First REIT - Phillip Securities Research 2016-04-19: No surprises

First REIT - Phillip Securities Research 2016-04-19: No surprises FIRST REIT FIRST REAL ESTATE INV TRUST AW9U.SI 

First REIT - No surprises 

  • First REIT’s 1Q16 DPU increased by 2.4% yoy to 2.11 cents due to additional contributions from the Kupang property acquired last December. 
  • Below is a summary table.

Expect little organic growth in base rental for Indonesian properties this year due to lacklustre CPI 

  • First REIT’s Indonesian hospitals have an annual base rental increment pegged to the Singapore CPI (with a floor of 0% and cap of 2%). 
  • The CPI number came in at -0.6% and - 0.8% for January and February this year. 
  • In MAS’ latest policy statement issued last week, the central bank expects CPI-All Items inflation to stay negative for 2016, dragged down by housing and private transport prices. 
  • Investors should expect flat base rentals for the Indonesian hospitals this year. 

Debt headroom stands at c.S$60m after the SHYG acquisition 

  • First REIT’s gearing stands at c.34% before the Siloam Hospital Yogyakarta (SHYG) acquisition, which is expected to be fully funded by debt and internal cash. 
  • With management’s stated comfortable gearing level at or below 40%, debt headroom will be around S$60m after the SHYG acquisition. 
  • Since 2014, First REIT has typically made acquisitions in the range of S$40m-$70m per year, with 80% or more financed by debt and cash for every acquisition. 

Investment Action 

  • We downgrade our call from BUY to ACCUMULATE for First REIT with an unchanged DDM-derived target price of S$1.38, on the back of the recent price appreciation. 
  • First REIT is attractive as a stable yield play for its resilient income with long leases and minimal exposure to SGD/IDR fluctuations.

Dehong Tan Phillip Securities | 2016-04-19
Phillip Securities SGX Stock Analyst Report ACCUMULATE Downgrade BUY 1.38 Same 1.38