Category: FirstREIT
First Reit – BT
First Real Estate Investment Trust (First Reit) announced today that its distributable amount for the second quarter ended June 30, 2008 rose 16.1 per cent to $5.2 million from a year ago.
This translates to a distribution per unit (DPU) of 1.91 Singapore cents, up 15.8 per cent, said Bowsprit Capital Corporation, the manager of the Reit.
For the half year ended June 2008, First Reit’s distributable amount and DPU are $10.26 million and 3.76 cents, respectively.
Based on its annualised DPU of 7.62 cents and the closing price of 70.5 cents on July 18, First Reit’s distribution yield is 10.81 per cent, one of the highest amongst Singapore Reits, Singapore stocks and government bonds, Bowsprit noted. The units closed yesterday at xxxx cents.
Driven by rental increases from its four Indonesian properties as well as the rental income generated from its four Singapore properties acquired in 2007, First Reit’s gross revenue in the second quarter rose 15 per cent $7.5 million, lifting its half-year gross revenue by 19.3 per cent to $15.0 million.
First Reit is Singapore’s first healthcare reit. It is aiming to raise assets under management (AUM) to $500 million by 2009 from the current $326 million. ‘First Reit will continue to seek opportunities in the region including Singapore, Indonesia and China to raise its AUM,’ said Bowsprit. ‘We have been selective in our acquisitions as we want to ensure that our portfolio consists of only quality and good yielding healthcare assets which will provide consistent, sustainable returns to unitholders.’
Apart from portfolio expansion, First Reit intends to improve on the income generating capacity of its existing healthcare properties through asset enhancement initiatives and working with its tenants to continually undertake upgrading of healthcare services. Despite the current uncertain economic conditions, Bowsprit said it remains ‘optimistic’ that First Reit will continue to perform well in the second half of the year as its revenues are largely derived from long-term rental leases. The current economic environment is also an opportunity for making better acquisitions. — Wong Weikong, BT Newsroom
SREITs – ML
All about cost of debt
Downgrading S-REITs
We are increasing our cost of debt assumptions across the S-REIT sector. We reduce our FY09 and FY10 DPU estimates by an average of 5.3% and 6.4% respectively, while our price objectives are cut by an average of 16%. We are now forecasting DPU declines in 2009 for one third of our sector coverage. We reduce our rating on Cambridge Industrial, Ascendas India & First REIT to Underperform.
Increasing borrowing costs
We expect the all in debt costs for REITs to escalate to 5.0% (from 3.6% previously assumed) driven by a combination of factors including: 1) Rising credit spreads; 2) Reluctance of Singapore banks to increase loan book exposure to the property sector and 3) ML view that Asian central banks will need to raise interest rates in response to rising inflationary pressures.
Average debt expiry profiles for S-REITs 2.6yrs
Increasing debt costs are magnified in the context of the S-REIT sector given short debt expiry profiles. We have split out the debt expiry profiles of S-REITs under coverage and estimate that, on average, the weighted average debt expiry profile of the sector is 2.6 years which is half of that developed markets. Earnings will be impacted as early as 2009 as expiring debt is rolled over at higher rates.
Cutting our price objectives by average 16%
In addition to our earnings downgrades we have made changes to our DCF valuations assumptions. On a sector average basis we have increased our cost of debt and risk free rate by over 100bpts to 5.5% and 5.4% respectively. We are reducing our target gearing to 40% which is the level rating agencies begin to downgrade corporate credit ratings for S-REITs.
Sector outlook & valuation
The S-REIT sector is currently trading on FY08E yield of 6.2%, which represents a 280bpts premium to the Singapore 10yr government bond. While valuations are undemanding by historical standards we believe the availability and cost of debt and equity continues to present challenges for the S-REIT sector. We remain cautious on the medium term outlook for the sector which is highly reliant on capital markets for growth and is sensitive to interest rate movements. Our BUY calls continue to support REITs that we believe can deliver on organic growth.
Link – Tables
FirstREIT – BT
First Reit Q1 DPU increases 15.6% to 1.85 cents
HIGHER rents and contributions from new properties led healthcare-focused First Reit to a 15.8 per cent gain in first-quarter distributable income to $5.1 million.
The performance lifted distribution per unit 15.6 per cent to 1.85 cents, from 1.60 cents in Q1 last year. On an annualised basis, this translates to 7.5 cents or a distribution yield of 10.7 per cent, based on last Friday’s closing price of 70 cents a share.
Ronnie Tan, CEO of the Reit’s manager Bowsprit Capital Corp, said that the results reflect the structure of the Reit, which focuses on long-term stability.
‘Our properties are leased to master lessees for relatively long tenures of 10 and 15 years, with provisions for favourable yearly rental increases,’ he said. ‘This minimises the risk associated with short-term leases and multiple tenants.
