Singapore | REITs Asia Pacific Equity Research

FIRST REIT | HOLD

20 Oct 2016
MARKET CAP: USD 769M AVG DAILY TURNOVER: USD 0.4M Company Update

STEADY GROWTH IN 3Q16 HOLD (maintain)

3Q16 DPU grew 1.9% YoY Fair value S$1.36
add: 12m dividend forecast S$0.085
Maiden issuance of perpetual securities
versus: Current price S$1.385
Increased debt headroom
12m total return forecast 4%

Analysts
3Q16 results came in within our expectations
Andy Wong Teck Ching, CFA (Lead) +65 6531 9817
First REIT (FREIT) reported a steady set of 3Q16 results which met andywong@ocbc.com
our expectations. Gross revenue rose 6.5% YoY to S$26.9m and this Eli Lee +65 6531 9112
was mainly underpinned by contribution from Siloam Hospitals Kupang elilee@ocbc.com
& Lippo Plaza Kupang which was acquired in Dec 2015. NPI increased
by 6.3% to S$26.6m, which translates into a NPI margin of 98.9%. Key information

DPU grew at a slower pace of 1.9% YoY to 2.12 S cents due to higher Market cap. (m) S$1,066 /
USD768.6
management fees, finance costs and an enlarged unit base. On a
Avg daily turnover (m) S$0.5 /
9M16 basis, FREITs gross revenue and NPI was up 6.7% and 7.1% to
USD0.4
S$80.0m and S$79.1m, respectively. DPU of 6.34 S cents represented Avg daily vol. (m) 0.4
growth of 2.1% and constituted 75.7% of our FY16 forecast. 52-wk range (S$) 1.15 - 1.39
Free float (%) 65.2
Gearing lowered following issuance of perpetual securities Shares o/s. (m) 769.5
FREIT carried out its maiden S$60m subordinated perpetual securities Exchange SGX
issuance on 8 Jul this year as a means of diversifying its sources of BBRG ticker FIRT SP

funding. The perpetual securities come with a fixed distribution rate of Reuters ticker FRET.SI
SGX code AW9U
5.68% per annum for the first five years up to 8 Jul 2021. If they are
GICS Sector Real Estate
not redeemed at the first call date, the distribution rate will be reset. GICS Industry REITs
Proceeds raised were used to pare down FREITs bank borrowings, Top shareholder
Lippo Karawaci -
33.1%
thus lowering its gearing ratio from 34.1% (as at 30 Jun 2016) to
29.7%. However, the 5.68% distribution rate of the perpetual
Relative total return 1m 3m 12m
securities is higher than the ~4% interest rates on FREITs bank loans.
Company (%) 3 7 10
STI-adjusted (%) 4 8 12
Maintain HOLD
Looking ahead, FREIT will continue to source for yield accretive Price performance chart
acquisitions given its increased debt headroom. We estimate that it
can take on additional borrowings of S$110.6m and S$231.8m before
reaching a gearing ratio of 35% and 40%, respectively. We finetune
our assumptions but our fair value estimate remains unchanged at
S$1.36. Maintain HOLD on FREIT, with the stock trading at FY16F and
FY17F distribution yield of 6.2% and 6.0%, respectively.

Sources: Bloomberg, OIR estimates

Key financial highlights Industry-relative metrics

Year Ended Dec 31 (S$m) FY14 FY15 FY16F FY17F
Gross revenue 93.3 100.7 108.5 107.8
Property operating expenses -1.4 -1.4 -1.6 -1.2
Net property income 91.9 99.3 106.9 106.6
Total distribution to unitholders 58.2 61.9 66.2 65.5
DPU (S cents) 8.1 8.3 8.5 8.3
Cons. DPU (S cents) na na 8.5 8.6
NAV per share (S$) 1.0 1.0 1.0 1.0
Distr yield (%) 5.8 6.0 6.2 6.0
P/NAV (x) 1.4 1.3 1.3 1.3
Total debt/total assets (x) 32.7 33.7 29.6 28.9
Note: Industry universe defined as companies under identical GICS classification listed
on the same exchange.
Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document. MCI (P) 041/06/2016
 OCBC Investment Research
Singapore Equities

