First REIT - Phillip Securities 2018-07-19: Continues To Deliver Despite Rising Interest Rate Environment

First REIT - Phillip Securities Research 2018-07-19: Continues To Deliver Despite Rising Interest Rate Environment FIRST REAL ESTATE INV TRUST SGX:AW9U

First REIT - Continues To Deliver Despite Rising Interest Rate Environment

  • NPI and DPU were in line with our forecast. All-in finance costs stable at 4%.
  • 5.3% y-o-y boost in Gross Revenue and NPI driven by two acquisitions made in 4Q17.
  • Refinanced S$100mn fixed rate notes due May 2018 with six-month term loan facility.
  • Maintain NEUTRAL with an unchanged Target Price of S$1.31.



The Positives


+ All-in finance costs of 4% has been stable, despite the rising interest rate environment.

  • Despite having just 60.7% of its debt on fixed rates (sector average: c.77%), all-in finance costs remain stable at 4%. Funding cost for the short-term loan facility secured in May would still be under 4%, if it were to be extended.


The Negatives


Debt maturity profile remains unchanged QoQ, despite a refinancing done.

  • First REIT had refinanced its S$100mn fixed rate notes due 22 May 2018 with a S$100mn term loan facility with a tenure of 6 months, extendable by a further 6 months. However this is a short-term solution and the Manager is evaluating various longer-term solutions.

28.1% y-o-y higher finance costs.

  • This was due to the expense that will be recorded for the next three to four quarters.

Receivables collection could potentially worsen, unless underlying issue of Sponsor-tenant’s cash flow is fully resolved.

  • While receivables were lowered by S$29.1mn represent more than a quarter of FY17 revenue. The Manager has however clarified that there had not been any delays for payments past their due dates.
  • For context, Lippo Karawaci (LPKR), First REIT’s Sponsor and the contributor of c.83% of First REIT’s gross rental income in FY17, had been issued a credit downgrade by Fitch in February 2018 on the back of a significantly reduced cash flow access.


Outlook

  • Current gearing of 34.1% affords a debt headroom of 40 hospitals – two of which are ripe for injection this year.


Maintain NEUTRAL with unchanged Target Price of S$1.31

  • While the credit risk from LPKR is our key concern, we recognise the effort to maintain borrowing costs and time the market for more attractive longer-term funding opportunities. 
  • Positive price movements for the stock could come about if there is a material improvement in LPKR’s creditworthiness. 
  • Our target price translates to a FY18e yield of 6.7% and a P/NAV of 1.21x.





Tara Wong Phillip Securities Research | Dehong Tan Phillip Securities | https://www.stocksbnb.com/ 2018-07-19
SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.31 Same 1.31



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