First REIT - OCBC Investment 2016-10-20: Steady growth in 3Q16

First REIT - OCBC Investment 2016-10-20: Steady growth in 3Q16 FIRST REAL ESTATE INV TRUST AW9U.SI

First REIT - Steady growth in 3Q16

  • 3Q16 DPU grew 1.9% YoY.
  • Maiden issuance of perpetual securities.
  • Increased debt headroom.

3Q16 results came in within our expectations 

  • First REIT (FREIT) reported a steady set of 3Q16 results which met our expectations. 
  • Gross revenue rose 6.5% YoY to S$26.9m and this was mainly underpinned by contribution from Siloam Hospitals Kupang & Lippo Plaza Kupang which was acquired in Dec 2015. 
  • NPI increased by 6.3% to S$26.6m, which translates into a NPI margin of 98.9%. 
  • DPU grew at a slower pace of 1.9% YoY to 2.12 S cents due to higher management fees, finance costs and an enlarged unit base. 
  • On a 9M16 basis, FREIT’s gross revenue and NPI was up 6.7% and 7.1% to S$80.0m and S$79.1m, respectively. 
  • DPU of 6.34 S cents represented growth of 2.1% and constituted 75.7% of our FY16 forecast.

Gearing lowered following issuance of perpetual securities 

  • FREIT carried out its maiden S$60m subordinated perpetual securities issuance on 8 Jul this year as a means of diversifying its sources of funding. The perpetual securities come with a fixed distribution rate of 5.68% per annum for the first five years up to 8 Jul 2021. If they are not redeemed at the first call date, the distribution rate will be reset. 
  • Proceeds raised were used to pare down FREIT’s bank borrowings, thus lowering its gearing ratio from 34.1% (as at 30 Jun 2016) to 29.7%. However, the 5.68% distribution rate of the perpetual securities is higher than the ~4% interest rates on FREIT’s bank loans.

Maintain HOLD 

  • Looking ahead, FREIT will continue to source for yield accretive acquisitions given its increased debt headroom. 
  • We estimate that it can take on additional borrowings of S$110.6m and S$231.8m before reaching a gearing ratio of 35% and 40%, respectively. 
  • We fine-tune our assumptions but our fair value estimate remains unchanged at S$1.36. 
  • Maintain HOLD on FREIT, with the stock trading at FY16F and FY17F distribution yield of 6.2% and 6.0%, respectively.

Wong Teck Ching Andy CFA OCBC Investment | 2016-10-20
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.36 Same 1.36