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

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 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).

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