First REIT - CIMB Research 2017-04-17: New Acquisitions Boost Topline

First REIT - CIMB Research 2017-04-17: New acquisitions boost topline FIRST REAL ESTATE INV TRUST AW9U.SI

First REIT - New acquisitions boost topline

  • DPU of 2.14 Scts ahead of our projection, making up 29.4% of our FY17F forecast.
  • Better cost management and higher ratio of fees in units helped underpin DPU.
  • Termination of proposed acquisition of Siloam Hospitals Yogyakarta means slower near-term inorganic growth.
  • Maintain Hold with a higher target price of S$1.36.

1Q17 results highlights 

  • FIRT’s 2.5% yoy expansion in 1Q17 gross revenue/NPI to S$27.2m/S$26.9m was expected, thanks to a full quarter’s contribution from Siloam Hospitals Labuan Bajo (SHLB). However, DPU of 2.14 Scts, +1.4% yoy, was above our projection as the Manager took 92% of its fees in units (vs. 70% in 1Q16). 
  • In addition, there were also lower interest and other expenses compared to 1Q16 due to the absence of MTN note exercise as well as reduced tax expenses.

Slower near-term inorganic growth 

  • In Jan 17, FIRT announced it is terminating the proposed acquisition of Siloam Hospitals Yogyakarta to provide the vendor more time to obtain the relevant licences for the operation of the hospital as well as to carry out AEI at Lippo Plaza Jogja. 
  • The trust intends to continue with this transaction after the commencement of the hospital operations, upon receipt of all the relevant licenses (expected in later part of 2017) and completion of asset enhancement works.

Robust balance sheet 

  • Balance sheet remains robust with gearing of 31% and interest cover of 5.7x. 
  • In addition, 90.9% of its borrowings are on a fixed rate basis, insulating the trust from any near-term interest rate hikes. The low gearing could provide some debt headroom for potential new acquisitions, in our view.

Maintain Hold 

  • We have raised our FY17-18F DPU estimates by 1.35-1.84% to factor in the higher proportion of fees paid in units and lower interest and other expenses. Hence, our DDM-based target price rises to S$1.36. However, we maintain our Hold rating due to the lack of near-term catalysts. 
  • Upside risk to our call may come from new acquisitions, including the potential purchase of Siloam Hospitals Yogyakarta. 
  • Downside risks include slow inorganic growth momentum.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | 2017-04-17
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.36 Up 1.26