One of my favorite real estate investment trust First REIT purchased South Korea’s Sarang Hospital.
The purchase price is US $13 million and this will be finance entirely by bank loan.
This is not a problem for First REIT since its Debt to Asset is only 16%.
Essentially this will not make quite a big difference. After all the total asset size of First REIT is around SGD 565 mil.
The great thing is that this deal is yield accretive as Sarang Hospital, which is suppose to be the largest rehabilitative and nursing facilities in Yeosu will yield 9%. First REIT’s current yield to value is around 7.7% while current Net Property Income should be around 8%.
This will add USD 1.17 million to First REIT’s revenue. If we take debts at 3.5% interest rate, interest will come up to USD 0.455 million. Net Income is then USD 0.715 million.
The annualized Net Property Income is SGD 29 mil so I don’t think it is going to matter much.
What is interesting is that after Mapletree Logistic Trust, First REIT is the second REIT to venture to South Korea to search for yield accretive property.
Mapletree Logistic was able to snare up assets yielding 9% and now its First REITs turn. Should we be expecting First REIT to hunt for more over there?
For sure, the management is cautious. There are risks associated with overseas ventures that is out of the manager’s operating scope.
Investment Moats posed 2 questions to Victor from First REITs:
1) It wasn’t mentioned that the currency for the income earn from the asset in South Korea. Will it be in Won, USD or SGD?
Victor: rental income is in USD
2) Korea seem to be a land where free hold asset exist and ability to achieve 9% net property income yield. Mapletree Logistic recently went in as well. What is your assessment of that area and do you see more purchase from that neck of the woods?
Victor: this is our first foray into Korea. We see good potential there and won’t rule out doing another deal depend on the experience we learn from this acquisition.
Now we know that Aims Amp and a lot of REITs were scouring in China but seems like they should turn their attention to Korea.
My question is what are the geographical and political risks associated with property investing in South Korea?
Disclosure: Author is vested in First REIT
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Tuesday 30th of October 2012
Hi I came across your website while sourcing for First Reit information. Can you enlighten how you determine the following figures that: - Yield for Sarang Hospital in Yeosu will yield 9%. I looked into the weblink but unsure how do you determine 9%. http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_319FD25965A35EDF482578C70030A0CF/$file/First_REIT_Korea_PR.pdf?openelement
- "First REIT’s current yield to value is around 7.7% while current Net Property Income should be around 8%." How do you determine that?
Thanks in advance
Tuesday 30th of October 2012
the brain is a bit murky, but i remember the figures published was a 5mth or 8mth income figure, so we have to annualized it. I have to relook the recent contribution to be sure.
Friday 22nd of July 2011
I think First actually looked at a couple of deals in China some time ago but didn't go ahead because they weren't comfortable with the operators. Don't know much about the specific risks of Korean healthcare, but seems a better option to me risk-wise, especially since First is principally about the Indonesian pipeline and anything else is just to build assets that bit faster.
Excellent site you've built here. I stumbled across it a while back researching something (Hsu Fu Chi I think - now regrettably being delisted at too low a price) and have been reading ever since.
Saturday 23rd of July 2011
hi Cris, visited your site and think its great. I regreted not spotting Hsu Fu Chi. Have you found any Asian stock that have similar characteristic to Hsu Fu Chi? Would be great if you could share them.