First Real Estate Investment Trust Has A High Distribution Yield Of 6.6%: Here Are 3 Things Investors Should Know

First Real Estate Investment Trust (SGX: AW9U) 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.

Right now, the REIT has a distribution yield of 6.6%, which is more than twice the market average. To the point, the SPDR STI ETF (SGX: ES3) has a yield of only 3%; the SPDR STI ETF is an exchange-traded fund that tracks Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

First REIT’s market-beating yield prompted me to take a closer look at its business. Here are three things I found that could be of interest to investors:

1. Performance in 2016

The table below shows First REIT’s gross revenue, net property income, distributable income, and distribution per unit in 2016 and 2015:

First REIT income table
Source: First REIT 2016 fourth quarter earnings presentation

We can see that all four metrics had improved in 2016. In its earnings release, First REIT commented that “[Indonesia’s] robust healthcare sector is expected to be worth more than US$50 billion by 2020. With the influx of foreign players, the race by local players to shift gear in preparation for faster growth and continuous investments from its government, especially with the full implementation of the national health insurance scheme covering 260 million Indonesians by 2019.”

2. First REIT’s stock market performance since listing

The chart below shows First REIT’s unit price performance since its listing in late 2006.

First REIT stock price chart
Source: First REIT 2016 fourth quarter earnings presentation

The blue line plots First REIT’s unit price change and we can see that it has widely outperformed the market over the past decade. From December 2006 to December 2016, First REIT’s price appreciation was 132% whereas the FTSE REIT Index (the green line) and the Straits Times Index (the red line) had seen their price fall by 20% and inch up by just 1%, respectively, over the same period.

3. The lease expiry profile

The following chart plots the lease expiry profile for First REIT’s portfolio: First REIT lease expiry profile
Source: First REIT 2016 fourth quarter earnings presentation

One of the key factors that affects the long-term sustainability of a REIT’s income is its lease expiry profile. The longer the leases a REIT has, the more future visibility investors have regarding its rental income.

What is useful to note with First REIT is that it has no lease expiries in the next three years (starting from 31 December 2016). What’s more, roughly 75% of the REIT’s leases will not expire until five years later. In fact, some 60% of First REIT’s leases will expire only after 10 years.

There’s no guarantee that First REIT’s tenants will not renege on their leases or go out of business, but the REIT’s long lease profile should provide investors some assurance that the REIT has a long-term rental income stream to depend on.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.