SINGAPORE (Apr 12): CGS-CIMB Securities is maintaining First REIT at “add” with a target price of $1.20 given 1Q19 results held no surprises.
“First REIT’s 1Q19 DPU of 2.15 cents is in line with our expectations, at 24.4% of our FY19F forecast,” says CGS-CIMB lead analyst Lock Mun Yee in a Wednesday report.
First REIT posts unchanged 1Q DPU of 2.15 cents on the back of stable distributable income
In 1Q19, First REIT reported a 0.2% y-o-y decline in gross revenue to $28.6 million due to a lower variable rental component for Indonesia hospitals, while net property income fell a greater 1.4% y-o-y following a slight dip in NPI margin to 97.8%. However, distribution income was up 0.9% y-o-y to $17.1 million with a higher proportion of management fees paid in units.
While awaiting further clarity of its geographic diversification plans as well as confirmation of a master lease extension for four of its Indonesia properties beyond 2021, CGS-CIMB still expects First REIT’s share price to be underpinned by a high FY19 dividend yield of 8.9%.
First REIT has a portfolio of 20 properties valued at $1.35 billion. Its weighted average lease to expiry stands at 8.3 years. In terms of master lease expiry profile, an estimated 22% of its GFA will be due in the next 3-5 years. The closest would be the Sarang Hospital in Aug 2021 and the Siloam Lippo Village, Siloam Kebun Jeruk and Siloam Surabaya hospitals, as well as Imperial Aryaduta Hotel and Country Club, by Dec 2021.
In terms of capital management, First REIT gearing stood at 34.5% as at end 1Q19. Negotiations to refinance the $100 million of debt due this year is currently underway. Although its trade and other receivables have increased to $34.5 million, it has since received $7.7 million from tenants in Apr 2019 in the form of trade and other receivables.
“Given First REIT’s robust balance sheet, we believe it can continue to pursue acquisitive growth opportunities,” says Lock.
Elsewhere, OCBC Investment Research says First REIT’s 1Q19 results came broadly within its expectations.
In discussing 2021 prospects, OCBC says rent expenses due to PT Lippo Karawaci Tbk (LK) amounted to 125,494 million Rp based on Siloam’s 2018 disclosures. Using an exchange rate of $1$ : 10,480 Rp, this amounts to $12 million. In 2018, First REIT received $95.5 million from LK.
While the difference looks stark, analyst Joseph Ng understands from the manager that the proportion of income support for the four Indonesian assets with master leases expiring in 2021 from LK is likely to be less than that of the newer assets in First REIT’s portfolio.
“We also understand that the manager is currently in talks with LK (and other associated parties) to try and reach an arrangement for these four assets that is reasonable and sustainable in the long run,” adds Ng in a Thursday report.
In terms of growth, the manager is said to be looking at one to two hospitals in Indonesia that could be acquired directly from Siloam although there is also the possibility of targeting non-Indonesian assets, some of which are speculated to be sizeable in nature.
“That being the case, the possibility of an equity fund raise might arise, even as First REIT’s current price trades at a discount to its NAV per share,” says Ng.
Sadly, OCBC is ceasing coverage on First REIT due to a reallocation of internal resources.
As at 2.14pm, units in First REIT are trading at $1.00, giving it an FY21F DPU yield of 8.8%.
