1Q13 results in line with expectations
First REIT (FREIT) reported that its gross revenue for 1Q13 increased 25.0% YoY to S$17.5m. This was driven largely by a full-quarter of contribution from the two properties it acquired on 30 Nov 2012. Distributable amount to unitholders and DPU increased by 16.5% and 9.4% YoY to S$11.6m and 1.74 S cents, respectively, if we exclude a special distribution of S$2.2m (S$0.34 per unit) in 1Q12 which arose from a gain from the sale of the Adam Road property. The ex-dividend date for the distribution is on 29 Apr at 9 a.m., while the date payable is on 30 May. Although gross revenue and DPU for 1Q13 formed 21.2% and 22.1% of our FY13 estimates, respectively, this was within our expectations as contribution from its proposed two new hospital acquisitions has yet to kick in. We believe that contribution would begin around late May or early Jun this year (subject to unitholders’ approval at its EGM on 29 Apr).
Acquisition appetite remains strong
Once FREIT completes the acquisition of the two new hospitals from its sponsor Lippo Karawaci (Lippo), it will be able to boost its portfolio size from S$797m to ~S$1b. But we expect FREIT to continue its search for more yield accretive assets, which are likely to come from Lippo. Future acquisitions in the near-term are likely to be financed by a combination of both debt and equity, in our opinion, even if FREIT obtains a credit rating.
Maintain HOLD
FREIT’s share price has surged 32.1% YTD, making it the best performing stock in the
S-REITs universe. Nevertheless, with the stock trading at 1.6x FY13F P/B, we believe that valuations are not compelling at current levels. The market appears to have priced in the positives from its recent proposed acquisitions, in our view. We finetune our assumptions after taking into account this set of results, and reiterate our HOLD rating and S$1.31 fair value estimate on FREIT.
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