + 5.1 + 7.6 =  54.9mil

New outstanding number of shares = 710 mil

Estimate distribution = 7.7 cents.

Current share price = $1.23

Prevailing yield = 6.2%

This should boost debt from 210 mil to 350 mil.

Based on asset value of 1 bil it will reached the 35% gearing limit for an unrated fund.

My View

This acquisition comes six months after the last acquisition and looks to be larger than the last one.

In 6 short months the asset value expanded from 660 mil to 1000 mil.

I did sound out the CFO on this and First REIT seem to think there is value.

I just find it interesting that a company who have largely stayed low leveraged for most part of the financial crisis and the initial recovery would choose to buy so much property from their sponsor now.

The issuance to their parent sponsor looks to me as if no one wants to take the placement at this price.

No matter how yield accretive, I hope they really have a good long term financing plan if not they will get into a situation they didn’t encounter in the last crisis.

Incidentally, WSJ published an article titled Big Players Cash Out of Hong Kong Property. In it there is this paragraph:

In Singapore, where the government has also tried to reign in property prices, some big investors are selling as well.

Indonesia’s billionaire Riady family is planning to raise $800 million in Singapore through a property arm for a portfolio of hotels in that city later this year. The family, which controls the Lippo Group, and has business interests in real estate, publishing and banking, earlier this month spent $367.5 million buying the U.S. Bank Tower in Los Angeles, the tallest building on the west coast.

A spokeswoman for the property arm declined to comment.


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Friday 29th of March 2013

Whats missing from the figures is potentially another 1 to 2 mio from each acquisition due to the variable income component. There could be another 4 mio based on the 4 assets recently acquired that brings the dpu to more than 8 cents by year end


Friday 29th of March 2013

hi shareholder, you seem to be one that studies the structure in detail. kudos for that. i missed that out. would it be 1 mio? hard to say i would think that the variable component may not amount to much. perhaps you can explain (if possible) why you would think it is that substantial. cheers


Thursday 28th of March 2013

Mr Market had reacted positive with the News... Hitting another new high.....


Thursday 28th of March 2013

I think just let it be. I just hope my dpu estimation is accurate

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