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.