FIRST REIT
FIRST REAL ESTATE INV TRUST
AW9U.SI
First REIT - Stable portfolio in times of volatility
- Gross Revenue and distributable income grew due to acquisition of Kupang Property in December 2015. Rest of portfolio remains stable.
- 1H16 Gross Revenue and DPU came in at 48% of our FY16E forecasts.
- S$60m perpetual securities lower gearing from 34.4% to 30%.
- Revise forecasts downwards due to delay in Yogyakarta acquisition and weak CPI data. First REIT’s Indonesian hospitals have rental reversions pegged to Singapore’s CPI.
- Maintain ACCUMULATE.
WHAT'S IN THE NEWS?
S$60m perpetual securities lower gearing from 34.4% to 30%.
- At 5.68% per annum for the first five years, these “perps” offer a cheaper form of “equity” fundraising compared to the trading yield of c.6.5% for First REIT currently.
- First REIT has been able to achieve close to 10% initial NPI yield for all their previous acquisitions (Latest two acquisitions in Kupang 9.91% and Yogyakarta 9.4%).
- With an average effective interest rate of close to 4% for their debt, the yields on these acquisitions offer a good spread over First REIT’s blended cost of capital.
WHAT DO WE THINK?
Revise revenue forecasts downwards due to delay in Yogyakarta acquisition and weak CPI data.
- First REIT’s Indonesian hospitals have rental reversions pegged to Singapore’s CPI. Weak Singapore CPI data for the first five months has dampened hopes of any positive reversion for First REIT’s Indonesian hospitals for FY17.
- We adjust our rental reversion forecast for the Indonesian hospitals in FY17 from 2% to 0%.
- We also trim our expected contribution from Siloam Hospital Yogyakarta for FY16 due to the delay in the acquisition process.
INVESTMENT ACTION
- We maintain our ACCUMULATE call for First REIT with a reduced DDM-derived target price of S$1.32 from S1.38, due to the above reasons mentioned.
Dehong Tan
Phillip Securities
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http://www.poems.com.sg/
2016-07-18
Phillip Securities
SGX Stock
Analyst Report
1.32
Down
1.38
