First REIT

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The Straits Times
www.straitstimes.com
Published on Mar 28, 2013
First Reit to buy 2 Indonesia hospitals


By Dennis Chan Deputy Money Editor

HEALTH-CARE based First Real Estate Investment Trust (Reit) has agreed to acquire two new income-producing hospitals in Indonesia for $190.4 million in total.

First Reit will buy Siloam Hospitals Bali in the resort island city of Kuta for $97.3 million.

It will also acquire Siloam Hospitals TB Simatupang in South Jakarta for $93.1 million.

Both properties belong to subsidiaries of Lippo Karawaci, the sponsor of First Reit.

The Kuta property will be financed entirely by a drawdown of committed debt facility while the Jakarta hospital will be financed by a combination of the debt facility and issuance of new units.

The issue price of units will be determined based on the 10-day volume-weighted average price of the units immediately preceding the date of completion of the deal.

Based on the average of two independent valuations, the Bali and Jakarta hospitals are being acquired at a discount of 13.3 per cent and 12.5 per cent to their respective valuations.

These acquisitions will further expand First Reit's portfolio to 14 properties across Indonesia, Singapore and South Korea, as well as expand its total asset size from $796.7 million as at Dec 31 to over $1 billion.

Lippo Karawaci, as master lessee of the two properties, has signed conditional master lease agreements for terms of 15 years, with an option to renew for a further 15 years.

This will help to provide stability to First Reit's gross rental income over the next 15 to 30 years.

The step-up feature of the base and variable rental components under both master leases would also provide locked-in organic growth in cash flow.

Based on annual initial rents of $9.7 million for the Bali hospital and $9.3 million for the Jakarta hospital, the properties will offer an initial net property yield in excess of 9 per cent.

These will boost net property income by $18.8 million and distribution per unit by 5.5 per cent to 6.94 cents for the year to Dec 31, assuming the properties were acquired on Jan 1 last year.

The equivalent net asset value per unit would have increased by 8.4 per cent to 90 cents.

The two hospitals are equipped with state-of-the-art facilities and specialised competencies in trauma and cardiology, and are strategically located and well- positioned to cater to middle- to upper middle-income people.

"The operator of the properties will also enjoy greater operating synergies in the long term which would indirectly benefit First Reit through higher variable rent and potential capital appreciation," said Dr Ronnie Tan, chief executive of Bowsprit Capital, which manages First Reit.

"Moving forward, we are committed to looking for yield-accretive assets in Asia to expand our portfolio size, to increase First Reit's diversity of income streams and ultimately, to achieve stable increasing returns to unit holders," he said.

Dr Tan also disclosed that the manager is considering obtaining a rating for the trust as part of its overall capital management strategy.

First Reit's unit rose 2.9 per cent to $1.23 yesterday.

dennis@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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Hi, I am new to investing. I learnt on the net that AFFO is a good metric to value a reit. However, through my calculation, it appears that first reit has a negative AFFO ( which means negative cashflow ). Does anyone has the same result? Or if anyone has any comment on the AFFO valuation method?
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(31-03-2013, 05:37 PM)waiyip Wrote: Hi, I am new to investing. I learnt on the net that AFFO is a good metric to value a reit. However, through my calculation, it appears that first reit has a negative AFFO ( which means negative cashflow ). Does anyone has the same result? Or if anyone has any comment on the AFFO valuation method?

Perhaps you can share how you computed the AFFO ? There is no need to deduct cash-flow used for acquisitions.
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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(31-03-2013, 05:45 PM)Nick Wrote:
(31-03-2013, 05:37 PM)waiyip Wrote: Hi, I am new to investing. I learnt on the net that AFFO is a good metric to value a reit. However, through my calculation, it appears that first reit has a negative AFFO ( which means negative cashflow ). Does anyone has the same result? Or if anyone has any comment on the AFFO valuation method?

Perhaps you can share how you computed the AFFO ? There is no need to deduct cash-flow used for acquisitions.

Thank you for your response! I thought that acquisition is regarded as capital expenditure as well? Nevertheless, Let's take their 2011 report for example.

AFFO= net income + Depreciation + amortization - gain on sales of property - CAPEX

I believe that FIRST did not include depreciation + amortization in their income statement. Thus, there is no need to deduct it in my calculation. Please correct me if I am wrong.

Numbers pluck out from First's financial statement:

Income statement
Total Return for the Year after Income Tax = 50,951
Gain on Divestment of Investment Property = 3,567
Increase in Fair Values of Investment Properties = 14,426 ( non-cash gain hence the need to deduct it from AFFO )

Cash flow from investing activities (cash flow statement)
Increase in Investment Properties= 69,034(i believe that this refers to acquisition of properties; CAPEX)

Hence, AFFO of First's is 50,951 - 3,567 - 14,426 - 69,034 = (36,076)

Please clarify my doubts on the computation of AFFO. Thank you in advance!
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The AFFO equation is correct and it should derive the cash earnings generated from the core operations. This means that the capex term would refer to expenses needed to maintain the core operations (as opposed to expand it). For example, if First REIT needed to incur expenses to paint its existing buildings - that will be considered as capex since its operations will be hindered if it doesn't paint its buildings every few years. On the other hand, if First REIT acquires new buildings, it isn't a capex item as it does not impact the existing operations. It should be treated separately as an investment cash out-flow to fund inorganic growth. These investments are typically financed with new debt or new equity raised from rights issue or private placements.

