Fair value S$1.20
add: 12m dividend forecast S$0.079
versus: Current price S$1.21
CONTRIBUTION FROM NEW ASSETS
• 2Q13 core DPU rises 16.4% YoY
• Aiming to reduce floating rate exposure
• Unchanged HOLD rating and S$1.20 FV
2Q13 results within our expectations
First REIT (FREIT) reported its 2Q13 results which were within our expectations. Gross revenue surged 43.4% YoY to S$20.1m due largely to contribution from its four newly acquired properties in Indonesia (two acquired in Nov 2012 and two in May 2013).
Distributable amount to unitholders rose 4.0% YoY to S$12.7m but DPU fell 4.1% to 1.85 S cents. However, if we strip out an exceptional distribution in 2Q12, FREIT’s distributable amount to unitholders and DPU would instead have increased by 26.6% and 16.4%, respectively. As FREIT had already made an advance distribution of 0.99 S cents on 26 Jun 2013 (prior to the issuance of new units for part payment of its acquisitions), only the remaining 0.86 S cents will be paid to unitholders on 29 Aug 2013. For 1H13, gross revenue rose 34.2% to S$37.6m and constituted 45.2% of our full-year projection. DPU (after stripping out the special distribution highlighted earlier) increased 12.9% to 3.59 S cents, or 45.5% of our FY13 forecast. We expect 2H13 to be stronger on a HoH basis due to a full-quarter of contribution beginning 3Q13 from the two hospitals acquired in May this year.
Plans to refinance debt a positive
Management updated us that it is in the process of refinancing ~S$92m of its floating-rate debt to a 4-year fixed-rate unsecured bank loan. The all-in cost of debt for this loan is expected to be ~3.7% and will likely be finalised by Aug this year. Upon the completion of this refinancing exercise, FREIT’s next earliest refinancing need will come in 2016 (S$166m principal amount), while ~46% of its borrowings will be based on a floating rate structure (previously 72%), based on our estimates. We are positive on this as short-term interest rates in Singapore are likely to see an increase in late 2014 or early 2015, which would affect the cost of borrowing for floating rate loans.
Targeting AEI; maintain HOLD
Meanwhile, FREIT has plans to carry out asset enhancement initiatives on three of its Indonesian properties, although details have yet to be finalised. We retain our forecasts, HOLD rating and DDM-derived fair value estimate of S$1.20 on FREIT.
Publish date: 29/07/13