First REIT (FREIT) announced that it has entered into a conditional sale and purchase agreement for the acquisition of Siloam Hospitals Purwakarta (SHPW), which is located in West Java, Indonesia. The purchase consideration is S$31.0m, which represents a discount of 17.3% to the average of two independent valuations obtained. SHPW is currently undergoing major refurbishment works, which is expected to be fully completed in Sep 2014. The initial NPI yield of this acquisition works out to be 10.8%, which is slightly higher than that of its recent Indonesian acquisitions (~10%). FREIT will finance this acquisition mainly with debt (S$26.5m), with the remaining S$4.5m to be funded by the issuance of new units. Based on a pro forma basis, this acquisition would have increased FREIT’s FY13 DPU marginally from 7.52 S cents to 7.54 S cents (assuming an illustrative issuance price of S$1.0431/unit). We maintain our BUY rating on FREIT but our S$1.19 fair value estimate is under review.

Source: OCBC Research - 13 Mar 2014