First REIT (FREIT) reported a decent set of 2Q16 results which met our expectations. Gross revenue and DPU grew 6.5% and 1.9% YoY to S$26.6m and 2.11 S cents, respectively. Growth was driven largely by contribution from Siloam Hospitals Kupang & Lippo Plaza Kupang, which were acquired in Dec 2015.

For 1H16, FREIT’s gross revenue jumped 6.8% to S$53.1m and formed 51.5% of our full-year forecast. DPU of 4.22 S cents represented growth of 2.2% and constituted 50.4% of our full-year projection.

As at 30 Jun 2016, FREIT’s debt-to-assets ratio stood at 34.1%, which was unchanged on a QoQ basis. This leaves management with ample debt headroom of ~S$130.7m to fund acquisitions before it reaches a gearing ratio of 40%, based on our estimates.

FREIT’s sponsor, PT Lippo Karawaci Tbk, has a current strong pipeline of 43 hospitals for potential acquisition and is continuously expanding its healthcare portfolio.

We maintain our HOLD rating and S$1.36 fair value estimate on FREIT given this set of in-line results.

Source: OCBC Research - 15 Jul 2016