First REIT - CIMB Research 2016-04-18: New additions lift performance

SGinvestors.io

FIRST REAL ESTATE INV TRUST FIRST REIT AW9U.SI 

First REIT - New additions lift performance 

• 1QFY16 bottom line boosted by new hospital acquisitions. 
• 1QFY16 margins helped by lower expenses at Sarang Hospital 
• More new hospital additions will help expand income base. 
• Asset enhancements are medium-term growth drivers. 
• Maintain Add with an unchanged DDM-based target price of S$1.33. 

New hospitals boost bottom line 

• FIRT’s 1QFY16 DPU of 2.11 Scts was in line with our expectations at 25.4% of our fullyear forecast. 
• Gross revenue grew 7.1% yoy and 3.2% qoq to S$26.5m, largely due to the contributions from Siloam Hospital Kupang and Lippo Plaza Kupang, bought in Dec 15, as well as divestment gains from the sale of Plot B at Siloam Hospitals Surabaya, and higher interest income from returns from the first progress payment for the development works on the new Siloam Hospitals Surabaya. 

Lower hospital expenses lift margins 

• NPI margin improved slightly yoy from 97.9% to 98.8% in 1QFY16 on lower expenses incurred for Sarang Hospital, partly offset by land title renewal costs for an Indonesian property. 
• New acquisitions to underpin near-term earnings growth FIRT’s FY16 earnings growth will be underpinned by full-year contributions from Siloam Hospitals Kupang, Lippo Plaza Kupang as well as the acquisition of Siloam Hospitals Yogyakarta. 
• The latter is still subject to unitholders’ approval. Once completed, this property should add S$3.8m in base rent (equivalent to c.3.8% of current portfolio gross revenue) plus annual escalations to FIRT’s income stream. 
• With a healthy gearing of 34%, FIRT is well placed to grow via inorganic means. 

AEI at Siloam Surabaya to extend earnings growth visibility 

• In the medium term, the trust is also undertaking an asset enhancement exercise at Siloam Hospitals Surabaya. 
• Under a joint arrangement and asset swap with Lippo Karawaci, the latter will undertake a mixed development project comprising a new hospital, a private school, an ancillary mall, a hotel and apartments to be completed by 2019. 
• FIRT will continue to receive rental income during the course of the development. 

Maintain Add rating 

• We maintain our Add rating with an unchanged DDM-based target price of S$1.33. 
• FIRT offers investors exposure to the Indonesian healthcare sector and an attractive total return of c.13%. 

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-04-18

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.33 Same 1.33