FIRST REAL ESTATE INV TRUST (SGX:AW9U)
First REIT - Improved Risk Profile & Asset Quality
- First REIT (SGX:AW9U)'s 1H22 NPI rose 40.2% to S$52.7m, with maiden contribution from the 12 Japan nursing homes acquired in March 2022, and higher rental income from the Indonesian hospitals. Contributions from Indonesia account for 88.1% of total NPI (FY21: 95.4%), Japan 8.4% and rest from Singapore.
- The results would have been better, if not for the weaker Yen (-13.4%) and IDR (-1.1%) against S$, which resulted in lower translated returns.
- Net returns rose by a modest 4.0% to S$18.2m, after a S$9.7m decline in the value of the investment properties.
- First REIT's DPU growth was marginally 1.3% higher, due to 431.1m new units at S$0.305 each issued to sponsor OUE Lippo Healthcare (SGX:5WA) for the acquisition of the Japan assets.
- Concern over rising rates is weighing down on REITs, in terms of the impact on the cost of funds and asset valuation. First REIT is no exception. But its risk profile has improved with the conclusion of new master leases for the Indonesian assets at late 2021 (which provides for a minimum annual rental reversion of +4.5% with guarantee from the operator), and the addition of the Japan assets in March 2022.
- First REIT enjoyed a 1.2% decline in finance cost in 1H22 to S$8.4m, in spite of higher total debt of S$456m as at Jun 2022. The inclusion of lower-cost Yen borrowings has reduced cost of fund to 3.7% (FY21: 4.2%).
- We are positive on the outlook of the Indonesian economy, and the strength of IDR. This is due to
- strong trade surplus in the country underpinned by strong manufacturing output and higher commodity prices;
- relatively stable bond yield (10Y: 7.2%);
- Bank Indonesia projects a positive current account surplus of up to 0.3% of GDP by end 2022; and
- with inflation contained at 4.9%, the central bank has held key 7-day reverse repurchase rate unchanged at 3.5%.
- Still, First REIT is looking to diversify its geographical footprint to developed markets, to reduce the share of revenue from developing markets to 50%.
First REIT - Target price and recommendation
- We raise our target price for First REIT to S$0.33 (from S$0.32), which prices it at FY22E P/B of 0.9x and distribution yield of 8%. Upgrade our recommendation for First REIT to BUY.
- See
Peggy Mak
SAC Capital Research
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https://www.saccapital.com.sg/
2022-08-05
SGX Stock
Analyst Report
0.33
UP
0.320
