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What Investors Should Know About First Real Estate Investment Trust’s Latest Earnings and Valuation

First Real Estate Investment Trust (SGX: AW9U) is a healthcare-focused real estate investment trust. It currently has a portfolio of 19 properties (15 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.

There are two things about the REIT that investors may want to know about right now: Its latest financial performance and valuation.

Financial performance

Here’s a table showing important items from First REIT’s income statement for the third quarter of 2017:


Source: First REIT’s
2017 third quarter earnings press release

We can see that First REIT had a good quarter, given the year-on-year growth in gross revenue, net property income, and distribution per unit (DPU).

First REIT’s business performance was driven mainly by new contributions from Siloam Hospitals Labuan Bajo (which was acquired in December 2016), as well as higher rental income across the board from its existing properties.

Victor Tan, the chief executive officer of First REIT’s manger, shared the following comment in the earnings release about the REIT’s latest quarterly performance:

“The Trust has recently completed the acquisition of an integrated property comprising a hospital and retail mall in Bau Bau city on Buton Island, Indonesia. Continuing on the tracks of yield-accretive acquisitions, we have also announced our proposed joint venture with Lippo Malls Indonesia Retail Trust to jointly acquire another integrated development in Yogyakarta. With the Buton Property, and potentially another new-quality asset, Unitholders can look forward to a steady income stream that will continue to deliver consistently growing DPU.”

In sum, First RETI delivered a good set of results in the third quarter of 2017, and management is confident that the REIT will continue to deliver a growing DPU.

Valuation

There are two useful valuation metrics for assessing REITs. They are the price-to-book (PB) ratio, and the distribution yield.

The table below shows First REIT’s PB ratio and distribution yield. It also shows the respective averages for the two valuation metrics for the 40 REITs that are in Singapore’s stock market.


Source: SGX Stock Facts and Google Finance; data as of 11 December 2017

We can see that First REIT is trading at a premium to the market, based on its higher PPB ratio, and lower distribution yield.

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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.