Silly Inc recently double the holdings of FR in portfolio. The Average price is 97 cents including costs.
The board is in the view that default risk by Lippo K (Biggest rental income customer 87%) is non-existence, since the rights exercise by Lippo K (yet to materialize)
However, since then, First Reit has been falling from above $1 to the low of 93 cents recently. All the known risks have been reduced, yet FR fall instead of rise.
Lets visit the risks:
1) Execution of Meikarta Project by Lippo K (Top management did not get indicted, and there is no adverse updates since then)
2) Default Risk (Almost non existence now, if they raise the fund like they say they would. 1 billion would have wiped off all the loans the parents company had, but of course, 200 mio will be earmarked to develop Meikarta
3) 2021 lease renegotiation to be in Indonesia Currency instead of Singaporean dollars. Well, it will expose one to currency risk indeed.
4) Asset dumping by OUELH or Lippo K. The troublesome and lawsuit laden China projects from OUELH cannot be dumped due to the litigation going on. Japanese home is likely dumping candidate. Hence this post is to provide some numbers for this high probable dumping.
Now the Maths:
Japan homes asset = 290 mio
Yield = 5.5 %
Rental revenue = 16.7 mio
Assumption: (All scenario based on market price of $1, the cheaper u get in, the better the deal)
1) 90 mio by debt, 200 mio rights/ placement (discount at 90 cents)
Future yield becomes 7.6%
2) All Debt. Yield accretive. 9%
3) All rights. Yield 6.9%
4) 140 mio debt (Almost Half), Yield 8%
Board in the view that all rights or all debts way to acquire Japanese Homes is unlikely.
So we are looking at yield at 7% upwards, asssuming they dun price too large a discount, and issue shares at below 90 cents.
Company did not calculate till 2 decimal place and readers are to do due dilligence. Company will most probably trade this counter and will monitor it closely with profit taking and loss cutting markers.