First REIT - CIMB Research 2018-04-17: 1Q18 New Purchases Boosted Earnings Performance

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FIRST REAL ESTATE INV TRUST AW9U.SI

First REIT - 1Q18 New Purchases Boosted Earnings Performance

• First REIT's 1Q18 DPU of 2.15 Scts in line with estimates, accounting for c.24% of our FY18 projections.
• Earnings growth in 1Q18 driven largely by new acquisitions.
• Healthy gearing of 34.1% at end-1Q18.
• Maintain HOLD with an unchanged Target Price of S$1.44.

Results in line 

• First REIT posted a 5.8% y-o-y and a 0.6% q-o-q rise in 1Q18 gross revenue to S$28.7m due to contributions from new acquisitions as well as higher income from existing properties.
• However, distribution income rose a smaller 1.8% y-o-y to S$16.9m due to higher interest expense from these acquisitions. 
• DPU improved a slight 0.5% y-o-y to 2.15 Scts, partly diluted by the issuance of new units from its distribution reinvestment plan and taking a lesser 85% of management fees in units (92% in 1QFY17).

New acquisitions and organic growth boosted earnings 

• New contributions came from Siloam Hospitals Buton and Lippo Plaza Buton purchased in Oct 17, and Siloam Hospitals Yogjakarta acquired in Dec 17. We expect the properties to collectively add c.S$5.3m to First REIT’s topline, or c.4.7% of our FY18 revenue forecast.
• First REIT indicated that as its properties are subject to master leases and the lessees do not pay service and utilities recovery charges, its earnings are not adversely impacted by the Indonesia's recent implementation of Government’s Regulation 34 of 2017.

Low gearing allows capital management flexibility 

• First REIT remains well positioned for further growth with a strong pipeline of around 40 hospitals in Indonesia from its sponsor. With a gearing of 34.1% as at end-1Q18, it has good capital management flexibility to pursue yield-accretive acquisitions, in our view.

Maintain HOLD rating 

• We leave our FY18-20 DPU estimates unchanged post results. As such, our DDM-based target price stays at S$1.44 (cost of equity 7.9%). 
• First REIT is currently trading at 6.6% FY18F DPU yield and 1.35x P/BV. We retain our HOLD rating. 
• Upside risk to our call may come from additional acquisitions while downside risks include slower inorganic growth momentum.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2018-04-17

SGX Stock Analyst Report HOLD Maintain HOLD 1.440 Same 1.440