Monday, January 30, 2012

First REIT Yield

Based on First REIT's dividend history - for 2011, a total of 7.01 cents was paid out per share for 2011.  Based on the closing price of $0.77, First REIT has a yield of 9.104%. This is quite a high yield and can probably be explained by a number of reasons.  I have listed some of the reasons why I think First REIT has such a high yield.

  • Deemed to be riskier
  • Property mainly located in Indonesia
  • Difficult to find yield accretive acquisitions
  • Hospital sector play deemed higher risk?
  • Long term leases means rental income might not increase by much
  • Investors not familiar with its sponsor Lippo which is relatively unheard of in Singapore (compared to names like Capitaland)
  • People foresee that distribution will go down?

Of course,  it could also mean that the share price of First REIT is probably depressed (which isn't really true since its NAV is around 80 cents).  In its analysis, OCBC also maintained its Buy Call on First REIT as they opine that it has shown its  resilience amidst the volatile economic conditions.  OCBC has a S$0.84 fair value for First REIT.  Even with that price, First REIT's yield will still remain relatively high compared to other REITs that are focused on retail or office space.

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