First REIT - Phillip Securities Research 2015-10-15: Cruising Along

First REIT - Phillip Securities Research 2015-10-15: Cruising Along FIRST REAL ESTATE INV TRUST FIRST REIT AW9U.SI 

First REIT - 3Q15 Results – Cruising Along 

  • First REIT reported their 3Q15 results on Tuesday 13 October evening. 

What’s in the news? 

 Results largely in-line. 

  • First REIT’s 9M15 results were largely in line with our forecasts. With most properties on long term Master Leases (earliest expiration in Aug-21), clearly defined annual base rental increments for each property, it is hardly surprising First REIT’s results will be predictably stable. 
  • Indonesia’s stalling growth has led to President Joko Widodo announcing an unexpected cabinet reshuffle in August this year. This, together with a series of stimulus measures, was aimed at luring investments, restoring investor confidence and stimulating economic growth. 
  • Nonetheless, demand for healthcare services is still expected to remain unfettered as Indonesia continues to roll out its universal healthcare programme to gradually cover all citizens and residents by 2019. First REIT is expected from this improvement in healthcare demand. 

 Slower than anticipated rate of acquisition. 

  • First REIT has been quiet on the acquisition front thus far this year. Nonetheless, the anticipated increase in demand for healthcare services is expected to continue driving PT Lippo Karawaci Tbk’s expansion of hospital networks. This will present First REIT with further acquisition opportunities. 

 Capital Management update: 

  • With ~95.3% of debt on a fixed rate basis, First REIT has minimal interest rate risk until the next tranche of debt is due for refinancing in 2017. 
  • Currency risk is also minimized as rentals for the Indonesian hospitals are denominated in SGD. 

Investment Actions 

  • We slightly lowered our growth assumptions on the back of slower than anticipated rate of acquisition. On the back of the price correction since June, we maintain our ACCUMULATE call, but with a lowered DDM-derived target price of S$1.49 from $1.55.

Dehong Tan Phillip Securities | 2015-10-15
Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 1.49 Down 1.55