‘In addition, the base rent for our Indonesian properties is pegged to a relatively stable Singapore dollar, which helps reduce forex volatility.’
First Reit has eight properties in its portfolio, including three Siloam Hospitals and the Imperial Aryaduta Hotel and Country Club in Indonesia. Between Q2 and Q3 last year, the trust acquired Adam Road Hospital, The Lentor Residence and two nursing homes in Singapore.
For the three months ended March, net property income rose 24 per cent to $7.4 million. Management fees rose 27.2 per cent to $701,000. The trust also incurred $490,000 in finance costs for external borrowings used to fund the Singapore acquisitions.
With a debt-to-property valuation ratio of 15.6 per cent, Dr Tan said that there is ample space to support further growth in assets. The Reit is aiming for a portfolio size of $400 million by the end of this year, from $326 million now. It is eyeing opportunities in China, Indonesia and Malaysia.
Amid expectations of a global economic downturn, Bowsprit Capital remains optimistic that First Reit will continue to perform ‘because of its stable revenues which are based on long-term rental leases’.
Shares of First Reit went up half a cent yesterday to close at 70.5 cents.
FirstREIT – ML
1Q08 results
1Q08 results
First REIT has reported 1Q08 results with DPU of 1.85cps, up 5% QoQ and 16% YoY. DPU growth is attributable to organic growth from the Indonesian portfolio together with income contribution from the Singapore assets which were purchased in 2007. Singapore now accounts for 17% of total portfolio assets.
Inline with ML estimates
The results were inline with ML estimates. Net profit for the quarter accounted for 25% of our FY08 estimate. Our earning forecasts remain unchanged however we have adjusted our dividend payout ratio from 90% to 100% as advised by management. First REIT is the highest yielding Singapore REIT offering a FY08E distribution yield of 10.4%
China expansion
During 2007 First REIT signed MOUs for 4 China assets which comprise a combined total of 1290 beds. We expect First REIT will be able to transact on at least one MOU in 1H08. We are positive on First REIT’s push to regionally diversify the existing healthcare portfolio.
Maintain Buy, PO S$0.84/share
We maintain our Buy rating and 12 month price objective of S$0.84/share. As one of only two Singapore listed Healthcare REITs, we believe First REIT has access to a wide range of Healthcare related assets both in Singapore and regionally.
SREITs – ML
S’pore REITs: High quality dividends and a strong currency
Singapore REITs have high single digit dividend yields that are relatively secure due to long lease tenure, conservative balance sheets and exposure to the property sector’s strong fundamentals.
We also expect the Singapore dollar to appreciate by as much as 5% this year.
In sum, this is a safe place to be.
CapitaCommercial Trust (CMIAF; S$2.12; B-1-7) Top pick for office sector, significantly undervalued. High organic growth from rental reversions.
We have a Buy rating on CCT and 12-month price objective to S$2.70/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.0%, an equity risk premium of 5.7% and a beta of 1.0. Risks are a downturn in the economy, higher interest rates, lower than forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.
Macquaire Meag Prime REIT (MQPRF; S$1.25; B-1-7) Top pick for retail sector. M&A target with near term potential to trade to NAV.
We are setting our price objective with reference to current NAV of S$1.61/share.The NAV is derived from 4% cap rates for Singapore office exposure and 5% cap rates for Singapore retail exposure. Risks are a downturn in the economy, higher interest rates, lower-than-forecast rental and occupancy rates and the possibility that future acquisitions may provide lower than expected returns.
CDL REIT (CEHSF; S$2.33; B-1-7) Top pick for hotel sector. Singapore hotel room rates continue to rise, strong balance sheet.
We have a Buy rating on CDL Hospitality Trusts (CDLT) and a 12 month price objective of S$2.88/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.4%, an equity risk premium of 5.7% and a beta of 1.2. Risks are a downturn in the economy, higher interest rates, lower than forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.
Cambridge Industrial (XCMBF; S$0.70; B-1-7) Top pick for industrial sector. Most defensive asset class. Long lease expiries support income security.
We have a Buy rating on CREIT and a 12-month price objective of S$0.88/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.0%, an equity risk premium of 5.7% and a beta of 1.0. Risks are a downturn in the Singapore economy, higher interest rates, lower-than-forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.
First REIT (FESNF; S$0.74; B-1-7) Investors reluctant to take Indonesian risk, yet the Indonesian stock market itself is one of the best
We have a Buy rating on First REIT and a 12 month price objective of S$0.84/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk-free rate of 5.5%, an equity risk premium of 7.1%, and a leveraged beta of 0.90. Risks to our price objective are an increase in short-term interest rates which may result in higher interest costs on existing borrowings; increases in long-term interest rates which could impact our DCF valuation due to the assumption of risk-free rates; and a deterioration in economic activity that may impact occupancy and rental growth of assets held within the investment portfolio.