First REIT - CIMB Research 2015-10-14: Still going strong

First REIT - CIMB Research 2015-10-14: Still going strong FIRST REAL ESTATE INV TRUST FIRST REIT AW9U.SI 

First REIT Still going strong 

  • 3QFY15 DPU of 2.08 Scts largely in line, making up 24% of our full-year forecast, boosted by higher topline from new acquisitions and better operational performance. 
  • Lower expenses from Sarang Hospital, partly offset by higher interest expense 
  • More new purchases from sponsor as well as AEI at Siloam Hospitals Surabaya could provide medium-term catalysts. 
  • Healthy balance sheet with gearing at 32.9%. 
  • Maintain Add with higher DDM-based target price of S$1.48. 

Lifted by new contributions and better operational performance 

  • First REIT reported a 6.2% yoy rise in 3Q15 distributable income to S$15.6m (DPU of 2.08 Scts), making up 24% of our full-year estimate. The topline growth of 6.1% was driven by contributions from Siloam Sriwijaya (acquired in Dec 14) as well as the better performance of the Indonesia and Singapore properties. 

Dip in expenses partly offset by higher interest costs 

  • Property expenses dipped due to lower expenses from Sarang Hospital in South Korea. Thus, NPI rose at a higher rate of 6.8% to S$25m. However, higher interest expense on the back of additional loans taken to fund the purchase of Siloam Sriwijaya and greater other expenses partly offset the gain. 

Strong inorganic growth prospects 

  • Looking forward, FIRT’s inorganic growth prospects remain strong and visible. There are strong acquisition opportunities from its sponsor, Lippo Karawachi, which has a strong pipeline of > 40 hospitals. 
  • FIRT currently owns 11 of the hospitals operated by Siloam Hospitals and has the right of first refusal over Lippo Karawachi’s hospital assets. FIRT’s current gearing stands at c.32.9% and has a further debt headroom of S$216m before hitting the revised regulatory limit of 45%. 

Undertaking first AEI to enhance returns 

  • In the meantime, FIRT plans to embark on its first asset enhancement exercise involving Siloam Hospitals Surabaya. The trust has identified two hospitals, including Siloam Hospitals Lippo Cikarang in East Jakarta, that could yield asset enhancement opportunities, thus improving returns on assets in the longer run. 

Maintain Add 

  • We maintain our Add rating with a slightly lower DDM-based target price of S$1.48, as we factor in additional units from its DRP scheme. FIRT offers FY16/17 dividend yields of 6.5/6.6% with a stable earnings profile. 
  • We believe that potential yield accretive acquisition from its sponsor as well as asset enhancement activities will act as strong rerating catalysts.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-10-14
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.48 Down 1.51