Thursday, January 7, 2010

First REIT Insider Trades & Valuation

Looking at First REIT insider trades, here are my observations:

1. Director Tan Key Poo has been selling in 2009. He has been buying First REIT over the years but in September 2009, his holdings dropped from 947,000 shares to 462,000 shares. Of course, nothing can be determined from this as he could be merely selling to buy himself a new house or car. His average sell price is around $0.68 to $0.69

Now looking at valuation, there are a few ways REITs can be valued.

Firstly is looking at their Net Asset Value. First REIT has a NAV of $0.9255. It is currently trading at $0.86 representing a price/NAV of 0.929. This is still a discount to its NAV but I do not believe that First REIT has ever been valued above it NAV. This could be likely due to its operations which are mainly located in Indonesia.

Secondly, is their dividend yield which is currently 8.802%. Compared to Parkway life REIT which is in a similar industry whose yield is only 5.84%

Thirdly, is based on FFO or Funds From Operation which I guess is their net property income since there does not seem to be any depreciation costs factored in. Looking at their total comprehensive income after tax and their Distributable amount, I cannot understand how their distributable amount to unitholders can be higher than their comprehensive income after tax. Someone care to enlighten me?

Debts and Projects

Based on gearing, it has a relatively low gearing of 15.6% compared to PLife REIT of 23.2%. First REIT has also no refinancing obligations till 2012.

Based on its project pipelines, it is seeking to do improvements to the Adam Road Hospital and Lentor Residences. Its Tech-link healthcare logistics and distribution centre project is also in the pipeline.

This is totally mind boggling. First REIT based on my initial analysis seems to be undervalued based on NAV, pays out a high yield, and has an extremely low gearing. Why is it trading at such a low price? Is there something that I do not understand?

Can the main reason why it is valued as such be due to the fact that a large portion of its asset is located in Indonesia?

Read Related Articles:
1. Dumping One REIT for Another

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