First REIT - CIMB Research 2015-12-09: Acquisition in Kupang

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FIRST REAL ESTATE INV TRUST FIRST REIT AW9U.SI 

First REIT - Acquisition in Kupang 

• Organic and acquisition drivers boost 3Q performance. 
• First AEI at Siloam Hospital Surabaya to enhance asset return. 
• Proposed acquisition of Siloam Hospital Kupang in the works. 
• Healthy balance sheet, visible acquisition growth potential. 
• We maintain our Add recommendation with a target price of S$1.48. 

■ Organic and inorganic factors boosted 3Q15 performance 

• FIRT’s 3Q15 6.2% yoy rise in distributable income to S$15.6m was due to the acquisition of Siloam Sriwijaya in Dec 14 as well as better performance of its Indonesia and Singapore properties. 
• Although property expenses dipped due to lower expenses from Sarang Hospital in South Korea, higher interest expense partly offset the gains. 

■ Undertaking first AEI to enhance returns 

• FIRT announced its first asset enhancement exercise involving Siloam Hospital Surabaya. The trust has identified two hospitals, including Siloam Hospitals Lippo Cikarang in East Jakarta, that could yield asset-enhancement opportunities, thus improving return on assets in the longer run. 
• We have not factored in any accretion from this exercise into our current numbers. 

■ Proposed acquisition of Siloam Hospital Kupang underway 

• FIRT also announced the proposed acquisition of Siloam Hospital Kupang and Lippo Plaza Kupang for S$70m, a 7.2% discount to independent valuation. The projected rental income of S$6.94m pa translates to an attractive triple net yield of 9.91%. This property will expand the trust’s asset base to S$1.25bn and boost DPU by 2.7%. 
• Siloam Hospital Kupang commenced operations in 2014 and offers emergency & trauma, mother and child, internal medicine, cardiology, O&G, neurology, and other specialities. 

■ Inorganic expansion will remain a visible growth driver 

• The purchase will be funded by a combination of debt (S$55m) and consideration units (S$15m). This could potentially raise the trust’s gearing to 36-37%, still well within the 45% ceiling guideline effective from Jan 2016. 
• Acquisition growth will remain one of FIRT’s growth drivers, in our view, as the trust has the right of first refusal over Lippo Karawaci’ hospital assets. 

■ Maintain Add 

• We maintain our Add rating with an unchanged DDM-based target price of S$1.48. 
• FIRT offers investors FY16-17 DPU yield of 7.3-7.4%, with a stable earnings profile. 
• Potential yield accretive acquisitions and asset-enhancement activities could act as re-rating catalysts.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.48 Same 1.48