First REIT announced its Full Year FY2014 (Y/E Dec) results on 15 January. We attended the Analyst Briefing that was held on 19 January. These are the key takeaways from the briefing, as well as other information that investors might not be aware of about First REIT.

First REIT A-shares – The A-shares were issued as partial payment for the acquisition of Siloam Sriwijaya. The First REIT A-shares are not entitled to any distributions until 31 March 2015. After which, the A-shares will be aggregated with the original Units. This serves as a mechanism to implement fair distribution of income to original Unitholders.

Indonesia rents are denominated in SGD – Thus the REIT is almost immune to the depreciation of IDR against SGD. Consequently, DPU is largely unaffected by currency movements between the IDR and SGD.

Indonesia's Universal Health Care Program – Although First REIT's portfolio consists of private hospitals, but its tenants (the hospital operators) are not disadvantaged by the Program. The program applies to both private and government hospitals. All of the Siloam hospitals in the REIT's Indonesia portfolio are registered onto the Program.

Update on Korea portfolio – Manager is currently not looking to expand the portfolio in Korea, unless there is something compelling. The REIT Manager may even sell the existing Sarang Hospital within the next one year. (Original purchase price: US$13.0 m, latest appraised value: US$6.3 m)

Distribution Reinvestment Plan (DRP) – This will be the fifth consecutive quarter that the DRP option is made available to Unitholders. The DRP allows existing Unitholders to accumulate more Units in lieu of cash distribution, but without incurring brokerage fees and other related costs. Management revealed that 25% to 35% of Unitholders have opted into the DRP in past few quarters. Benefits of the DRP are: (1) Existing Unitholders are able to subscribe to new Units at a slight discount (3%) to market price, (2) the REIT has been able to retain cash for future growth (S$4m to S$5m per quarter) and minimising the need to raise more capital through secondary issue, (3) Gearing has been kept low, thus giving the REIT some debt headroom.

Asset Enhancement Initiatives (AEI) pipeline – Most immediate AEI will be on the hospital located in Surabaya (Siloam Hospitals Surabaya), which might start in 2015. A new hospital with double the Gross Floor Area (GFA) will be built on the adjacent plot of land, and the existing plot of land will be sold back to Lippo Karawaci. (Original purchase price of Siloam Hospital Surabaya: S$16.8 m, latest appraised value: S$33.2 m)

Portfolio revaluation growth – Management guided that the property portfolio in Indonesia has appreciated at a faster pace than the depreciation of the IDR. As such, the REIT would still book gains on the disposal of properties in Indonesia.

Investment Action

No stock rating or price target provided, as we do not have coverage on First REIT.

Source: Phillip Securities Research - 20 Jan 2015