First REIT Announces Acquisition and Rights Issue

First REIT announces the acquisition of 2 properties:

1. Mochtar Riady Comprehensive Cancer Centre (MRCCC) – SGD 170 mil
2. Siloam Hospitals Lippo Cikarang (SHLC) – SGD 35 mil

This will be funded by issuing 345 mil shares for a gross proceed of SGD 172 mil and long term debt financing for SGD 50 mil

Rights Issue price will be SGD 0.50

Rights Ratio will be 5 for 4

Implied TERP – SGD 0.70 per unit

discount to TERP – 28.57%

discount to closing price – 47.37%

My Assessment

Based on a last closing price of SGD 0.98, the final number of shares will be roughly 619 mil compare to previous 274 mil. That’s a 125% increase in units.

The final price it should fall to will be SGD 0.70

The distributable income increases from 20 mil to 38.5 mil. That’s 92% increase.

Based on final price of SGD 0.70, your yield will be 8.83%. That’s quite a good yield.

Based on this financing, the debt to asset will increase from 14.5% to 17.7%. Still less than 20%

With an injection of (172+50 = 222mil) of assets yielding 18.5 mil more, these new assets yield for 8.1%. This yield is close to the current yield of 7.8% based on a share price of SGD 0.98.

The portfolio risk gets diversified across properties as well. But geographical risk still remains. for details on geographical risk do take a look at this article I written previously.

I think it’s a good deal. But take it like you are buying to new hospitals and renting it.

I will be going for the excess rights as well.

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