First Real Estate Investment Trust: A REIT With Exposure To Indonesia’s Growing Economy

Over the past five years from 2011 to 2015, the economy of Indonesia has grown at an annual rate of between 4.8% and 6.2%, according to the Asian Development Bank.

Economic growth in the country is expected to continue at a similar pace in the near future, with the Asian Development Bank’s data showing forecast growth rates of 5.2% in 2016 and 5.5% in 2017.

One stock in Singapore’s market with heavy exposure to the emerging market that is Indonesia is First Real Estate Investment Trust (SGX: AW9U), a healthcare REIT with a market capitalisation of S$1 billion. First REIT’s portfolio consists of 17 properties which are mainly hospitals or healthcare nursing homes.

Of the 17 properties, 13 are located in Indonesia, three are in Singapore, and the remaining one is in South Korea. These properties have a collective value of S$1.27 billion, of which 96.5% come from the Indonesian assets.

At first glance, unitholders of First REIT could suffer from currency risks given that the REIT reports in the Singapore dollar, gives out distributions in the same currency, yet conducts most of its business in Indonesia.

But, First REIT has pegged the base rent of its Indonesia properties’ rental to the Singapore dollar, thereby mitigating forex risk.

In addition, the REIT’s lease terms are long (typically 10 to 15 years) with rental escalations built in. The escalations for the Singapore and South Korea properties are at a fixed rate of 2% per year; the Indonesia properties have escalations that are pegged to Singapore’s inflation rate as measured by the consumer price index (CPI).

Let’s have a look as well at some of First REIT’s financial metrics. I’m focusing on the price to book (P/B) ratio, debt to asset ratio, and the distribution yield.

The REIT’s net asset value (NAV) per unit currently stands at S$1.03 (as of 30 June 2016). With a unit price of S$1.30 at the moment, this would imply a P/B ratio of 1.26.

While First REIT’s price is higher than its NAV, it is not unusual to see such valuations for healthcare REITs in Singapore. Another healthcare REIT, Parkway Life REIT (SGX: C2PU), currently has a P/B ratio of close to 1.5.

Moving on to the debt to asset ratio, First REIT’s last reported financials (as of 30 June 2016) show S$452.4 million in debt and S$1.33 billion in assets. This results in the REIT having a 34% debt to asset ratio. For perspective, REITs in Singapore have a regulatory gearing limit of 45%.

Lastly, the REIT’s distributions for the last 12 months is 8.39 Singapore cents. This gives a trailing yield of 6.45% at First REIT’s current unit price of S$1.30.

What I’ve presented here are useful things to know about First REIT. But they should only be seen as a starting point for further research. More work needs to go into the broth before any investing decision can be made on the REIT.

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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 Esjay does not own shares in any companies mentioned.