First REIT (FREIT) reported 4Q12 results which were within our expectations. Distributable income to unitholders in FY12 rose 4.8% to S$46.0m, and formed 98.8% of our forecast. DPU for FY12 was 7.26 S cents, versus 7.01 S cents in FY11, and translates into a yield of 6.8%. Looking ahead, we expect FREIT to aggressively seek inorganic growth opportunities in Indonesia, its core market. We raise our fair value to S$1.00 (previously S$0.98) as we incorporate lower discount rate assumptions for FREIT’s Indonesian assets in our model. But we maintain HOLD given FREIT’s rich valuations.
4Q12 results within expectations
First REIT (FREIT) reported 4Q12 results which were within our expectations. Gross revenue rose 10.7% YoY to S$15.4m, driven by maiden contributions from two new properties which were acquired in Nov 2012 and higher rental income from its remaining portfolio. Distributable amount to unitholders declined 8.7% YoY to S$11.1m, but this was due to a special distribution of S$2.2m in 4Q11. Excluding this, distributable amount to unitholders would have increased by 11.3% instead. For FY12, gross revenue rose 6.7% to S$57.6m and was just 0.2% below our full-year projection. Distributable income to unitholders rose 4.8% to S$46.0m, and formed 98.8% of our FY12 forecast. DPU for FY12 was 7.26 S cents, versus 7.01 S cents in FY11, and translates into a yield of 6.8%.
An eye for inorganic growth opportunities
Following FREIT’s recent acquisitions, its gearing (debt-to-assets) ratio increased from 15.0% in 3Q12 to 25.7% in 4Q12. We believe this is a manageable level as it is still one of the lowest in the S-REITs space. Looking ahead, we expect FREIT to aggressively seek inorganic growth opportunities, which are likely to be financed by both debt (leverage on low interest rate environment) and equity (trading at 30% premium to NAV), in our view. Indonesia would remain as its key market, given the nation’s robust healthcare dynamics and visible pipeline of acquisition targets from its sponsor Lippo Karawaci. Management has identified five potential targets in areas such as Bali, East Kalimantan and East Sumatra and will assess the feasibility of each potential investment. We expect acquisition terms to be largely similar to the two assets purchased in Nov last year.
Maintain HOLD
We make some minor adjustments to our estimates and also incorporate lower discount rate assumptions for FREIT’s Indonesian assets in our model, given improving economic fundamentals in Indonesia. This lifts our fair value estimate from S$0.98 to S$1.00. But we maintain our HOLD rating as we view FREIT’s valuations as expensive, with the stock trading at 1.3x FY13F P/B, a rich premium to its peers’ average.
First REIT (FREIT) reported 4Q12 results which were within our expectations. Gross revenue rose 10.7% YoY to S$15.4m, driven by maiden contributions from two new properties which were acquired in Nov 2012 and higher rental income from its remaining portfolio. Distributable amount to unitholders declined 8.7% YoY to S$11.1m, but this was due to a special distribution of S$2.2m in 4Q11. Excluding this, distributable amount to unitholders would have increased by 11.3% instead. For FY12, gross revenue rose 6.7% to S$57.6m and was just 0.2% below our full-year projection. Distributable income to unitholders rose 4.8% to S$46.0m, and formed 98.8% of our FY12 forecast. DPU for FY12 was 7.26 S cents, versus 7.01 S cents in FY11, and translates into a yield of 6.8%.
An eye for inorganic growth opportunities
Following FREIT’s recent acquisitions, its gearing (debt-to-assets) ratio increased from 15.0% in 3Q12 to 25.7% in 4Q12. We believe this is a manageable level as it is still one of the lowest in the S-REITs space. Looking ahead, we expect FREIT to aggressively seek inorganic growth opportunities, which are likely to be financed by both debt (leverage on low interest rate environment) and equity (trading at 30% premium to NAV), in our view. Indonesia would remain as its key market, given the nation’s robust healthcare dynamics and visible pipeline of acquisition targets from its sponsor Lippo Karawaci. Management has identified five potential targets in areas such as Bali, East Kalimantan and East Sumatra and will assess the feasibility of each potential investment. We expect acquisition terms to be largely similar to the two assets purchased in Nov last year.
Maintain HOLD
We make some minor adjustments to our estimates and also incorporate lower discount rate assumptions for FREIT’s Indonesian assets in our model, given improving economic fundamentals in Indonesia. This lifts our fair value estimate from S$0.98 to S$1.00. But we maintain our HOLD rating as we view FREIT’s valuations as expensive, with the stock trading at 1.3x FY13F P/B, a rich premium to its peers’ average.
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