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First REIT: 30,900,000 new units.

Tuesday, November 20, 2012

First REIT is having a private placement, issuing 30,900,000 new units at 95c each. This is to help pay for acquisitions announced earlier in September.


How will this impact existing unitholders?

Other than the advance distribution for the period 01 October to 25 November which is nice to have, existing unitholders' interest in the trust is going to be diluted.

The REIT has approximately 632,645,000 units in issue. The 30,900,000 new units will add 4.88% to the total units in issue.  Based on an estimated pro forma DPU of 6.77c, post acquisitions, the DPU post private placement is estimated to be 6.455c or 1.614c per quarter.

In 3Q 2012, the DPU was 1.68c. Annualised, it gives us 6.72c. So, unit holders seem to be better off pre acquisitions and private placement. We are likely to see a 3.93% reduction in DPU in future.

At a price of $1.02 per unit, I now estimate a distribution yield of 6.32%. If unit price should decline to 95c which is what the private placement's investors would be paying, distribution yield would be 6.65%.

The advantage of the private placement is that it would strengthen the balance sheet of the REIT without incurring hefty costs which would come with a rights issue as the amount raised is not big. However, the expected dilution and a possibly lower DPU in future is unpalatable.

See announcement: here.

Related posts:
1. First REIT: Acquisitions in Manado and Makasar.
2. First REIT: 3Q 2012.

22 comments:

SnOOpy168 said...

Any action like this dilution is bad for us. But in hoped that they have a wider base for revenue and therefore our distribution can maintain within that range or grow.

Seriously, if this PP is a rights issue at 1 for 5 @ 95c(vs market's $1.15), knowing that the yield is about 6.xx%. Will you chong for it ?

Sometimes, I hate the time lag for the Rights issues. Felt like por por ma ma. That is when i have war chest ready and chonging for excess rights.

AK71 said...

Hi SnOOpy168,

Well, it is more like a 1 for 20 rights issue to raise the same amount of money as the private placement proposed.

It might not be popular because of the dilution in DPU but applying for excess rights could help to reduce the dilutive effect. Rights issues allow for this.

So, having a war chest ready is definitely an advantage. :)

INVS 2.0 said...

Hi Ak71,

Any idea how do I buy the new units at 0.95c each?

AK71 said...

Hi INVS 2.0,

Give your broker a call. See if he has access to the private placement. :)

Poh Soon said...

Refer to the original circular on Oct 23, 2012, The management seems to expect the the purchased will be able to contribute an additional $1,284,000 of distributable income per quarter.

For Q32012, total distributable income is $10,615,000.00.

=> Projected distributable income post acquisition: $11,899,250.00

=> Projected DPU = $11,899,250.00 / 663,545,000 = $0.01793

AK71 said...

Hi Poh Soon,

I am not right all the time. Indeed, if I am wrong and richer for it, I am happy! I am a simple person. ;p

I hope you are right and I am wrong. :)

Derek said...

Hi AK,

Would like to hear your views,

I have 10lots of first REIT at an average buy price of $0.630. Do you think it will even make sense to buy the placement? It seems that by doing so, I'm going to reduce my distribution yield.

Thanks.
Derek

AK71 said...

Hi Derek,

Well, I do not think anyone of us would get a bite at the share placement. So, I wouldn't worry about whether to buy into it.

At a price of 63c per unit, you have a bullet proof investment. The management has to do something really dumb to hurt you. You are going to be OK. :)

Derek said...

Hi AK,

Thanks. Else my next question is how do I get to talk to my never seen or heard broker. LoL.

Cheers!

Howyuan said...

Well i decided to take advantage of the recent plunge to top up. Lucky that my queue was filled in the initial hours when the suspension was lifted.

Still hope that US screwed up their budget debate so everything can go on sale!

AK71 said...

Hi Derek,

Hahaha.. Good question. Time to dig out your statements and call the brokerage. I am sure you have an assigned broker. :)

AK71 said...

Hi Howyuan,

You managed to get some cheap? Congratulations! :)

Kim said...

Hi AK
Know tat u r also holding on to NERATEL shares, bought at price of 40plus cents. Can have your view on their recent offer of $0.49 per share? is it mandatory that shareholder need to sell them back the shares? will u be doing so?? I have bought at a much higher price...definitely don wan sell...getting all confuse...can advise? Thanks

SnOOpy168 said...

Derek - with the top up at higher prices, the yield on cost will reduce BUT the quantum of dividends collected increases. Sure win.

i cook and i bake said...

sounds interesting.. :)

AK71 said...

Hi Kim,

I think the offer will be rejected. It is interesting to see that the shares are trading at 51.5c today despite the offer.

It seems that Mr. Market thinks the shares are worth more than 49c. ;)

Kim said...

Hi AK
Thanks for sharing your view.
Ya looking at today share price, I got even more confuse. So to say that this offer still have to garnered more than 75% vote from minority shareholders in order to pass through??
I really hope the offer will be blocked. Just bought this counter only in hope to collect passive income...who know this offer came by...sianz...some more offer price lower than the last traded price. 岂有此理!

AK71 said...

Hi Kim,

Ya, I know how you feel. It is like buying a very old HDB flat, spending $60k to do it up and 2 years later, the estate goes en bloc! @%#^$&!...

Well, I doubt the offer will go down well with most of the shareholders. Let's see how it turns out. :)

iisterry said...

Re: Neratel

It is a mandatory offer. They have the obligation to extend the offer to all shareholders alike.

The buyer is a PE fund. I take it to mean that they see value at 49c and is optimistic of doubling or tripling their investment in a few years.

Northstar manages around US$1.2 billion so the 50.05% stake in Neratel accounts for roughly 6+% in their portfolio.

When mandatory offers are triggered
Except with the Council’s consent, where:-
(a) any person acquires whether by a series of transactions over a period of time
or not, shares which (taken together with shares held or acquired by persons
acting in concert with him) carry 30% or more of the voting rights of a
company; or
(b) any person who, together with persons acting in concert with him, holds not
less than 30% but not more than 50% of the voting rights and such person, or
any person acting in concert with him, acquires in any period of 6 months
additional shares carrying more than 1% of the voting rights,
such person must extend offers immediately, on the basis set out in this Rule, to the
holders of any class of share capital of the company which carries votes and in which
such person, or persons acting in concert with him, hold shares. In addition to such
person, each of the principal members of the group of persons acting in concert with
him may, according to the circumstances of the case, have the obligation to extend
an offer.

AK71 said...

Hi iisterry,

Thanks for sharing this. :)

A full write up for anyone who is interested is also available at The EDGE: Northstar launches mandatory general offer for all shares of NeraTel at 49 cents

I do not think remaining shareholders will sell at 49c. ;p

AhJohn said...

CMT also places a private placement, 5% discount. Is it considered as PIRATE? :(
For First, I have checked with broker, he said normally for rich people with big order.

AK71 said...

Hi Ah John,

For rich people with big orders? No wonder I did not get an offer. :(

CMT a pirate? Haha.. Why?

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