First REIT – UOBKH
2Q07: Results Slightly Ahead of Forecast, More Plans Revealed
Results slightly ahead of forecast. First REIT’s Q2 results came in slightly better than its earlier forecasts. A S$6.50m net property income was achieved (8.6% ahead of its forecast), translating into a DPU of 1.65 Scts (6.59 Scts on an annualised basis), or 3.8% higher than its forecast. The increase in revenue and distributable income was attributed to maiden contributions from its three recent acquisitions (Lengkok Nursing Home, Senja Nursing Home and Lentor Nursing Home).
Asset enhancements to Adam Road Hospital. Besides the recent three nursing homes acquisitions, First REIT has also just completed its fourth acquisition of Adam Road Hospital. It intends to undergo major asset enhancements to Adam Road Hospital and will convert it from a primarily psychiatric hospital to one which provides mainly general hospital services such as day-care surgery and dental services for higher profitability. Post enhancements, psychiatric services will only contribute a small portion to its revenue.
Pipeline of hospitals identified for steady acquisition trail. With the addition of four new properties, total portfolio asset size of First REIT currently stands at about S$308m. We believe it is on track to meet management’s target portfolio of S$500m by 2009. It is already in negotiations to acquire an asset in China, and also seriously looking for opportunities in key cities (Beijing, Shanghai and Shenzhen) of China, Malaysia, Vietnam, Philippines, and Thailand. Besides acquiring assets from other vendors in the region, First REIT is also exploring potential asset injections from its sponsor, Lippo Karawaci. Potential pipeline includes Siloam Hospital Lippo Cikarang, Siloam Hospital Semanggi, which will house Indonesia’s first private cancer treatment centre (due completion in Dec 08), and also any potentially upcoming hospitals from expansion plans by Lippo Karawaci at Siloam Hospitals West Jakarta and Siloam Hospitals Surabaya.
Higher investors’ interests as more plans unravel. First REIT has been trading with low liquidity since launch, with a yield of 8.19% (based on 20th July 07’s closing price). We expect liquidity to improve as it unravels more plans which will generate investors’ interest.