First REIT

[Share Investor]

Yield accretive acquisition!

Proforma FY11 DPU impact is 0.44ct (pg11). Not going to be enough to cover for the extra 0.34ct/Quarter that shareholders had been enjoying for the past 4 Quarters (from one-off gain on divestment of Adam Road property). IIRC, no more from this coming Q or next Q.

Yes. No more payment from the divestment. This will help make up for it.

[Willow_Will]

Hi all,

This is my first post, but I have been lurking in this forum years ago. The various comments from the various "oldies" have always been very insightful.

I have a question regarding how First REIT recognises income - why does an increase/decrease in the fair value of its investment properties count towards an increase/decrease in net income?

Taking its 2010 Annual report for example:
Net Income before the Undernoted 23,544
Increase/(Decrease) in Fair Values of Investment Properties 56,442
Total Return for the Year before Income Tax 79,986
Income Tax for the Year (19,530)
Total Return for the Year after Income Tax 60,456

I do not see the other REITs, for example, Ascendas REIT, counting its appreciation in property valuation towards its income. Any insights the above observation is appreciated!

[Nick]

Hi all,

This is my first post, but I have been lurking in this forum years ago. The various comments from the various "oldies" have always been very insightful.

I have a question regarding how First REIT recognises income - why does an increase/decrease in the fair value of its investment properties count towards an increase/decrease in net income?

Taking its 2010 Annual report for example:
Net Income before the Undernoted 23,544
Increase/(Decrease) in Fair Values of Investment Properties 56,442
Total Return for the Year before Income Tax 79,986
Income Tax for the Year (19,530)
Total Return for the Year after Income Tax 60,456

I do not see the other REITs, for example, Ascendas REIT, counting its appreciation in property valuation towards its income. Any insights the above observation is appreciated!

All REITs include fair value gains or losses in their investment property on their P&L statement since their assets are revalued on an annual basis.

Ascendas REIT do include fair value gains in their P&L statement -

http://areit.listedcompany.com/newsroom/...3046.1.pdf [FY 2012 results]

On pg 3, it recognized $344.7 million and $224.4 million investment properties fair value gains to generate NPAT of $578.6 million and $493.2 million in FY 2011 and FY 2012 respectively.

However, since this is a non-cash entry, it will not affect the cash available for distribution to unit-holders.

(Not Vested)

[Willow_Will]

Thanks for the prompt reply, Nick.

You're right, I stand corrected. On closer inspection of the P&L between the two REITS, First REIT did not report the income available for distribution under "Total Return" (was done under the distribution statement), whereas A-REIT did. This gave me the wrong impression that the total distribution for the year after income tax for First REIT included the fair value gains.

I'm new to reading the reports for REITs, but it does sound counter-intuitive for them to include the fair value gains as "income". This total income, which includes the fair value gains, is usually the number reported by the media, and it does give the lay person the wrong impression that the increased income came from rental. Shouldn't this be reported as income only after the actual property has been sold? I would not consider an increase in valuation for my existing properties as income till I sell them!

[Nick]

Hi Willow_Will,

I do understand your concerns of impressive headline figures or depressing figures if valuation took a dip. Ultimately, dividends is a function of the distributable income so investors shouldn't fall prey to it. Personally, I tend to pay more attention to the income available for distribution and the interest expense.

An advantage of this accounting policy is that the assets are revalued annually and the figures reported in the B/S reflect the current market valuation of the properties based on independent valuers perspective. This leads to an accurate depiction of the Company assets and the NAV is more useful to investors. If the assets were recorded at historical cost, the NAV would not be a fair depiction of the market value of the property. It will be difficult to compute the gearing of the REIT since we do not know the valuation of the underlying property.

[Willow_Will]

Excellent insights, Nick. I appreciate you taking time to provide your perspective in this matter.

[Noob]

Halted... what happen?

[Nick]

SINGAPORE - Singapore's First Real Estate Investment Trust, which owns healthcare assets, is placing up to 31.6 million units at an indicative price range of S$0.95-S$0.97 each, raising as much as S$30.7 million (US$25.1 million).

http://www.businesstimes.com.sg/breaking...t-20121115

If I recall correctly, they mentioned that they were gg to partially finance the recent M&A with a placement so here it is.

(Not Vested)

[shanrui_91]

Given that LMIR and First REIT gearing ratios are still far away from the 35% gearing limit, why does it seemed like they are not raising the gearing ratio but seeking placement? Could it be that the bank convenant for indonesia REITs are subjected to a much lower gearing limit?

[weijian]

Given that LMIR and First REIT gearing ratios are still far away from the 35% gearing limit, why does it seemed like they are not raising the gearing ratio but seeking placement? Could it be that the bank convenant for indonesia REITs are subjected to a much lower gearing limit?

I do not follow both REITs, but i do think it make sense. With REITs outperforming the STI index this year thanks to a run-up in prices, i reckon it might be wiser to issue a share placement at elevated prices (abeit at a discount), compared to gearing up (even though interest rates are still low).

After this placement, gearing ratio reduces with an expanded equity base. The end result is First Reit having even greater gearing power for future opportunities or weathering a crisis. This is what a profit-oriented Manager will do to maximise their own returns.

Maybe the question should be - why aren't they having a rights issue (where all shareholders can 'benefit') instead?

---

on another note, a rights issue doesn't sound too optimized to raise 29mil sgd.
So a private placement does make sense here if one feels the price paid is NOT undervaluing First Reit.