First REIT buys hospital at 17% discount to valuation.

I like buying properties at a discount to valuation but, in reality, such offers are hard to come by. In the world of S-REITs, however, it has happened before and it has happened again as First REIT is going to buy Siloam Hospital Purwakarta at a 17.3% discount to valuation. The price tag? S$31 m.

The hospital has two parts, a 3 storey building which was completed in 2005 and a 5 storey building which was completed in 2008. Major refurbishment is now underway and is expected to be completed by late 2014. The good news is that all refurbishment work will be paid by the seller. So, First REIT will get a newish property. No additional cost.

First REIT will pay S$26.5 million using debt and issue new units to the seller equal to a value of S$4.5 million. This is rather innovative. It makes the purchase financially less demanding. Gearing level will then rise by a more modest percentage from 32.3% to 33.9%, post acquisition.

This purchase will increase future income for First REIT and the 15 years Master Lease agreement will provide stability. A 6 months rental deposit will also be collected.

Now, as investors for income, we are probably more interested in how DPU will be affected. First REIT will have more units in issue after this and also a higher debt burden. So, both NAV per unit and DPU will only see very marginal increases, post acquisition. So, don't go spending any money on a lion dance troupe.

Everything else remaining equal, I would say that First REIT is a fairly good investment for income but, like the management of the REIT, I would like to buy stuff at a discount to NAV and the REIT's NAV is currently about 97c per unit.

See announcement: here.

Related posts:
1. A simple way to a double digit yield.
2. Distribution reinvestment plan: First REIT.

Graduating soon? Take steps towards financial security.

Received an email from a reader who is about to graduate and join the workforce:

Hi AK,

I am C and this is actually my first time writing to a blogger.

I've recently found your blog and you've been such an inspiration to me and my "future financial life".
 
Would like to sincerely thank you for setting up this blog to benefit us youngsters in Singapore. :)

I am about to graduate soon in a couple of months and I'm just wondering if you can provide some advice to me...
 
Upon graduation and receiving my first pay check, would you recommend me to first set up my emergency fund or invest in FDs or buy insurance or voluntarily top up my CPF or invest in a SRS account or a combination of some? 

There just seem to be many things I should do but I'm not sure which one I should focus on to get my priority right.

Thank you for your kind advice, AK.

Warmest regards
C

My reply:

Hi C,

I am not allowed to give advice but I am happy to share with you what I would do if I were in your shoes. :)

1. Buy a term life policy. 

Very important if we have parents or other dependents to care for. 

How much should the coverage be? 

It is up to you but I feel that $500K is probably more than adequate for most.

2. Buy a good H&S policy. 

Personally, I have NTUC Incomeshield with Assist Rider. 

We don't want to be sunk by hospital bills. 

How much you would spend here depends on whether you are comfortable with Class C, B or A wards or if you want to stay in private hospitals.

3. Buy a Critical Illness policy. 

We need this money to help pay for long term treatments if we should be diagnosed with one of these illnesses and not die. 

I am covered for $300K but, for a start, I think $100K should be comfortable.

4. Set up an emergency fund. 

Slowly build this up so that it is enough to cover at least 12 months of regular expenses (including insurance expenses). 

My preference is for 24 months. 

In case we lose our jobs or are unable to work for some reason, this is the fund we would draw upon.






Once we have done all these, we can start thinking about investing for a second stream of income.

Of course, if we can pay less taxes, we should. In planning for retirement, you want to consider topping up your CPF-SA to a maximum of $7K a year. Of course, you could also start an SRS account.

The tools are out there to help us achieve financial security. You will do quite well if you make good use of them. :)

Best wishes,
AK

If anyone has any ideas to share, please leave comments here and I am sure C will read them. Thank you.

Related posts:
1. Why a meaningful emergency fund is important?
2. How much for hospital and surgical insurance?
3. Tea with Solace: Getting ready for investment.
4. Build a bigger retirement fund with CPF-SA.
5. SRS: A brief analysis.