After a long time First REIT finally proposed to make an acquisition.
Full details can be [found here]
Purchase price: SGD $142 mil
Valuation: SGD $160 mil
Pretty good purchase at 10% below valuation.
This will be finance by a mixture of debts and private placement. For the folks that are not sure how these placements and debt work out [check out this article]. It explains when placements are good and when is bad. This will be the one called partially funded by debts.
Incidentally, Bow Spirit stated that one of their reasons of purchase is to buy two hospitals at below market valuation.
Lease Term with Sponsor: 15 Years + 15 Years
Bow Spirit also indicated this will increase their weighted lease expiry (WALE)
Asset Size Increase: SGD $618 mil to $782mil
Weighted Average Age Decrease: 13.2 years to 9.9 years
Current Asset Value: SGD $650 mil
This purchase bump up the assets by 20%
Current Net Property Income: SGD $53.4 mil
Forecast Net Property Income: SGD $14.1 mil
NPI will be bumped up 26%
NPI yield: 14.1/142 = 9.9%
DPU increase: $0.0677 vs $0.0633
Very disappointing. That is just a 7% DPU boost.
Debt increase: 97 mil to 214 mil
The gearing would probably be increase to 30% from 15%
To conclude it boosted DPU but doubles the debt. However, as an end investor I feel its more risk than return.
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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Fee-only Wealth Advisory firm Providend.
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- My Money Wisdom Interview with Providend – The Value of Advice - May 22, 2023
Reader
Saturday 22nd of September 2012
Hi Drizzit,
Don't you think that after a couple years, the DPU will increase while their Debt reduces?
Do you think maybe due to the increase in the assets, the manager fees goes higher but for investor the rewards are not as great as for the manager?
Drizzt
Saturday 22nd of September 2012
hi Reader,
you are not wrong to draw that conclusion. Myself have question whether the risk is more. yet REITs have not known to pay down their debts the way some well run business trust or toll roads do. CM Pacific, which i did say alot on this blog, pays out like 55% and the rest pays down debt.
ahyu
Saturday 22nd of September 2012
Hi Drizzt,
May I know how come the asset size increase is different from purchase price and valuation? And what is current asset value?
Thank you!
Drizzt
Saturday 22nd of September 2012
hi Ahyu,
the increase in asset size takes into consideration the asset value change of 160 mil not 142mil. hope that explains.