• 1Q18 DPU growth of 0.5% YoY
• Still expecting 2-3 acquisitions this year
• FY18F yield of 6.4%

1Q18 Results Within Expectations

First REIT’s (FREIT) 1Q18 results were well within our expectations. Gross revenue rose 5.8% YoY to S$28.7m, forming 24.2% of our full-year forecast. Top-line was buoyed mainly by the new acquisitions from Siloam Hospitals Buton & Lippo Plaza Buton and Siloam Hospitals Yogyakarta in late 2017, as well as higher rental income from existing properties.

Finance cost rose 10.7% YoY, due mainly to higher loan amounts drawn down for the financing of the latest two acquisitions, as well as the second progress payment for the development of the new Siloam Hospitals Surabaya.

1Q18 DPU increased slightly by 0.5% to 2.15 S-cents, which comprises 24.6% of our full-year forecast. FREIT’s gearing remains healthy at 34.1%, as at 31 Mar 2018.

Still Expecting Acquisitions This Year

We continue to reiterate our base case of 2-3 acquisitions in FY18 (albeit late in the year), with each asset in the S$20-30m range. We believe that PT Siloam International Hospitals TBK’s assets would be likely targets, as opposed to those owned directly by its sponsor (Lippo Karawaci).

Nonetheless, we believe that management would still be disciplined by only making DPU-accretive acquisitions, with the initial rental yield being around the 9-10% handle. As of 31 Mar 2018, only ~51% of FREIT’s debt is on fixed rate/hedged, but we believe management is working on bringing this towards 75-80%.

Separately, there has been some concern about rising receivables, which we think could be due to tighter liquidity at the sponsor’s end. However, we believe that both management and the sponsor are confident of addressing this in the near future, as demonstrated by FREIT opting not to apply the Distribution Reinvestment Plan this quarter.

Minimal Impact of New Tax Regulations

Given its triple-net master leases, FREIT has clarified that the implementation of Government Regulation Number 34 of 2017 is not expected to affect it materially. We keep our assumptions and estimates unchanged, and maintain our fair value of S$1.48. FREIT currently trades at a FY18F yield of 6.4%.

Source: OCBC Research - 19 Apr 2018