First REIT - Phillip Securities 2018-01-23: Record DPU For FY17 In Line With Forecast

First REIT - Phillip Securities 2018-01-23: Record DPU For FY17 In Line With Forecast FIRST REAL ESTATE INV TRUST AW9U.SI

First REIT - Record DPU For FY17 In Line With Forecast

  • First REIT's NPI and DPU for FY17 were in line with our forecast. 
  • 1.2% y-o-y uplift in DPU driven by 3 new acquisitions since December 2016.
  • Outlook for organic growth for FY18 is positive after uptick in Singapore CPI.
  • Maintain NEUTRAL due to rich valuations vs post GFC average.



The Positives

  • All-in interest costs largely stable. Average all-in cost of financing stands at c.4% as of end Dec 2017, largely unchanged from the preceding year.
  • Rebound in portfolio valuation after drop in FY16. Portfolio valuations grew 1.7% in FY17 (excluding acquisitions in same year). This comes after a drop of 1.2% in the preceding year. Valuer’s forecasted cashflows likely improved after the uptick in Singapore CPI numbers for 2017.


The Negatives

  • Total Receivables grew 78% to S$53mn from S$29.8mn in FY16. This was mainly due to delay in advance rental receivables from tenants.


Outlook

  • The outlook for organic growth in FY18 is positive after the uptick in Singapore CPI for 2017 (0.6% for Jan-Nov) vs -0.5% in 2016. 
  • Rental escalations for First REIT’s Indonesian hospitals are determined by Singapore CPI numbers for the preceding year. This is however slightly lower than our forecasted CPI of 1% for 2017. We adjust our forecasted overall rental escalations for FY18 from 2% to 1.5%. 
  • Acquisition pipeline from sponsor’s network of 40 hospitals remain stable with earmarked acquisition targets for FY18.


Maintain NEUTRAL with unchanged target price due to rich valuation 

  • First REIT currently trades at the upper range of their average valuation boundaries since post GFC. 
  • As we roll forward our forecasts to FY18, we lower our terminal growth rate from 1% to 0.5% to account for the higher drop-off in valuations from BOT (leasehold) properties. 
  • We maintain our NEUTRAL rating with unchanged target price of S$1.32. Our target price translates to an FY18e yield of 6.5% and P/NAV of 1.27.




Dehong Tan Phillip Securities | http://www.poems.com.sg/ 2018-01-23
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.320 Same 1.320



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