Locally, there is no need to perform this mathematical derivation of the underlying cash earnings since most REITs would have a separate statement for distributable income which aligns the net profit with the distributions. This is available in every quarterly reports and it can also be found in pg 40 of FY2011 Annual Report - http://firstreit.listedcompany.com/misc/ar2011.pdf [AR2011]. The AFFO method wouldn't take into account of all non cash expenses ie management fees may be paid in units and hence non-cash item so I think it is best to just use this. Tongue
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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(27-03-2013, 02:26 PM)Nick Wrote: First REIT continues acquisition trail with two new strategic hospitals in Indonesia

• To acquire Siloam Hospitals in Bali and South Jakarta at an attractive purchase consideration of S$190.4 million
• Acquisition will expand First REIT’s portfolio to 14 properties and achieve a target asset base of over S$1.0 billion
• Attractive initial net property yield in excess of 9%

http://info.sgx.com/webcoranncatth.nsf/V...A00377E79/$file/First_REIT_Press_Release_27_March_2013_Final.pdf?openelement [Press Release]

Share price currently trading at $1.22. I do certainly regret selling too early.

(Not Vested)

Hi Nick,

What prompted you to sell early, if you don't mind sharing?

I'm vested in First REIT, and am considering reducing my holdings given the recent run up.
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(31-03-2013, 09:21 PM)Nick Wrote: The AFFO equation is correct and it should derive the cash earnings generated from the core operations. This means that the capex term would refer to expenses needed to maintain the core operations (as opposed to expand it). For example, if First REIT needed to incur expenses to paint its existing buildings - that will be considered as capex since its operations will be hindered if it doesn't paint its buildings every few years. On the other hand, if First REIT acquires new buildings, it isn't a capex item as it does not impact the existing operations. It should be treated separately as an investment cash out-flow to fund inorganic growth. These investments are typically financed with new debt or new equity raised from rights issue or private placements.

Locally, there is no need to perform this mathematical derivation of the underlying cash earnings since most REITs would have a separate statement for distributable income which aligns the net profit with the distributions. This is available in every quarterly reports and it can also be found in pg 40 of FY2011 Annual Report - http://firstreit.listedcompany.com/misc/ar2011.pdf [AR2011]. The AFFO method wouldn't take into account of all non cash expenses ie management fees may be paid in units and hence non-cash item so I think it is best to just use this. Tongue
Thanks for the reply nick. Anyway, may I know where do I find capex of FirstReit? I can't seem to find it anywhere!.
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(06-04-2013, 08:30 PM)waiyip Wrote:
(31-03-2013, 09:21 PM)Nick Wrote: The AFFO equation is correct and it should derive the cash earnings generated from the core operations. This means that the capex term would refer to expenses needed to maintain the core operations (as opposed to expand it). For example, if First REIT needed to incur expenses to paint its existing buildings - that will be considered as capex since its operations will be hindered if it doesn't paint its buildings every few years. On the other hand, if First REIT acquires new buildings, it isn't a capex item as it does not impact the existing operations. It should be treated separately as an investment cash out-flow to fund inorganic growth. These investments are typically financed with new debt or new equity raised from rights issue or private placements.

Locally, there is no need to perform this mathematical derivation of the underlying cash earnings since most REITs would have a separate statement for distributable income which aligns the net profit with the distributions. This is available in every quarterly reports and it can also be found in pg 40 of FY2011 Annual Report - http://firstreit.listedcompany.com/misc/ar2011.pdf [AR2011]. The AFFO method wouldn't take into account of all non cash expenses ie management fees may be paid in units and hence non-cash item so I think it is best to just use this. Tongue
Thanks for the reply nick. Anyway, may I know where do I find capex of FirstReit? I can't seem to find it anywhere!.

I don't think it is a significant amount. My guess is the lessor (being a master lessor) have to pay for the capex. Just stick to the distributable income statement to find the recurring earnings - much simpler. Everything should be captured there.

(Not Vested)
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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Amazing. He keeps buying even at these stratospheric levels...

114 lots in all
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Bowsprit Capital Corporation Limited, in its capacity as manager of First Real Estate Investment Trust (“First REIT”, and as manager of First REIT, the “Manager”), wishes to announce that HSBC Institutional Trust Services (Singapore) Limited, as trustee of First REIT, has on 3 June 2013 entered into an agreement for lease for each of:

(i) No. 6 Lengkok Bahru, Singapore 159051 (“Lengkok Bahru”), with its existing tenant Pacific Healthcare Nursing Home Pte. Ltd., for a term of 10 years, with the new lease expiring on 11 April 2027; and
(ii) No. 21 Senja Road, Singapore 677736 (“Senja Road”), with its existing tenant Pacific Eldercare and Nursing Pte. Ltd., for a term of 10 years, with the new lease expiring on 11 April 2027.
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