Exhibit 1: Quarterly financial highlights

3Q15 3Q16 % Chg 2Q16 % Chg
(S$m) (S$m) (YoY) (S$m) (QoQ)
Gross Revenue 25.3 26.9 6.5% 26.6 1.2%
Property operating expenses -0.2 -0.3 26.2% -0.3 8.8%
Net Property Income 25.0 26.6 6.3% 26.3 1.1%
Interest income 0.1 0.3 343.6% 0.3 4.5%
Manager's management fees -2.5 -2.7 6.4% -2.6 0.9%
Trustee fees -0.1 -0.1 7.5% -0.1 1.0%
Finance costs -4.1 -4.3 2.9% -4.7 -8.8%
Other expenses -1.7 -0.3 -84.1% -0.3 -18.5%
Net income for the period 16.7 19.7 18.1% 18.9 4.0%
Increase in FV of investment properties 0.0 0.0 N.M. 0.0 N.M.
Net change in FV of derivative financial instruments 1.4 -0.1 N.M. -0.6 -84.4%
Gain on divestment of investment property 0.0 0.0 N.M. 0.0 N.M.
Total return before income tax 18.1 19.6 8.2% 18.3 6.8%
Income tax expense -3.9 -4.3 10.2% -4.3 0.7%
Total return after income tax 14.2 15.3 7.6% 14.1 8.6%
Total distribution to Unitholders 15.6 16.3 4.7% 16.2 0.6%
Distribution per unit (S cents) 2.08 2.12 1.9% 2.11 0.5%

Source: Company financials

2
 OCBC Investment Research
Singapore Equities

Company financial highlights

Income statement
Year Ended Dec 31 (S$m) FY14 FY15 FY16F FY17F

Gross revenue 93.3 100.7 108.5 107.8

Property operating expenses -1.4 -1.4 -1.6 -1.2
Net property income 91.9 99.3 106.9 106.6
Fees -9.5 -10.3 -11.0 -11.0
Net interest expense -15.0 -16.3 -16.9 -15.4
Other expenses -1.9 -2.7 -2.2 -2.2
Total return before tax 112.7 96.3 76.8 78.2
Income tax expense -22.1 -28.5 -16.9 -17.2
Total return after tax 90.6 67.8 59.9 61.0
Total distribution to unitholders 58.2 61.9 66.2 65.5

Balance sheet
As at Dec 31 (S$m) FY14 FY15 FY16F FY17F

Investment properties 1,172.0 1,268.3 1,273.3 1,278.3

Total non-current assets 1,172.6 1,271.2 1,276.2 1,281.2
Cash and cash equivalents 28.2 26.8 48.1 48.4
Total current assets 39.8 44.0 67.2 67.3
Total assets 1,212.4 1,315.2 1,343.4 1,348.5
Current liabilities ex debt 41.8 39.4 38.3 38.2
Debt 396.6 442.6 398.3 390.3
Total liabilities 467.4 524.1 478.7 470.6
Total unitholders' funds 745.0 791.1 804.7 817.9
Total equity and liabilities 1,212.4 1,315.2 1,343.4 1,348.5

Cash flow statement

Year Ended Dec 31 (S$m) FY14 FY15 FY16F FY17F

Net cash from operations 80.8 74.3 81.7 84.3

Increase in invt properties -67.7 -56.5 -5.0 -5.0
Net cash from investing -67.5 -56.3 -4.8 -4.6
Proceeds from unitholders 0.0 0.0 0.0 0.0
Increase in borrowings 39.3 44.3 -44.3 -8.0
Net cash from financing -14.4 -19.4 -55.7 -79.4
Net cash flow -1.1 -1.4 21.3 0.3
Cash at beginning of year 29.3 28.2 26.8 48.1
Cash at end of year 28.2 26.8 48.1 48.4
Cash and cash equivalents 28.2 26.8 48.1 48.4

Key rates & ratios FY14 FY15 FY16F FY17F

DPU (S cents) 8.1 8.3 8.5 8.3

NAV per share (S$) 1.0 1.0 1.0 1.0
Distr yield (%) 5.8 6.0 6.2 6.0
P/Operating CF (x) 12.5 14.2 13.2 13.0
P/NAV (x) 1.4 1.3 1.3 1.3
NPI margin (%) 98.5 98.6 98.5 98.9
Distr to revenue (%) 62.4 61.5 61.0 60.7
Total debt/total assets (x) 32.7 33.7 29.6 28.9
ROE (%) 12.2 8.6 7.4 7.5
ROA (%) 7.5 5.2 4.5 4.5

Sources: Company, OIR forecasts

Company financial highlights

 OCBC Investment Research
Singapore Equities

SHAREHOLDING DECLARATION:

The analyst/analysts who wrote this report holds/hold NIL shares in the above security.

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