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First REIT: This one is for keeps.

Thursday, March 4, 2010

You might have experienced deja vu before.  

It has happened to me countless times.  

Psychic?  

Maybe but sometimes, things just fall into place in the strangest ways.


Today, I received a payment voucher from my broker on income distribution from First REIT.  

This is not a very glamorous REIT but I count it as one of the strongest in my portfolio.  

The generous distribution put a smile on my face.

Then, I wondered if I should blog about First REIT, using it as an example of the type of REIT we want to have in our passive income portfolio.  

I got home, checked my blog and found two comments from anonymous readers, both stating that they do not like REITs.  

So, that made up my mind for me.






I first bought some units in First REIT in 2007 for an average price of 75c per unit.  

Through good and bad years, it faithfully distributed income to unitholders every quarter:

In the first year, it distributed 7c per unit for a yield of 9.33%.

In the second year, it distributed 7.62c per unit for a yield of 10.16%.

In the third year, 2009, it distributed 7.44c per unit for a yield of 9.92%.

Throughout the years, First REIT did not have to raise funds from unitholders as its gearing remained conservative at slightly more than 15%.  

The management did not act irresponsibly, expanding recklessly during times when credit was easily available.  






Its NAV today is about 98c per unit.  

It is still trading at a discount to NAV although, at today's closing price of 82.5c, not excessively so.  

At the current price, the yield (assuming a distribution of 7.5c per annum) is still a respectable 9%.

You might remember that I said I bought more units of First REIT at 42c during this last crisis.  

I have received the full distribution of 7.44c per unit for the year 2009.  

This translates into a yield of 17.7% (this plus a capital appreciation of almost 100%)!  

In five and a half years, I would have recovered my capital (everything remaining equal).  

This one is for keeps.





First REIT, I believe, is a powerful example of what makes a good investment in REITs for the purpose of passive income generation.  

Let us leave out the units I bought at 42c as that happened under extraordinary circumstances and is unlikely to be repeated.  

Considering just the units I purchased at 75c, it is more than likely that I would continue to receive 10% yield per annum.

Human beings like to classify things, organising things into groups.  

This is not a bad thing in itself but having a system of classification helps us to think more readily in general terms, making quick generalisations in the process.  

This encourages economy and masks differences, differences which could potentially separate the gems from the trash.  

So, next time, if you see what seems to be a heap of trash and think of passing it by, think again. 





Related posts:
High yields: Successes, failures and the in betweens.
Seven steps to creating passive income from the stock market.
High yield portfolio.

14 comments:

drizzt said...

i wish i bought first reit even at 50 cents. vested at 82.5. looks expensive to me. hope i can get it at 60 cents

AK71 said...

Hi drizzt,

Yes, I also wish I had bought more when I did at 42c. 60c? You think it probable in the near future?

Even at the current price, First REIT is trading at a 15% discount to NAV, has a yield of almost 10% and a gearing level of only 15%. Fundamentally, it is still attractive for some people, I guess.

Anonymous said...

Hi AK71,

I like to post the following 2 research reports released after the 2Q Briefing.

CIMB report is very interesting since there is information about the 2 potential acquisition targets and it mentions the need to raise funds from both debt and equity. It should be able to increase AUM by 50-70%. Looks like a good deal if CIMB figures are accurate.

http://firstreit.listedcompany.com/misc/First_REIT_-_2Q10_Update_Report.pdf (SIAS)

http://firstreit.listedcompany.com/misc/First_Reit.pdf (CIMB)

Cheers !

Nick

AK71 said...

Hi Nick,

Thanks for these links. Yield accretive purchases in the works. So, it seems that the REIT would be going to unitholders with hat in hand soon.

Would you be acting on the recommendation by SIAS to increase exposure? ;)

Anonymous said...

Hi AK71,

I will most likely increase my exposure slightly near term. Naturally, we need to bear in mind that with the potential looming rights issue (could be announced in a matter of months), we need to conserve capital to subscribe for it.

First REIT Manager estimates that the 2 assets are valued at $255 million and that it might be allowed to acquire it with a discount like its IPO assets. Assuming, there is a 5% discount and FR intends to maintain its 25% gearing limit, I can create the model below -

Post Acquisition:
Total Assets: $585 million
Total Debt: $145 million (gearing 25%)

Since current debt is only $54.5 million, they can tap on a further $91 million worth of new debt for the acquisition.

So I can break down the $242 million acquisition financing into this 3 components -

1) Retained Earnings: $6 million (cash)
2) New Debt: $91 million
3) New Equity: $145 million

Since First REIT current market capitalization is around $245 million, it will most likely be forced to do a 1 right for 2 existing share rights issue. This could be adjusted if they do a share placement as well.

Naturally, this is all based on guesswork since I have no accurate figures nor can I tell the future like a divine oracle from Greece. But I shall work on the assumption that I need to cough up a further 50% of my shareholdings to guide how much cash to keep in reserve :)

Cheers !
Nick

AK71 said...

