SINGAPORE (April 19): OCBC says a price of $1.25 and below would be a more favourable entry point for investors of First REIT as it awaits management to pursue accretive acquisitions during the remainder of the year, supported by its healthy gearing ratio of 30.8% as at March 31 2017.
In OCBC’s view, potential size of acquisitions for 2017 may amount to $100-$150 million, in our view.
“Based on our calculations, FREIT has debt headroom of $86.3 million and $205.2 million before reaching gearing levels of 35% and 40%, respectively,” says analyst Andy Wong in a Wednesday report.
In 1Q17, FREIT reported a steady set of results which met expectations by the research house. Gross revenue and NPI both rose 2.5% to $27.2 million and $26.9 million, respectively, forming 24.8% of the OCBC’s forecasts.
Growth was driven largely by a full-quarter contribution from the acquisition of Siloam Hospitals Labuan Bajo, which was completed in Dec 2016. DPU edged up 1.4% y-o-y to 2.14 cents, and was partly boosted by the REIT manager’s decision to take 92.0% of its management fees in units. 1Q17 DPU constituted 25.6% of OCBC’s full-year projection.
Singapore’s last reported inflation data for the month of Feb stayed in positive territory, coming in at 0.7% y-o-y. Wong says this would be supportive of FREIT’s base rental revision for its Indonesian properties which is pegged to two times Singapore’s Consumer Price Index growth, subject to a floor of 0% and cap of 2%.
Looking ahead, FREIT says it will continue to seek growth from Indonesia as its key focal market. This is supported by its right-of-first-refusal agreement with its sponsor, Lippo Karawaci, over its expanding pipeline of more than 40 hospitals.
Lippo Karawaci highlighted in its FY16 annual report that the Indonesian government’s move to merge all healthcare programmes under the BPJS Healthcare programme has increased healthcare awareness among Indonesians and led to a jump in demand, especially for low-to-middle income patients.
“We maintain ‘hold’ and $1.32 fair value estimate on FREIT,” says Wong, adding that OCBC has not factored in any potential acquisitions in its forecasts.
Units of FREIT are trading at $1.36.
