• 4Q14 DPU +3.6% YoY
• Organic and inorganic growth
• Defensive attributes stand out

4Q14 results matched our expectations

First REIT’s (FREIT) 4Q14 results came in within our expectations. DPU of 2.04 S cents (ex-dividend on 22 Jan) represented a 3.6% YoY increase on the back of a 4.6% growth in gross revenue. The latter was in turn driven by contribution from Siloam Hospitals Purwakarta which was acquired in May 2014 as well as organic growth. For FY14, gross revenue rose 12.0% to S$93.3m, while DPU gained 7.0% to 8.05 S cents. This matched our forecast of S$93.3m and 8.07 S cents, respectively.

Balance sheet healthy; interest rate risks hedged

FREIT’s debt-to-asset ratio stood at a healthy 32.7%, as at 31 Dec 2014. Moreover, ~95% of its debt is currently on a fixed/hedged basis, thus mitigating the impact of fluctuations in interest rates and providing stability to unitholders. FREIT also has no refinancing requirements until 2017.

Structural reforms to enhance FREIT’s operating landscape

Looking ahead, management remains optimistic on the long-term potential of new Indonesian president Joko Widodo’s reform agenda. Hence, Indonesia would continue to be FREIT’s key focal market for future growth. OCBC Treasury Research expects Indonesia’s growth to remain firm and its current account deficit to become less of an issue. We also believe Indonesia’s manageable fiscal deficits, efforts to carry out structural reforms and infrastructure spending boost would enhance the stability and economic viability of the nation, thus leading to lower risks for FREIT. We thus lower our discount rate on FREIT from 8.3% to 7.0%. Rolling forward our valuations, our fair value estimate is bumped up from S$1.18 to S$1.40. We believe FREIT’s solid defensive attributes and minimal exposure to both interest rates and FX volatility make it as a good investment proposition for investors amid the current macro uncertainties. In light of the aforementioned factors, we upgrade FREIT from Hold to BUY.

Source: OCBC Research - 19 Jan 2015