Hi Nick,

I think your two comments on First REIT are detailed enough to be made into a post. Thank you so much for sharing your analysis. :)

Anonymous said...

3Q 2010 key financial highlights just out :

1. Distributable income increased 2.5% to S$5.4 million

2. Distribution per unit (DPU) consistent at 1.94 cents for 3Q 2010

3. Distribution yield at 8.1%based on closing price of S$0.95 on 20 Oct 2010

4. Net asset value at 97.77¢ as at 30 Sep 2010

5. No major refinancing needs till 2012

# 3 in comparitive yield of S-REITs.

Sounds good for a newbie like me.

^-^ Thanks AK & Nick for your earlier comments.

SnOOpy88

AK71 said...

Hi SnOOpy88,

Thanks for the update. It would save me some time from having to read the quarterly report myself. ;)

I continue to like First REIT but feel less inclined to load up at the current price. I might be suffering from the memory effect as my entry prices are from 42c to 75c. ;p

Anonymous said...

Well AK

It's the least I can do

SnOOpy88

Anonymous said...

Hi AK

Just in & extracted from :

http://sreitinvestor.blogspot.com/2010/11/first-reit-proposed-acquisitions-and.html

Key Points :

First Reit to acquire two Jakarta hospitals for a purchase consideration of S$205.5 million to be funded partially by Rights Issue of 345,664,382 new units.

The Mochtar Riady Comprehensive Cancer Centre (“MRCCC”) is being acquired from Wincatch Limited, an unrelated third party, for S$170.5 million, and Siloam Hospitals Lippo Cikarang (“SHLC”) is being acquired from the sponsor of First REIT, PT Lippo Karawaci Tbk, for S$35.0 million.

The respective purchase prices of MRCCC and SHLC represent an attractive discount of 19.7% and 13.8% respectively to the average of the properties' latest independent valuations.

The Acquisitions will increase First REIT‟s assets by 74.3% to S$603.4 million.

The rights issue will raise approximately S$172.8 million in gross proceeds.

The rights issue will be on a pro rata basis of five Rights Units for every four existing Units, at S$0.50 each (fractional entitlements to be disregarded).

The Rights Issue books closure date will be at 5.00 p.m. on 3 December 2010.

The Issue Price represents a discount of 47.4% to the closing price of S$0.95 per Unit on 4 November 2010 (the “Closing Price”).

Author's Note
First Reit has finally announced new acquisitions after a long wait, and a very significant one relatively to its existing assets. For quite sometime the Reit has been rather quiet, with the DPU being relatively constant from quarter to quarter. However, there has been quite a noticeable surge in its share price recently, which closed at a all time high of 0.980 cents on 8 Nov 2010, just a day before the release of this announcement.


I almost fell off the chair. 5 rights for every 4 ! Wow. They are really into something. And I long suspected that there may be someone on the know that slowly drives the stock prices up.

Any guess as to what is the magical formula on the excess rights (over & above rounding up units).

SnOOpy168

AK71 said...

Hi SnOOpy168,

I was made aware of the rights issue first thing this morning by my banker at UOB. Not much of a surprise as it is something we have been anticipating.

I am somewhat busy these couple of days. Multi-tasking. ;)

I will crunch the numbers and also share my view on First REIT's rights issue, say, by early morning on 11 Nov. Look out for it. :)

Anonymous said...

Hi AK,

DIVIDEND
Ex.Date: 28 Oct 2010
010710 - 300910 SGD 0.0014 LESS TAX
DIVIDEND
Ex.Date: 28 Oct 2010
010710 - 300910 SGD 0.0019
DIVIDEND
Ex.Date: 28 Oct 2010
010710 - 300910 SGD 0.0161 TAX EXEMPT

Just to clarify, i got the above figures from sgx. Which figure reflect on the dividend we are getting? I suppose is the SGD 0.0161 TAX EXEMPT?

Thank,
Rose

AK71 said...

Hi Rose,

All three must be added and you will get the dividend that went X on 28 Oct. That was already paid out on 29 Nov.

We won't know what we will be getting for sure until the next dividend announcement which should go X in January and should be payable in February next year.

AK71 said...

From its initial public offering (IPO) in 2007 till 31 July 2018, this real estate investment trust (REIT) has produced an annualised total return of 20.6%. At that rate, your money would double every 3.5 years.

The phenomenal return has real backing. Since 2007, the REIT’s gross revenue and net property income have each grown by 14.7% per year. Its distributable income has increased from S$19.3 million in 2007 to S$66.7 million in 2017, an impressive annual growth rate of 13.2%.

The REIT I’m talking about is First Real Estate Investment Trust (SGX: AW9U), Singapore’s first healthcare REIT. First REIT currently owns 20 properties — mostly healthcare-related — that are located in Indonesia, Singapore and South Korea. In Indonesia, it has 16 assets.

Source:
https://www.fool.sg/2018/09/21/this-healthcare-reit-has-doubled-investors-money-in-less-than-4-years-but-theres-1-risk-you-should-take-note-of/

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