Price (at 09:04, 27 Aug 2013 GMT) S$1.05
Valuation S$ 1.30
No rupiah exposure, rents paid in SGD
First REIT presented at Day Two of our Asean conference in Singapore.
Indonesian hospital assets but rents in SGD. First REIT’s Indonesian assets are on long term master leases with rents paid in SGD. Apart from fixed base rents, there are annual rental escalations capped at 2% per annum and a variable rent based on increase in revenue at the hospitals. Base rent and annual escalations account for 99% of total revenue. The only forex exposure is the USD payments from its sole hospital in South Korea, which accounts for 1% of total revenue.
Strong pipeline from sponsor. Sponsor Lippo Karawaci is planning to list Siloam Hospitals, its hospital operator division. First REIT does not expect the sponsor pipeline to be affected given Lippo’s ambition to grow the number of hospitals in Indonesia aggressively and hence the need to recycle capital by divesting assets to First REIT. Lippo has a current pipeline of 14 more hospitals.
Gearing of 33.4%. We think First REIT may have to raise equity for any large-sized acquisitions, given that the gearing limit is 35% for REITs without a credit rating. The group issued an S$100m 5-year fixed rate note in May 2013 and is planning to refinance two floating rate debts. Once completed, about 54% of total debt will be on fixed rates and earliest debt maturity will be in 2016.
Earnings and target price revision
No changes to DPU estimates or TP.
12-month price target: S$1.30 based on a DCF methodology.
Catalyst: Acquisitions from sponsor.
Action and recommendation
First REIT’s revenue is unaffected by the weak rupiah given that rental payments from Lippo Karawaci are in SGD. We will take advantage of the 23% unit share price correction in the past 3 months (vs a 17% fall in the FSTREI) to buy for a stable 8% yield in FY14 and FY15.
Publish date: 27/08/13