First REIT

[stilicon]

In its latest survey of the Sing REITs space (dated dec. 10th), OCBC mentions for FIRST REIT a consensus DPU for the next FY of 5,5c and then 4,6c the year after.

I was rather expecting a stable post-emission price of 70c and a DPU of about 6 / 6,2c, as they mention in the acquisition presentation themselves.

I don't understand this discrepancy. Did I forget something obvious ? Is it an aggressive hypothesis on the IDR/SGD evolution ?
I wonder if someone understand this better than me, or if OCBC made a typo error ?

[Nick]

I don't think this report - http://www.remisiers.org/cms_images/Mark...10-OIR.pdf - covers First REIT. Perhaps you can upload the report so we can see what is about ?

First REIT's rental is paid in SGD so it is spared from the volatile exchange rates. The DPU is forecasted to be 6.4 cents in 2011 which translates to around 9.4% yield. At the moment, only SIAS and CIMB covers FR. You can view their research reports in FR IR page.

(Not Vested)

[stilicon]

I don't think this report - http://www.remisiers.org/cms_images/Mark...10-OIR.pdf - covers First REIT. Perhaps you can upload the report so we can see what is about ?

First REIT's rental is paid in SGD so it is spared from the volatile exchange rates. The DPU is forecasted to be 6.4 cents in 2011 which translates to around 9.4% yield. At the moment, only SIAS and CIMB covers FR. You can view their research reports in FR IR page.

(Not Vested)

You still can get this OCBC report on ocbcresearch.com (http://www.ocbcresearch.com/pdf_reports/...10-OIR.pdf)

[Nick]

I don't think this report - http://www.remisiers.org/cms_images/Mark...10-OIR.pdf - covers First REIT. Perhaps you can upload the report so we can see what is about ?

First REIT's rental is paid in SGD so it is spared from the volatile exchange rates. The DPU is forecasted to be 6.4 cents in 2011 which translates to around 9.4% yield. At the moment, only SIAS and CIMB covers FR. You can view their research reports in FR IR page.

(Not Vested)

You still can get this OCBC report on ocbcresearch.com (http://www.ocbcresearch.com/pdf_reports/...10-OIR.pdf)

Thanks for the link.

Their DPU and NAV are clearly wrong. OCBC doesn't cover FR so I guess they didn't research well enough for the information haha ! I believe the circular forecast a DPU of 6.4 cents for 2011. Moreover, the two research houses which covers First REIT (CIMB and SIAS) both forecast a DPU of 6.4 cents for 2011. Their reports can be downloaded from FR IR page. Based on its last traded price, the yield is around 9.5%.

I guess DPU will increase in the coming years when variable rental income kicks in Year 2 for the newly acquired assets and completion of the asset enhancement schemes for the local assets.

(Not Vested but interested)

[stilicon]

Thanks for the confirmation, Nick. I do agree.

Now at S$0,675, would it be a fair offer ? I am tempted.

But the evolution of most of the S-Reits in the last month is ominously down.

Is it a deleveraging action in the big financials at the end of the year (and they would eventually take on risks again in january) ? Or is it something more lasting, such as expectation of a rising inflation (starting in Asia as required), and this would imply a reduction in value of many assets ?
Will 2011 be the year of the rising inflation (ie more than most are expecting ?) And can First Reit for instance pass on all the inflation ? I wonder.

[Nick]

We have seen a REIT sell-off in the recent weeks though it could be due to market jitters and potential increase in interest rates. A flurry of large acquisitions with relatively poor yields (the MBFC acquisition) may also be a cause. Honestly, I don't know haha ! Inflation will boost asset valuation in the long run. First REIT rental income is linked to Singapore's CPI rate which is a measure of inflation so any increase in inflation will be reflected with an increase in rental income to compensate it though there is a cap at 2.00%. Ultimately, First REIT has one of the lowest (if not the lowest besides LMIR) gearing among all S-REITs so loan financing issues and interest cover ratios are in very safe levels. I don't see why this REIT should trade at yields exceeding 9.5% and I guess the CEO doesn't either since he purchased 1.1 million rights share on Friday.

Besides capital structure, I think First REIT has some potential to grow in the coming years -

1) It can purchase $75 million worth of assets and its gearing will be a mere 25% which is still significantly below the regulatory limit. I think FR Management wants to increase FR AUM to $1 billion within the next 3 years which implies another round of equity financing in 3-4 years time.

2) FR Indonesian assets have a variable rental component which is linked to the hospital revenue growth. If you are bullish about Indonesia health care sector, investing in FR may be a good move since it will benefit from this particular rental component. It must be noted that this component will only impact the latest 2 acquisition from the second year of operation onwards (2012 onwards). I guess if Indonesia economy continues to improve, so too will the value of such premium health care assets.

Naturally there are risk involved as well. Indonesia has plenty of natural disasters so the assets may be at risk from earthquakes or volcanic activity. Its asset HGB lease titles are much shorter compared to Singapore's assets. While renewing the lease is extremely cheap, there might be unforeseen problems in the future as well. First REIT is very dependent on its sponsor, Lippo Karawaci, for its rental income so their fate are tied together. There are risk and there are rewards...choose well

Please share your views

(Not Vested but Interested)

[Blackjack]

I received the Offer Information Statement, but strangely not the Acceptance of Rights Entitlement form. Did they miss it?

[kazukirai]

I received the Offer Information Statement, but strangely not the Acceptance of Rights Entitlement form. Did they miss it?

Oh, I got mine.
But I didn't have to use it anyway. Just went to the ATM and applied for them.

[Nick]

If I was to purchase nil-paid rights in the market next week, how long will it take before I can subscribe for it via ATM ? Is there a need to fill in any additional forms etc ?

Thanks

[Blackjack]

Oh, I got mine.
But I didn't have to use it anyway. Just went to the ATM and applied for them.

Thanks for sharing.

I went down personally to the bank last Friday to take care of a few transactions at one go. As my holdings was bought using CPF, I had to make a cash top-up to my account as it was already depleted after I bought my home last year. I guess we can go to the ATM to accept the rights if its in our CDP, but I don't think we can do so for CPF holdings as they are parked under nominee account. Wasn't sure. Anyway, I was told I will still need to wait for the ARE form to be sent to me before I can accept the rights officially even though I already paid for the rights via a cash top-up at the bank directly.

If I was to purchase nil-paid rights in the market next week, how long will it take before I can subscribe for it via ATM ? Is there a need to fill in any additional forms etc ?
Thanks

I don't think there are any additional forms to fill up. Believe you can just pay for the nil-paid rights once its reflected in your CDP. As for payment via ATM and subscription for excess rights, I think you can only submit your application once. So probably a good idea to do it only nearing the last date after you have bought the nil-paid rights off the market.

My guess, feel free to correct me.