• First REIT’s 1QFY19 DPU of 2.15 Scts is in line with our expectations, at 24.4% of our FY19F forecast.
• The robust balance sheet provides First REIT room to pursue inorganic growth.
• Maintain ADD with an unchanged target price of S$1.20.

1QFY19 Results Summary

• First REIT (SGX:AW9U) reported a 0.2% y-o-y decline in gross revenue to S$28.6m due to a lower variable rental component for Indonesia hospitals, while net property income fell a greater 1.4% y-o-y following a slight dip in NPI margin to 97.8%.
• However, distribution income was up 0.9% y-o-y to S$17.1m (DPU: 2.15 Scts) with a higher proportion of management fees paid in units.

Stable Portfolio

• First REIT’s portfolio remained stable with 20 properties valued at S$1.35bn. Its weighted average lease to expiry stands at 8.3 years.
• In terms of master lease expiry profile, an estimated 22% of its GFA will be due in the next 3-5 years. The closest would be the Sarang Hospital in Aug 2021 and the Siloam Lippo Village, Siloam Kebun Jeruk and Siloam Surabaya hospitals, as well as Imperial Aryaduta Hotel and Country Club, by Dec 2021.

Balance Sheet Remains Robust

• In terms of capital management, First REIT’s gearing stood at 34.5% as at end-1Q19. Negotiations to refinance the S$100m of debt due this year is currently underway.
• Meanwhile, although its trade and other receivables have increased to S$34.5m, due to advance rental receivables from tenants, it has since received S$7.7m from tenants in Apr 2019. Given First REIT’s robust balance sheet, we believe it can continue to pursue acquisitive growth opportunities.

Maintain ADD Rating

• We leave our DPU estimates unchanged and maintain our ADD rating with a DDM-based Target Price of S$1.20.
• Although we have tweaked down our cost of equity assumption to 8.1% (from 8.4% previously) due to a change in risk-free rate outlook, this is offset by a lower terminal growth assumption of 1.1%.
• We expect First REIT’s share price to be underpinned by a high FY19 dividend yield of 8.9%, while awaiting further clarity of its geographic diversification plans, as well as confirmation of a master lease extension for four of its Indonesia properties beyond 2021. The latter could catalyse a re-rating of the stock.
• Downside risks include non-renewal or a change in the terms of the master lease.

Source: CGS-CIMB Research - 10 Apr 2019