First REIT - CIMB Research 2017-10-24: New Properties Lift Earnings Performance

FIRST REAL ESTATE INV TRUST AW9U.SI

First REIT - New Properties Lift Earnings Performance

First REIT (FIRT)'s 3Q/9M19 DPU of 2.14 Scts/6.42 Scts in line with projections.
Full-quarter contribution from SHLB a boost to bottomline.
More new purchases to drive earnings momentum.
Low gearing of 32.6% provides debt headroom.

First REIT (FIRT) reported 3Q17 revenue and net property income of S$27.8m/S$275m, up 3.3%/3.2%.
Distribution income rose 2.2% yoy to S$16.7m, translating to a DPU of 2.14 Scts. The improvement was driven by contributions from Siloam Hospital Labuan Bajo (SHLB) and higher income from existing properties in Indonesia, Singapore and South Korea.
9M17 DPU of 6.42 Scts (+1.3% yoy) accounted for 75.2% of our FY17 forecast.

In 3Q, there was a full quarter’s contribution from SHLB, which was acquired in Dec 16. The hospital is to contribute S$1.85m annually under its lease agreement.
Stripping out SHLB, 3Q topline growth would have been 1.5% yoy.

First REIT (FIRT) has been in an acquisitive mode over the past few months. In Oct 17, it completed the purchase of an integrated hospital-cum-retail property in Buton; the asset should boost bottomline from 4Q17F.
Post this transaction, it has also proposed a joint acquisition, together with Lippo Malls Indonesia Retail Trust, of a mixed development in Yogjakarta from PT Lippo Karawaci Tbk, the Sponsor of both REITs. The Buton purchase as well as its share of the Yogjakarta acquisition is expected to cost a total S$55.5m.

FIRT’s gearing stood at 32.6% as at end-3Q17. Factoring in the above 2 purchases, we estimate gearing to tick up towards 37%, still below the regulatory limit of 45%. This provides the REIT with further debt headroom to pursue more inorganic growth.
It has a right of first refusal to a healthy pipeline of around 40 hospitals from its Sponsor.

We lift our FY17-19 DPU estimates by 0.4-3.94% to factor in additional contributions from these new purchases. Consequently our DDM-based target price (cost of equity: 8.2%) rises to S$1.39.
FIRT is currently trading at 6.8% FY17F DPU and at 1.37x P/BV. We maintain our Hold call in view of the limited upside.
Upside risk to our call may come from additional acquisitions while downside risks could include slow inorganic growth momentum.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-10-24

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