First REIT - CIMB Research 2017-07-18: Positioned For Growth

First REIT - CIMB Research 2017-07-18: Positioned For Growth FIRST REAL ESTATE INV TRUST AW9U.SI

First REIT - Positioned For Growth

  • First REIT's 1HFY17 DPU of 4.27 Scts was within our expectations, making up 50% of our FY17 forecast.
  • 2Q earnings were lifted by the SHLB acquisition and organic growth.
  • FIRT’s gearing of 31% at end-2QFY17 implies significant debt headroom to fund inorganic growth opportunities.
  • Stable interest cost as 91% of debt is financed at fixed rates.
  • We maintain our Hold call with a DDM-based target price of S$1.36.

2QFY17 results within our expectations and consensus 

  • FIRT reported 2Q17 revenue and net property income (NPI) of S$27.5m/S$27.2m, up 3.3%/3.2% yoy respectively. Distribution income was up 2.5% yoy to S$16.6m which translates into 2.14 Scts DPU. The improvement was led by higher topline and interest savings on lower loans as the trust issued perpetual securities to pare down debt in 3Q16. 
  • For 1H17, DPU of 4.27 Scts was in line with our expectations and made up 50% of our FY17 forecast.

Bottomline lifted by new purchases and organic growth 

  • 2Q17 topline growth came largely from a full quarter’s contribution from Siloam Hospital Labuan Bajo, (SHLB) which was acquired in Dec 16. Under its rental agreement, SHLB is expected to contribute S$1.85m of rental income p.a. 
  • Stripping out SHLB, organic growth within the existing portfolio would have been c.1%.

Potential new acquisitions to drive growth 

  • We expect FIRT to still be in an acquisitive mode to deliver DPU growth to unitholders. To this end, management indicated that it plans to acquire 1-2 properties in FY17 to expand its income stream. 
  • With current gearing at 31%, FIRT would have potential debt headroom of S$82m, assuming a target gearing of 35%. In our view, this places FIRT in a strong position to tap acquisition opportunities.

Stable interest cost as 91% of debt is financed at fixed rates 

  • We estimate FIRT’s weighted average debt maturity profile to be around 1.6 years, with 34.1% due to be rolled over in FY17 and 35.9% in FY18. 
  • Despite the recent slight spike in interest rates, we maintain our assumption of average cost of funds of 4.1-4.2% for now as 91% of debt is financed at fixed rates.

Retain Hold 

  • Maintain Hold. 
  • Our FY17-19 DPU estimates and DDM-based target price of S$1.36 are intact. 
  • FIRT is currently trading at 6.4% FY17 DPU yield and at 1.33x P/BV. 
  • Upside risk to our call may come from new acquisitions while downside risks could include slow inorganic growth momentum.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-07-18
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.360 Same 1.360