SINGAPORE (Oct 24): First REIT posted a 0.9% increase in its 3Q17 DPU to 2.14 cents compared to 2.12 cents last year.
Gross revenue grew 3.3% to $27.8 million, from $26.9 million a year ago.
This was mainly due to full-quarter contribution from Siloam Hospitals Labuan Bajo, which was acquired in December 2016, as well as higher rental income from the REIT’s properties in Indonesia, Singapore and South Korea.
See: First REIT's 3Q DPU up 0.9% to 2.14 cents
In a Tuesday report, OCBC is upgrading the REIT to “buy” from “hold” previously with a higher fair value of $1.44.
In October, the group completed the acquisition of Siloam Hospitals Buton and Lippo Plaza Buton for $28.5 million.
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Analyst Joseph Ng says, “We believe this transaction will be DPU-accretive from 4Q17 onwards, and have duly incorporated this into our model.”
First REIT is also seeking to jointly acquire a DPU-accretive integrated development in Yogakarta.
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“While these should wrap up transactional activity in 2017 nicely, we believe that more could be in store for 2018,” says Ng.
As the REIT’s gearing level is at 32.6% and translates into $172 million of debt headroom before reaching 40%, this should comfortably support potential acquisitions of about 40 hospitals from its sponsor.
Meanwhile, with the latest report inflation for Jan-Sept coming in 0.6% higher y-o-y, Ng believes that positive rental reversions should be achievable.
“Having considered First REIT’s increasingly stable portfolio, gradual appetite for acquisitions, as well as a benign inflationary environment, we believe First REIT’s share price is comparatively undervalued and the current valuation gap could potentially narrow,” says Ng.
As at 11.32am, units in First REIT are trading at $1.38 with a FY17 dividend yield of 6.2%.
