• 3Q14 DPU +3.1% YoY
• Another record DPU
• Trim forecasts but retain HOLD

3Q14 results in-line with our expectations

First REIT’s (FREIT) 3Q14 results came in within our expectations. Revenue, distributable income and DPU rose 4.6%, 6.1% and 3.1% YoY to S$23.8m, S$14.7m and 2.02 S cents (ex-dividend on 24 Oct), respectively. Notably, its DPU achieved another record high (+1% QoQ), aided by organic growth in its portfolio and a full quarter of contribution from Siloam Hospitals Purwakarta (SHPW), which was acquired in May this year. For 9M14, revenue, distributable income and DPU jumped 14.7%, 13.5% and 8.3% to S$69.4m, S$43.3m and 6.01 S cents; and this formed 74.4%, 72.0% and 72.4% of our FY14 projections, respectively.

More acquisitions could come in 4Q14

Management believes the victory by Joko Widodo at the recent Indonesian presidential elections augurs well for the economy and the healthcare sector, in particular. Hence, we expect FREIT to maintain its core focus on the Indonesian market for future acquisitions-fuelled growth. Siloam International Hospitals, a subsidiary of FREIT’s sponsor Lippo Karawaci, recently won the Healthcare Services Provider of the Year title in the Frost & Sullivan Indonesia Excellence Awards 2014. Its Strategic Development Director, Dr. Anang Prayudi, highlighted plans to achieve growth of ~30-40% via greenfield projects and M&A activities. We expect FREIT to be a beneficiary of this trend, and believe it is currently in negotiations with Lippo Karawaci on possible acquisition targets, with 4Q14 a possible timeline for an agreement to be reached.

Pare estimates slightly; maintain HOLD

We trim our FY14 and FY15 forecasts slightly by 2.8%, as we input higher tax expenses and a larger unit base in our model to account for its distribution reinvestment plan. Correspondingly, our DDM-derived fair value estimate declines from S$1.21 to S$1.18. Despite our lowered DPU forecast, FREIT still offers a healthy FY14 and FY15 dividend yield of 6.8% and 7.0%, respectively. Nevertheless, we are maintaining our HOLD rating on the stock as valuations appear fair, in our opinion, with the stock trading at 1.3x FY14F and FY15F P/B.

Source: OCBC Research - 20 Oct 2014