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3 Things You Should Know From First Real Estate Investment Trust’s Management About Its Business Conditions

In the middle of January, First Real Estate Investment Trust (SGX: AW9U) released its 2017 fourth quarter and full year earnings update. As a quick introduction, First REIT currently has a portfolio of 20 properties (16 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.

The Manager of First REIT had given a presentation on the REIT’s latest results. In the presentation deck, I saw three slides on the REIT’s business that I think investors should pay attention to.

The first slide shows a high-level summary of First REIT’s income statement for 2017 as well as the fourth quarter of the year:


Source: First REIT 2017 fourth quarter earnings presentation

We can see that First REIT had enjoyed good growth, in both the reporting quarter, as well as for the whole of 2017.

The REIT’s growth was driven mainly by new acquisitions made. They are: Siloam Hospitals Labuan Bajo (acquired in December 2016); Siloam Hospitals Buton (acquired in October 2017); Lippo Plaza Buton (October 2017); and Siloam Hospitals Yogyakarta (acquired in December 2017). Organic growth from existing assets also played a role in First REIT’s results.

The next slide I want to discuss shows First REIT’s distribution per unit (DPU) going all the way back to the start of 2011:


Source: First REIT 2017 fourth quarter earnings presentation

Since a huge chunk of a REIT’s returns are derived from its distributions, this is an important area for investors to watch. With First REIT, it’s worth noting that it has managed to grow its DPU steadily over time. In fact, its DPU has increased from 1.58 cents in the first quarter of 2011 to 2.15 cents in the fourth quarter of 2017.

The last slide I want to talk about illustrates First REIT’s lease expiry profile:


Source: First REIT 2017 fourth quarter earnings presentation

The lease expiry profile of a REIT is important, as it can give us clues on the stability of a REIT’s rental income.

As of 31 December 2017, none of First REIT’s leases will expire within the next three years. In fact, 78% of the REIT’s leases will expire only after five years, and 45% will expire after 10 years. Having a long lease expiry profile is a strength for First REIT, and it should provide investors with some assurance that the REIT’s rental income is sustainable in the years to come.

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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.