First REIT - Phillip Securities 2017-07-24: First Acquisition Of 2017 At Attractive Rental Yield Of 10%

First REIT - Phillip Securities 2017-07-24: First Acquisition Of 2017 At Attractive Rental Yield Of 10% FIRST REAL ESTATE INV TRUST AW9U.SI

First REIT - First Acquisition Of 2017 At Attractive Rental Yield Of 10%

  • First REIT proposed acquisition of Siloam Hospitals Buton and adjacent Lippo Plaza Buton from sponsor at S$28.5mn, a 1.2% discount to average of two independent valuations.
  • Combined base rental yield on cost of 10%.
  • Master lease tenure of 15 years (option to renew a further 15y); rental escalation pegged to Singapore CPI.
  • Maintain NEUTRAL with unchanged target price of S$1.32.



What do we think? 


Accretive acquisition with base rental yield at comfortable spread over average cost of debt. 

  • Expected to be fully funded by debt and internal cash, base rental yield of 10% offers a comfortable spread over First REIT (FIRT)’s average cost of debt of 4.1%. Assuming acquisition is funded by debt-equity ratio of 40-60, average cost of capital works out to be c.5.1% (using coupon for S$60mn perpetual securities issued June 2016 as proxy to cost of equity).

Terms of acquisition similar to previous acquisitions. 

  • Rental tenure (15y+15y) and base rent escalations (pegged to Singapore CPI) are similar to previous acquisitions. Base rents are subject to escalations only after an initial five-year period. 
  • Post-acquisition, weighted average lease expiry increases to 10.3 years (from 10.0) and weighted average age of properties decreases to 9.5 years (from 10.1)/ 


Maintain NEUTRAL with unchanged target price of S$1.32 

  • We maintain our NEUTRAL recommendation with an unchanged target price. 
  • We have already incorporated acquisitions into our forecasts, based on average historical acquisition quantum sizes. As such, our DPU forecasts remain unchanged with this acquisition news. 
  • Our target price represents a forward yield of 6.5% and FY17e P/NAV of 1.22




Dehong Tan Phillip Securities | http://www.poems.com.sg/ 2017-07-24
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.320 Same 1.320



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