Seeing the DPU Uplift
Intrinsic Value S$1.44
Prev Closing S$1.14
First Real Estate Investment Trust (First REIT) reported an “in-line” set of 3Q FY13 results with revenue and DPU rising 13.3% and 5.9% QoQ to S$22.8m and 1.96 S cents respectively.
We believe First REIT is progressing with its expansion plans of 1) acquiring some of its sponsor’s assets, 2) looking at healthcare related assets in Asia and 3) performing asset enhancement initiatives on some of its hospitals. We expect to hear something about the new acquisitions over the next six months and asset enhancement initiatives over the next three months.
We have seen the positive DPU uplift from the recent four acquisitions and expect further DPU growth over the next six months. First REIT now offers an attractive annualized dividend yield of 6.9%. Maintain Increase Exposure with an intrinsic value of S$1.44.
Results Summary: Revenue rose further this quarter as the company recognized full contribution from the Siloam Hospitals Bali and Siloam Hospitals TB Simatupang which were acquired around mid-May 2013 – First REIT only recognized part of the rent in the prior quarter. Property operating expenses was around S$1.1m this quarter, primarily due to maintenance expenses in Sarang Hospital and audit fees for Indonesia properties. Management fees climbed in tandem (YoY) with the change in net property income while finance costs jumped three fold due to higher borrowings (for the recent four acquisitions) and higher interest rate (due to borrowings from the MTN prog5ramme). Consequently, total return after tax climbed by 21.9% YoY to S$12.1m. Distributable income increased by a larger 30.4% YoY on the back of lower forex adjustments and more management fees settled in units.
One the balance sheet side, there is relatively little change QoQ and the company generated S$16.2m of net operating cash flows.
Company Update: The company will probably keep to its prior expansion plans of 1) looking to acquire some of its sponsor’s assets, 2) looking at healthcare related assets in Asia and 3) performing some asset enhancement initiatives on some of its hospitals like Siloam Hospitals Kebon Jeruk, Siloam Hospitals Surabaya and Imperial Aryaduta Hotel & Country Club. We believe First REIT is undergoing discussions now on a preliminary basis. For now, we expect to hear something about the new acquisitions over the next six months and asset enhancement initiatives over the next three months.
Industry Update: PT Siloam International Hospitals Tbk had a successful IPO last month and its share price rose by more than 10% over the period. The share price movement probably reflects investors’ confidence in the Indonesian healthcare sector.
The trend of depreciating IDR against SGD has also ceased over the past one month on the back of extension of the US debt limit and improving trade numbers. Though the impact on First REIT is limited, we reckon that investors are now more comfortable with Indonesian based companies compared to a month ago.
Forecast and Valuation: We have seen the positive DPU uplift from the recent four acquisitions and we expect more acquisition to come over the next six months – thereby leading to higher DPU. Currently, we expect First REIT to post a similar set of quarterly result in 4Q FY13. Based on the 1.96 S cents quarterly dividend, the company offers an attractive annualized dividend yield of 6.9%. Maintain Increase Exposure with an intrinsic value of S$1.44.
Publish date: 29/10/13