First REIT (FREIT) reported an in-line set of results for 2Q17. Gross revenue grew 3.3% YoY to S$27.5m while NPI grew 3.2% YoY to S$27.2m, forming 25.1% and 25.0% of our fullyear forecasts, respectively.

Growth was boosted by a full quarter contribution from Siloam Hospitals Labuan Bajo, as well as higher rental income from the existing portfolio. Consequently, DPU grew 1.4% YoY to 2.14 S-cents, forming 25.6% of our full-year projection.

We also note that the REIT Manager has reduced its management fees taken in units from 92.0% in the preceding quarter to a more sustainable level, in our view, of 70.1% in 2Q17.

Looking ahead, we are aware of FREIT’s intention to acquire one or two high-quality properties this year to grow its income stream. This can be achieved by leveraging its sponsor’s pipeline of over 40 healthcare assets in Indonesia.

Pending an analyst briefing later today, we place our HOLD rating and S$1.32 fair value estimate under review.

Source: OCBC Research - 18 Jul 2017