First REIT - Phillip Securities 2017-01-19: Strong sponsor acquisition pipeline to look forward to

First REIT - Phillip Securities 2017-01-19: Strong sponsor acquisition pipeline to look forward to FIRST REAL ESTATE INV TRUST AW9U.SI

First REIT - Strong sponsor acquisition pipeline to look forward to

  • First REIT closed FY16 with a record DPU of SG 8.47 cents, up 2% from FY2015.
  • Terminated Siloam Hospitals Yogyakarta (first announced in February 2016) deal still on the cards, possibly by 1H2017.
  • Portfolio valuation dropped 1.2% as a result of weaker cashflow due to the weak Singapore CPI.



What’s in the news


Capped off FY2016 with a record DPU of SG 8.47 cents (our FY17e DPU is SG 8.58c, 1.3% higher). 

  • First REIT (FIRT) started 2016 with still a lot of uncertainties lingering in the market about their sponsor potentially listing Reits in Indonesia. 
  • Since bottoming and hovering around the levels close to $1.15, which is the support level highlighted by our technical analyst, First REIT recovered to end the year up 5.4% vs FTSE S-REIT index’s 1.9% (both excluding dividends). 
  • Despite a lacklustre year for Singapore CPI which capped the rental escalations for their properties, FY2016 DPU came in at a record SG 8.47 cents, buoyed by the new Kupang acquisition in Dec 2015.

Terminated Siloam Hospitals Yogyakarta (first announced in February 2016) deal still on the cards, possibly by 1H2017. 

  • The proposed acquisition was terminated due to licensing issues for the commencement of operations for the hospital. Management still remains hopeful of sealing the deal by this year. 
  • Apart from this acquisition, several other possible acquisition targets in the sponsor’s pipeline include Siloam Hospitals Bau-Bau (140 beds) and Siloam Hospitals Bogor (~200 beds), as highlighted by management. The expected valuations of these two hospitals add up to ~S$100m.

Portfolio valuation dropped 1.2% as a result of weaker cashflow due to the weak Singapore CPI. 

  • Weak Singapore CPI for 2015 and 2016 capped the amount of base rental escalation for FIRT’s properties. 
  • Nonetheless, with MAS expecting Singapore’s 2017 CPI to come in at around 1% (vs negative CPIs in 2015/2016), that should provide some reprieve this year.


Investment Action

  • At 6.5%, FIRT trades at a higher yield and lower P/B than fellow healthcare REIT Parkway Life. Its lower gearing of 30% also allows it ample firepower for further acquisitions from its sponsor.
  • Our risk free rate maintains at 3.1% as we think that allows ample buffer even with current rising interest rates. 
  • We maintain our ACCUMULATE call for First REIT with an unchanged DDM-derived target price of S$1.32.




Dehong Tan Phillip Securities | http://www.poems.com.sg/ 2017-01-19
Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 1.320 Same 1.320



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