First REIT: Strong sponsor acquisition pipeline to look forward to January 19, 2017

PSR Recommendation: ACCUMULATEStatus: UpgradedTarget Price: 1.32
  • First REIT closed FY16 with a record DPU of SG 8.47 cents, up 2% from FY2015.
  • Terminated Siloam Hospitals Yogyakarta (first announced in February 2016) deal still on the cards, possibly by 1H2017.
  • Portfolio valuation dropped 1.2% as a result of weaker cashflow due to the weak Singapore CPI.

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What’s in the news

  • Capped off FY2016 with a record DPU of SG 8.47 cents (our FY17e DPU is SG 8.58c, 1.3% higher). First REIT (FIRT) started 2016 with still a lot of uncertainties lingering in the market about their sponsor potentially listing Reits in Indonesia. Since bottoming and hovering around the levels close to $1.15, which is the support level highlighted by our technical analyst, First REIT recovered to end the year up 4% vs FTSE S-REIT index’s 1.9% (both excluding dividends). Despite a lacklustre year for Singapore CPI which capped the rental escalations for their properties, FY2016 DPU came in at a record SG 8.47 cents, buoyed by the new Kupang acquisition in Dec 2015.
  • Terminated Siloam Hospitals Yogyakarta (first announced in February 2016) deal still on the cards, possibly by 1H2017. The proposed acquisition was terminated due to licensing issues for the commencement of operations for the hospital. Management still remains hopeful of sealing the deal by this year. Apart from this acquisition, several other possible acquisition targets in the sponsor’s pipeline include Siloam Hospitals Bau-Bau (140 beds) and Siloam Hospitals Bogor (~200 beds), as highlighted by management. The expected valuations of these two hospitals add up to ~S$100m.
  • Portfolio valuation dropped 1.2% as a result of weaker cashflow due to the weak Singapore CPI. Weak Singapore CPI for 2015 and 2016 capped the amount of base rental escalation for FIRT’s properties. Nonetheless, with MAS expecting Singapore’s 2017 CPI to come in at around 1% (vs negative CPIs in 2015/2016), that should provide some reprieve this year.

 

Investment Action

At 6.5%, FIRT trades at a higher yield and lower P/B than fellow healthcare REIT Parkway Life. Its lower gearing of 30% also allows it ample firepower for further acquisitions from its sponsor.

Our risk free rate maintains at 3.1% as we think that allows ample buffer even with current rising interest rates. We maintain our ACCUMULATE call for First REIT with an unchanged DDM-derived target price of S$1.32.

First REIT Historical Dividend Yield and Price/NAV

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Peer Comparison Table

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About the author

Profile photo of Tan Dehong

Tan Dehong
Investment Analyst
Phillip Securities Research Pte Ltd

Dehong covers primarily the REITs and property developer sector. He has close to 7 years experience in equities related dealing and research roles.

He graduated with a Masters of Science in Applied Finance from SMU and Bachelors of Accountancy from NTU.

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