Growth Story Intact – Higher debt ceiling a boost
- DPU of 2.07c for 2Q15, up 3.5% y-y.
- 1H15 distributable income and DPU at 48.5% and 48% of our FY15 estimates respectively.
- Future acquisitions from sponsor’s strong pipeline of hospitals (46 hospitals, at various stages of development) to drive DPU growth.
- Lifting of debt ceiling from 35% to 45% (under new MAS ruling) a boost.
- Maintain “ACCUMULATE”, with DDM valuation target price of S$1.55.
First REIT (FIRT) reported their 2Q15 results on Monday evening. We attended the analyst briefing yesterday afternoon and these are the some key takeaways.
Fundamental growth drivers in Indonesian healthcare sector intact –
- Management remains confident of the drivers for demand in the Indonesian healthcare sector.
- Underlying occupancy at FIRT’s portfolio of hospitals (which are at varying stages of maturity) range from high 60% to 80%.
Management actively looking out for possibilities of new acquisitions from sponsor’s pipeline –
- Management is always actively on the lookout for DPU accretive acquisitions from sponsor’s strong pipeline of 46 hospitals.
- Potential AEI works to Siloam Surabaya, which would double the gross floor area of the current hospital, would also be a kicker to DPU growth once completed.
Distribution Reinvestment Plan (DRP) participation rate ranges from 23% to 35%.
- The DRP programme is now into its 7th quarter and participation rate ranges from 23% to 35%.
- First REIT’s sponsor, PT Lippo Karawaci Tbk (LPKR) has always subscribed for the maximum allocation that they are allowed to take up.
What do we think
- We remain optimistic on the growth drivers for FIRT, primarily driven by the increased demand in healthcare services in Indonesia and LPKR’s aggressive expansion of its hospital networks.
- LPKR’s pipeline of hospitals has expanded to 46 and we are optimistic about potential upcoming acquisitions as LPKR recycles capital for future developments.
- Historical yields on acquisitions over the past 4 years are around 10% and provide a healthy spread, nett of tax, over the all-in average cost of debt, currently at ~4%.
- The new MAS regulated debt ceiling of 45% for all S-REITs (previously 60% for rated S-REITs and 35% for those without credit rating) effectively raises First REIT’s from 35% to 45%.
- The expanded debt headroom increases FIRT’s options for acquisition funding and would enhance the accretive-ness of acquisitions, should cheaper debt options (over equity funding) be employed.
Investment Action
- We remain bullish and maintain our “ACCUMULATE” call on First REIT, with an unchanged DDM-derived target price of SS$1.55 from our original initiation back in April.
(Dehong Tan)
Source: http://www.poems.com.sg/
Source: http://www.poems.com.sg/
