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First REIT: DPU of 0.7c.

Thursday, January 24, 2013

First REIT issued 30,900,000 new units last November at 95c each to help pay for a couple of acquisitions in Indonesia. An advance distribution of 1.02c was paid for the period 1 Oct to 25 Nov.

The DPU of 0.7c announced is for the period 26 Nov to 31 Dec.

The management expressed confidence that contributions from the two new properties would boost the REIT's net property income in 2013. The full impact would be felt from 1Q 2013 which means that we would be able to tell in the next quarterly report if DPU would see a substantial increase.

When I blogged about the private placement in November, I was concerned that we would see a reduction in DPU, post placement, using the pro forma numbers provided by the management then.

Now, it seems that, apart from the maiden contributions from its two recent acquisitions in Indonesia, the REIT enjoyed higher rental income from its existing properties in Indonesia, Singapore and South Korea as well.

If I were to do a quick back of the envelope calculation using the latest DPU of 0.7c as a guide, I would say we could actually see a quarterly DPU of as much as 1.75c in 2013. This would mean an annual DPU of 7c.

Therefore, my fear of a reduction in DPU due to the dilutive effects of the earlier mentioned private placement has been allayed or so it would seem.

Interest cover ratio: 12x

Gearing level: 27.1%

With the management steadfast in its vision for a S$1 billion portfolio over time, although the REIT's balance sheet is strong, we could see more fund raising in future.

With unit price well above NAV/unit, it has become cheaper for the REIT to raise funds by issuing new units now. So, future private placements or rights issues cannot be ruled out.

See presentation slides: here.

Related post:
First REIT: 30,900,000 new units.


Kyith said...

placements are probably better than rights issues. ascendas have proven that time and again.

rights issue is a take back of dividends.

AK71 said...

Hi Drizzt,

I rather prefer rights issues as private placements do not allow all unit holders to participate in the enlarged capital base. Rights issues are more equitable.

However, private placements are cheaper and more expedient if the amount raised is smallish. So, I accept that they have a place in the grand scheme of things.

I have blogged before why rights issues are not to be viewed as REITs taking back "dividends" paid out before. In fact, REITs do not pay out "dividends". They distribute income.

REITs and rights issues: A Singaporean tale.

As for Ascendas, well, we can only hope that every S-REIT's management is as astute as Ascendas'. There is no guarantee that the same tool in different hands will produce the same results. ;)

mark said...

AK - You are far too patient. And kind.

AK71 said...

Hi Mark,

Comments like yours are the fuel that keeps me going. Thank you. :)

Dividend Warrior said...

Hi AK,

Thanks for the reviews that you have been posting. Always good to read them. :)

Your forward estimate of 1.75 cents per quarter, is it a conservative estimate?

Btw, I am looking to add more First REIT to my portfolio if there is a price dip in the future.

AK71 said...

Hi DW,

Hey, no problem. If there is something blogworthy and if I have the time and inclination, I am happy to blog about it. :)

The quarterly DPU estimate is based on perceived current information. So, I won't say I am conservative or not. I like to think that it is realistic. Of course, readers will have to arrive at their own conclusions. ;)

opal said...

When do you consider selling an investment meant for generating passive income?
If it gives you good yield, say 10%, and nice capital gain but now you see another company which is more undervalue. Would you give up the passive income and go for this in return for potentially more rewarding gain?

AK71 said...

Hi opal,

We could definitely consider selling if a better opportunity comes along. However, we really must know what we want and if an investment has a good chance of giving us what we want. :)

Of course, there could be other reasons to consider selling. Deteriorating fundamentals and hitting a pre-set target price are two other possible reasons.

Personally, I have a portfolio primarily for income and a portfolio primarily for growth. This helps to ease the decision making process. :)

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