First Real Estate Investment Trust’s Latest Earnings: What Investors Should Know

First Real Estate Investment Trust REIT (SGX: AW9U) released its fiscal fourth-quarter earnings report yesterday evening. The reporting period was from 1 October 2015 to 31 December 2015; the REIT’s fiscal year coincides with the calendar year.

First REIT is a healthcare-focused real estate investment trust. Currently, it has a portfolio of 17 properties (13 in Indonesia, three in Singapore, and one in South Korea) that are mostly healthcare-related facilities. Its sponsor is Indonesia’s largest listed property company, PT Lippo Karawaci Tbk.

You can read more about the REIT in here and here.

Financial highlights

The following’s a quick rundown on the latest financial figures from First REIT:

  1. Gross revenue rose to $25.7 million in the reporting quarter, up 7.4% from the same quarter a year ago. For the full year, gross revenue climbed 8% to $100.7 million.
  2. Quarterly net property income (NPI) stepped up by 7.9% year-on-year to $25.4 million. For the whole of 2015, NPI was up by 8.1% to $99.3 million.
  3. For the reporting quarter, First REIT’s distribution per unit (DPU) was 2.09 cents, a 2.5% bump up from the 2.04 cents seen in the fourth-quarter last year. For 2015, DPU was 8.3 cents, a 3.1% increase from the previous year.
  4. Total assets under management was valued at around $1.27 billion as of 31 December 2015. The net asset value per unit was $1.04, a slight 2% uptick from $1.02 in 2014.

Beyond these, Foolish investors might want to keep an eye on the REIT’s debt profile. The debt profile may provide clues on how the REIT is funded and its sensitivity to the interest rate environment. These are summarized for First REIT below:

2016-01-19 First REIT Debt Table
Source: First REIT’s earnings releases

We can see that the REIT’s total debt and gearing ratio had both increased a little. That said, the REIT’s gearing is still a long way from the revised limit of 45% set by the Monetary Authority of Singapore.

For First REIT, about 66% of its loans will come due between 2017 and 2018. Foolish investors should keep an eye on how the REIT can refinance its loans. In the short-term however, there is limited risk from rising interest rates.

Operational highlights

First REIT completed its acquisition of the Kupang Property for $70 million in December 2015. It has also received approval for an asset enhancement initiative (AEI) for Siloam Hospitals Surabaya. The AEI is expected to be completed in 2019.

Beyond this, Lippo Karawaci has 46 hospitals in its pipeline which can be possible acquisition targets for First REIT in the future.

Dr Ronnie Tan, the chief executive of First REIT’s manager, had the following comments in the earnings release on the reporting quarter as well as the REIT’s near-term future:

“First REIT continues to deliver strong performance with steady growth in our income streams and consecutive quarterly rise in DPU due to our strategic yield-accretive acquisitions since our listing. The Trust ended the financial year with an enlarged portfolio of 17 properties and an 8.5% growth in assets-under-management to S$1.27 billion from S$1.17 million.

Moving into FY 2016, Unitholders can look forward to continuous growth as the Trust plans to further expand our asset size with more yield-accretive acquisitions. Moreover, with the increase of the regulatory gearing limit from 35% to 45% proposed by the Monetary Authority of Singapore, this will give us greater operational flexibility and headroom for more acquisitions.”

Despite a lukewarm economy in Indonesia, First REIT expects healthcare spending to be supported by the universal healthcare scheme introduced by the government. First REIT cited studies from BMI Research which estimates that annual healthcare expenditure will increase by 10% per year to US$25 billion in 2017.

Foolish summary

First REIT last traded at S$1.20 yesterday. This translates to a historical price-to-book ratio of 1.16 and a distribution yield of around 6.9% based on its 2015 DPU of 8.3 cents.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.