First REIT - CIMB Research 2017-10-24: New Properties Lift Earnings Performance

First REIT - CIMB Research 2017-10-24: New Properties Lift Earnings Performance FIRST REAL ESTATE INV TRUST AW9U.SI

First REIT - New Properties Lift Earnings Performance

  • First REIT (FIRT)'s 3Q/9M19 DPU of 2.14 Scts/6.42 Scts in line with projections.
  • Full-quarter contribution from SHLB a boost to bottomline.
  • More new purchases to drive earnings momentum.
  • Low gearing of 32.6% provides debt headroom.
  • Maintain Hold with a slightly higher TP of S$1.39.

3Q/9MFY17 DPU in line with forecasts 

  • First REIT (FIRT) reported 3Q17 revenue and net property income of S$27.8m/S$275m, up 3.3%/3.2%. 
  • Distribution income rose 2.2% yoy to S$16.7m, translating to a DPU of 2.14 Scts. The improvement was driven by contributions from Siloam Hospital Labuan Bajo (SHLB) and higher income from existing properties in Indonesia, Singapore and South Korea. 
  • 9M17 DPU of 6.42 Scts (+1.3% yoy) accounted for 75.2% of our FY17 forecast.

SHLB a bigger boost to topline 

  • In 3Q, there was a full quarter’s contribution from SHLB, which was acquired in Dec 16. The hospital is to contribute S$1.85m annually under its lease agreement. 
  • Stripping out SHLB, 3Q topline growth would have been 1.5% yoy.

New purchases to drive forward earnings momentum 

  • First REIT (FIRT) has been in an acquisitive mode over the past few months. In Oct 17, it completed the purchase of an integrated hospital-cum-retail property in Buton; the asset should boost bottomline from 4Q17F. 
  • Post this transaction, it has also proposed a joint acquisition, together with Lippo Malls Indonesia Retail Trust, of a mixed development in Yogjakarta from PT Lippo Karawaci Tbk, the Sponsor of both REITs. The Buton purchase as well as its share of the Yogjakarta acquisition is expected to cost a total S$55.5m.

More debt headroom to pursue acquisition growth 

  • FIRT’s gearing stood at 32.6% as at end-3Q17. Factoring in the above 2 purchases, we estimate gearing to tick up towards 37%, still below the regulatory limit of 45%. This provides the REIT with further debt headroom to pursue more inorganic growth. 
  • It has a right of first refusal to a healthy pipeline of around 40 hospitals from its Sponsor.

Maintain Hold rating 

  • We lift our FY17-19 DPU estimates by 0.4-3.94% to factor in additional contributions from these new purchases. Consequently our DDM-based target price (cost of equity: 8.2%) rises to S$1.39. 
  • FIRT is currently trading at 6.8% FY17F DPU and at 1.37x P/BV. We maintain our Hold call in view of the limited upside. 
  • Upside risk to our call may come from additional acquisitions while downside risks could include slow inorganic growth momentum.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | 2017-10-24
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