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Why Has First Real Estate Investment Trust’s Stock Price Increased By 6% In The Last 12 Months?

First Real Estate Investment Trust (SGX: AW9U) is a REIT that invests mainly in healthcare-related properties across Asia. Its current portfolio consists of 18 properties that are located in Indonesia, Singapore, and South Korea. Most of the properties (14 of them) are in Indonesia.

Over the last 12 months, the REIT’s unit price has grown by 6.4%. What may have caused this?

Reasons for a surge

There can be many reasons behind a REIT’s price increase.

But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related. The former deals with how a REIT’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the REIT’s distributions.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with First REIT

In First REIT’s case, I believe it’s the former at work. Here are some important numbers from the income statements for the REIT for 2016 and 2015:


Source: First REIT’s 2016 earnings presentation

We can see that 2016 was a good year for First REIT. Its gross revenue, net property income, and distribution per unit grew by 6.3%, 6.6%, and 2.0%, respectively. The fourth quarter of 2016 also saw First REIT perform well – there was growth across the board for the important numbers.

Here’s a table showing some important numbers from First REIT’s income statement for the first quarters of 2017 and 2016:


Source: First REIT’s 2017 first quarter earnings release

First REIT has continued to display growth. In the first quarter of 2017, the REIT’s 2.5% increase in gross revenue led to a 1.4% increase in its distribution per unit.

In short, there has been clearly been a positive business performance from First REIT over the last 12 months.

Going forward, investors will need to pay attention to First REIT’s acquisition strategy, since the REIT’s recent growth had been due largely to acquisitions.

In its earnings release, First REIT commented that Indonesia’s healthcare sector “remains supported by the ongoing national health insurance scheme, which now allows more affluent Indonesians to supplement coverage under the scheme with private health insurance, lending further weight to private healthcare spending.”

First REIT also mentioned that its sponsor, PT Lippo Karawaci Tbk, one of Indonesia’s largest real estate companies, has an “expanding pipeline of over 40 hospitals” that could be future acquisition targets.

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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.