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

Yesterday evening, First Real Estate Investment Trust (SGX: AW9U) released its earnings results for the quarter and year ended 31 December 2016.

As a quick background, First REIT is a healthcare-focused real estate investment trust. It currently has a portfolio of 18 properties (14 in Indonesia, three in Singapore, and one in South Korea) that are mostly healthcare-related facilities. The REIT’s sponsor is Indonesia’s largest listed property company, PT Lippo Karawaci Tbk.

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

Financial highlights

The following’s a rundown on some of the REIT’s latest financial figures:

  1. Gross revenue rose to $27.0 million in the reporting quarter, up 5.1% from the same quarter a year ago. For the full year, gross revenue climbed 6.3% to $107.0 million.
  2. Quarterly net property income (NPI) also climbed by 5.2% year-on-year to $26.7 million. For the full year, NPI is up 6.6% to $105.8 million.
  3. For the reporting quarter, the distribution per unit (DPU) was 2.13 cents, a 1.9% bump up from the 2.09 cents paid out in the fourth quarter of 2015. For the whole of 2016, First REIT’s DPU was 8.47 cents, an increase of 2.0%.
  4. Total assets under management was valued at around $1.27 billion as of 31 December 2016. First REIT ended 2016 with a net asset value per unit of $1.01, down 3% from 2015.

Beyond these, Foolish investors may also 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:

2017-01-17 First REIT Debt Table
Source: First REIT’s earnings presentations

We can see that improvements have been made, namely, the declines in the total debt and gearing ratio. As a reminder, REITs in Singapore have a regulatory gearing limit of 45%.

Around 70% of First REIT’s loans will come due between 2017 and 2018. Investors should keep an eye on the REIT’s refinancing activities. In the short term, there is limited risk from rising interest rates for First REIT given that 92.3% of its debt is currently on a fixed rate basis.

Operational highlights

First REIT completed its acquisition of the Siloam Hospitals Labuan Bajo for $20 million in December 2016. Beyond this, Lippo Karawachi has 43 hospitals in its development pipeline which could potentially be acquired by First REIT over time.

Dr Ronnie Tan, the chief executive of First REIT’s Manager, had the following comments on the reporting quarter’s results:

“I am proud that the Trust has delivered another new high in annual DPU, which was achieved through our focused efforts in yield-accretive acquisitions.

To this end, the Trust has recently completed the acquisition of Siloam Hospitals Labuan Bajo in Indonesia, capping off the year with an enlarged portfolio of 18 properties and an increased asset base of S$1.27 billion. With this latest acquisition, Unitholders can look forward to continued earnings growth in FY 2017.”

In its earnings release, First REIT cited research from Jakarta Post which estimated that annual healthcare expenditure in Indonesia is projected to increase to US$50 billion in 2020. The REIT is also expecting to benefit from the full implementation of a national health insurance scheme covering 260 million Indonesians by 2019.

First REIT’s units last traded at $1.29 each yesterday. This translates to a historical price-to-book ratio of 1.29 and a trailing distribution yield of around 6.6%.

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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.