First REIT - OCBC Investment 2019-04-10: Ceasing Coverage

FIRST REAL ESTATE INV TRUST (SGX:AW9U) | SGinvestors.io FIRST REAL ESTATE INV TRUST (SGX:AW9U)

First REIT - Ceasing Coverage

  • First REIT's 1Q19 DPU flat.
  • Some uncertainties to address.
  • Annualized 1Q19 yield of 8.7%.



Broadly in-line 1Q19

  • First REIT (SGX:AW9U)’s 1Q19 results were broadly within our expectations.
  • Rental and other income registered a slight dip of 0.2% y-o-y to S$28.6m, due to the lower variable rental component for its Indonesian properties. NPI margin slipped from 99.0% in 1Q18 to 97.8% in 1Q19 as property operating expenses jumped 114.8% y-o-y to S$623k, on the back of higher property expenses incurred for Sarang Hospital and Indonesia properties, which we understand is due to higher professional fees. Thus, NPI fell 1.4% y-o-y to S$28.0m.
  • Distribution income rose 0.9% y-o-y to S$17.1m, with DPU remaining flat at 2.15 S-cents for the quarter.
  • We note that management fees taken in units have increased from 84.9% in 1Q18 to 87.5% in 1Q19.
  • Gearing has edged down from 35.0% as at 31 Dec’18 to 34.5% as at 31 Mar’19.


Discussing 2021 prospects

  • Based on Siloam’s 2018 disclosures, rent expenses due to PT Lippo Karawaci Tbk amounted to 125,494m Rp. Using an exchange rate of 1S$ : 10,480 Rp, this amounts to ~S$12.0m.
  • In 2018, First REIT received ~S$95.5m from PT Lippo Karawaci Tbk. While the gulf looks stark, we understand from the manager that the proportion of income support for the four Indonesian assets with master leases expiring in 2021 from PT Lippo Karawaci Tbk is likely to be less than that of the newer assets in First REIT’s portfolio.
  • We also understand that the manager is currently in talks with PT Lippo Karawaci Tbk (and other associated parties) to try and reach an arrangement for these four assets that is reasonable and sustainable in the long run.


Reallocation of resources

  • In terms of growth, we understand that the manager is in the early stages of looking at one to two hospitals that can potentially be acquired directly from Siloam in Indonesia.
  • As we have highlighted previously, there is also the possibility that First REIT could be looking at non-Indonesian assets this year, some of which are speculated to be sizeable in nature. That being the case, the possibility of an equity fund raise might arise, even as First REIT’s current price trades at a discount to its NAV per share.
  • Due to a reallocation of internal resources, we are CEASING COVERAGE on First REIT.





Joseph Ng OCBC Investment Research | https://www.iocbc.com/ 2019-04-10
SGX Stock Analyst Report CEASE MAINTAIN SELL 99998 SAME 0.970



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