FIRST REAL ESTATE INV TRUST
AW9U.SI
First REIT - First Acquisition Of 2017 At Attractive Rental Yield Of 10%
- First REIT proposed acquisition of Siloam Hospitals Buton and adjacent Lippo Plaza Buton from sponsor at S$28.5mn, a 1.2% discount to average of two independent valuations.
- Combined base rental yield on cost of 10%.
- Master lease tenure of 15 years (option to renew a further 15y); rental escalation pegged to Singapore CPI.
- Maintain NEUTRAL with unchanged target price of S$1.32.
What do we think?
Accretive acquisition with base rental yield at comfortable spread over average cost of debt.
- Expected to be fully funded by debt and internal cash, base rental yield of 10% offers a comfortable spread over First REIT (FIRT)’s average cost of debt of 4.1%. Assuming acquisition is funded by debt-equity ratio of 40-60, average cost of capital works out to be c.5.1% (using coupon for S$60mn perpetual securities issued June 2016 as proxy to cost of equity).
Terms of acquisition similar to previous acquisitions.
- Rental tenure (15y+15y) and base rent escalations (pegged to Singapore CPI) are similar to previous acquisitions. Base rents are subject to escalations only after an initial five-year period.
- Post-acquisition, weighted average lease expiry increases to 10.3 years (from 10.0) and weighted average age of properties decreases to 9.5 years (from 10.1)/
Maintain NEUTRAL with unchanged target price of S$1.32
- We maintain our NEUTRAL recommendation with an unchanged target price.
- We have already incorporated acquisitions into our forecasts, based on average historical acquisition quantum sizes. As such, our DPU forecasts remain unchanged with this acquisition news.
- Our target price represents a forward yield of 6.5% and FY17e P/NAV of 1.22
Dehong Tan
Phillip Securities
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http://www.poems.com.sg/
2017-07-24
Phillip Securities
SGX Stock
Analyst Report
1.320
Same
1.320
