First REIT - OCBC Research 2015-10-14: No surprises in 3Q15

First REIT - OCBC Research 2015-10-14: No surprises in 3Q15 FIRST REAL ESTATE INV TRUST FIRST REIT AW9U.SI 

First REIT: No surprises in 3Q15 

 3Q15 DPU grew 3% YoY 
 Siloam continues to perform 
 No change to our forecasts, rating and FV 

3Q15 results came in within our expectations 

  • First REIT (FREIT) reported a steady set of 3Q15 results which met our expectations. Gross revenue grew 6.1% YoY to S$25.3m, underpinned by contribution from the acquisition of Siloam Sriwijaya in Dec 2014 and organic growth from its other assets. NPI rose 6.8% to S$25.0m, while DPU inched up 3.0% to 2.08 S cents. 
  • For 9M15, FREIT’s gross revenue and DPU increased 8.2% and 3.3% to S$75.0m and 6.21 S cents, and this made up 74.7% and 74.9% of our FY15 forecasts, respectively. 

Siloam Hospitals continues to deliver operational excellence 

  • Siloam International Hospitals, the operator of FREIT’s Indonesian hospitals and a subsidiary of FREIT’s sponsor Lippo Karawaci, announced earlier this month that it had clinched the 2015 Frost & Sullivan Indonesia Hospital of the Year award. This was the fourth year it had won the accolade, following successes in 2010, 2012 and 2014. According to Frost & Sullivan, Siloam International Hospitals operates the largest private hospital network in Indonesia, and it is equipped with the latest medical technologies and excellent quality care for its patients. 
  • Looking ahead, we believe FREIT has a robust pipeline of acquisition opportunities from its sponsor, although it has yet to announce any acquisitions year-to-date (YTD). 

Maintain HOLD 

  • We retain our forecasts, HOLD rating and S$1.36 fair value estimate on FREIT given this set of in-line results. 
  • Valuations do not appear compelling at this juncture, in our opinion, with the stock trading at a forecasted FY15F and FY16F distribution yield of 6.2%. This is more than one standard deviation below its 5-year average forward yield of 7.3%. 
  • On a P/B basis, FREIT’s FY15F P/B ratio of 1.33x comes in marginally higher than its 5-year forward mean of 1.31x. 
  • We are also slightly concerned with the challenges facing Indonesia’s Joko Widodo; while the negative Singapore Consumer Price Index YTD does not augur well for FREIT’s base rental growth for its Indonesia assets next year. 
  • The silver lining is the downside revenue protection inherent in the lease structure.

Wong Teck Ching Andy OCBC Securities | http://www.ocbcresearch.com/ 2015-10-14
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 31.36 Same 1.36