First REIT - Phillip Securities Research 2015-11-23: First Acquisition for the year

First REIT - Phillip Securities Research 2015-11-23: First Acquisition for the year FIRST REIT FIRST REAL ESTATE INV TRUST AW9U.SI 

First REIT - First Acquisition for the year 

  • First REIT announced the acquisition of Siloam Hospitals Kupang (SHKP) and Lippo Plaza Kupang (LPK) last Thursday, for S$70m. 
  • This has been a much awaited acquisition, since First REIT has been quiet on the acquisition front thus far this year, except for the Surabaya asset swap deal which will only likely be completed in 2019. 

What do we think? 

 Contract terms mostly similar to previous acquisitions. 

  • Upon acquisition of the properties, First REIT will lease them out on Master Leases, on terms mostly similar to current master leases under First REIT. Exposure to SGD-IDR exchange rate risk is minimized as exchange rates are locked in for the entire lease term. 
  • Rentals periods are for 15 years (with option to extend another 15), and annual increments are pegged to Singapore’s Consumer Price Index. NPI yield on cost of c.9.8% is close to previous acquisitions over the past five years, which range from 9.9% to 10.9%. 

 Shorter current land lease of 25 years. 

  • While most leasing terms appear similar, investors should note that the land lease for this latest property is only for 25 years (from December 2014). Prior to this acquisition, First REIT’s Indonesian hospitals are all covered under the Hak Guna Bangunan (HGB) titles, which are close to “freehold” titles. 

 First acquisition for the year. 

  • Possible slowdown of future acquisitions targets. We remain of the view that there exists a high risk of a potential slowdown in the injection of assets into First REIT by Lippo Karawaci (LPKR), given the more accommodative environment that the Indonesian government is trying to create to attract REIT listings in the country. This presents LPKR with more capital recycling options. We flagged this out in our 30th October report. We note that acquisitions for the past two years have been outside of LPKR’s owned pipeline of Siloam Hospitals. 

Investment Actions 

  • In light of a possible slowdown in asset injection amid the increased capital recycling options for First REIT’s sponsor, we adjust our terminal growth rate downwards slightly from 1.5% to 1.0%. This leads us to a reduced target price of $1.38 from $1.49. 
  • With all other parameters unchanged, we upgrade our call from ACCUMULATE to BUY with the recent price correction.

Dehong Tan Phillip Securities | 2015-11-23
Phillip Securities SGX Stock Analyst Report BUY Upgrade ACCUMULATE 1.38 Down 1.49