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First REIT: Buying more?

Friday, February 4, 2011

Some readers would remember that I announced a fair value of 80c per unit for First REIT. This was on 1 Dec 10.  In that blog post, I made the following comments and also did some calculations:

A friend called me yesterday and said he might buy into First REIT with a view of getting more excess rights. I gave him my full support and told him he is likely to make money in this exercise. It turned out that he didn't get any yesterday.

Assuming that he had bought 4 lots at 98.5c /unit, his average price including rights units would be:

98.5 x 4 + 50c x 5  /9 = 71.55c /unit

At the estimated annualised DPU of 6.4c for 2011, it would mean a yield of 8.94%.  Not bad.  If he managed to get 1 lot of excess rights later on, the average price would be 69.4c which means a yield of 9.22%! I like this.

Now, for people who divested their stake during CR when First REIT's price closed in on its then NAV/unit, is buying back at the current price of 76c silly? It would seem so as not selling their stake then would mean a lower average price now in the region of 70c to 71.5c per unit.  They would also have been eligible for excess rights which would have lowered their average price further.

Of course, buying more, increasing their long position, when the counter's unit price plunged to 66c XR would have been doubly rewarding.

However, recognising the strength of this REIT and believing that it is undervalued even at 76c, it might be a good move for some to invest in the REIT once more or to increase their exposure, whichever the case may be. This is from a purely FA perspective, of course.

Personally, I am not adding to my long position. Why? I have a sizeable exposure to this REIT with costs ranging from 42c to 96.5c. 42c? Yup, those I bought during the last bear market. 96.5c are those I bought when the counter went CR which are really 70.67c after taking into account the rights. So, unless the price is at a very attractive level, I have no compelling reason to buy more.

Now, I am going to look at the technicals which are looking interesting.


On the daily chart, right away, we see that the Bollinger Bands are squeezing. An imminent change in direction after a period of low volatility? Which way would it go? The MACD has been falling as a bearish crossover was completed sessions ago. Momentum is weakening. Immediate support is at 75c.


I turn to the weekly charge to look at the longer term technicals. A white spinning top 4 weeks ago was followed by a doji which was in turn followed by a hangman. All possible reversal signals. Certainly, price action has been pushing the upper band and seems to have grown tired. Lower highs on the MFI confirms the tiring longer term demand. Although 75c has been identified as the immediate support in the daily chart, see how the weekly chart suggests that strong support is at 72c? This is where the rising 20wMA would be approximating soon. Caution is advised. There could possibly be a better time to buy more.

I continue to believe in the strong fundamentals of First REIT but at 76c, given the current technicals, I am not a buyer.

Related post:
First REIT: XR and fair value.

5 comments:

Anonymous said...

Just read about this today:

First REIT: Stability in times of risk aversion We believe that First REIT's (FREIT) stability makes it an attractive investment thesis amidst current uncertainty. Growth is driven largely by Indonesia's private healthcare sector, which enjoys relatively inelastic demand. Looking ahead, we expect growth via both organic and inorganic means, with the latter likely to come from hospital acquisitions from its sponsor Lippo Karawaci (Lippo). Lippo also recently reported a good set of FY10 results, which we opine will provide further support for FREIT. In particular, Lippo's healthcare segment grew 15.8% to Rp1.04t. FREIT is likely to be a key beneficiary as the master leases for its Indonesian hospitals have a variable rental component that allows it to capture the upside in the hospitals' topline growth. In addition, increasing demand for
nursing home services would provide more stability to FREIT's revenue
stream. We believe that FREIT has showcased its resilience and
defensiveness during the recent market downturn. The prospective yield of 8.6% (our FY11F estimate) further enhances its attractiveness. Reiterate BUY and fair value estimate of S$0.82.""

Good to hear.

SnOOpy169

Anonymous said...

Opps. Here is the full report

"First REIT: Stability in times of risk aversion Providing stability amidst uncertain times. We believe that First REIT's (FREIT) stability makes it an attractive investment thesis amidst such times of uncertainty. Growth is driven largely by Indonesia's private healthcare
sector, which is relatively inelastic in demand. Recall that FREIT performed decently in its recent FY10 results. Gross revenue increased 4.4% to S$31.49m (including deferred rental income); while distributable income rose 1.8% to S$21.35m. Looking ahead, we expect growth via both organic and inorganic means, since FREIT has a target to raise its asset base to S$1b in the next two to three years. Inorganic growth is likely to come from the acquisitions of hospitals from its sponsor Lippo Karawaci (Lippo). Sponsor's growth to spur FREIT's earnings momentum. Lippo reported a good set of results last week. Revenue and net profit rose 21.8% and 35.4% to Rp3.13t and Rp525.3b respectively for FY10. We believe that the improving financial strength of Lippo will provide stronger support and stability
for FREIT, given that Lippo contributed 86.7% of FREIT's gross rental income as at 31 Dec 10. In particular, Lippo's healthcare segment for FY10 experienced a healthy 15.8% growth to Rp1.04t (33.2% of total revenue),
underpinned by rising demand for better quality healthcare services in
Indonesia. FREIT is likely to be a key beneficiary of this trend, since the master leases for its Indonesian hospitals have a variable rental component to capture the upside in topline growth. Indonesia's growing healthcare needs is likely to continue to lend support to Lippo, and hence FREIT's growth momentum moving forward.

Higher emphasis on Singapore's nursing homes. Singapore's Ministry
of Health has highlighted that there will be increasing emphasis placed on
nursing homes in Singapore. The long waiting times and rising affluence of
Singaporeans could entice more people to take up private nursing home
services. While rental income from FREIT's nursing homes is fixed at a 2% annual increase, the possible increase in profitability of the operators would help to boost their ability to fulfil their obligations to FREIT.

Reiterate BUY. We believe that FREIT has showcased its resilience and
defensiveness during the current market downturn. Its share price has
declined 2.6% (+5.0% YTD) since China announced its interest rate hikes
on 8 Feb 11, which is milder than the broader market's 3.4% decline (-3.4%
YTD) and also the S-REIT universe's 3.4% fall (-2.2% YTD). The prospective yield of 8.6% (our FY11F estimate) further enhances FREIT's attractiveness, in our view. Reiterate BUY and fair value estimate of S$0.82.

SnOOpy168

AK71 said...

Hi SnOOpy168,

I believe that this is from OCBC Research? It is strange that not so long ago, they had a target price of 84c. It is 82c now. I wonder why. ;)

Anonymous said...

yes AK, its from OCBC.

Either way, the tp is still way above my average cost. ^-^

SnOOpy168

AK71 said...

Hi SnOOpy168,

It certainly is a morale booster although I would be quite happy to see it hitting the fair value I have ascribed it at 80c/unit. :)

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