3 Reasons to Love First Real Estate Investment Trust

First Real Estate Investment Trust (SGX:AW9U) is a healthcare property trust that owns real estate in Indonesia, Singapore and South Korea. Last month, the REIT reported its results for the first quarter of 2018. During the quarter, revenue spiked 5.8% and distribution per unit grew 0.5%. These are impressive numbers that investors will certainly be pleased about.

However, that’s not all. Beyond these strong headline numbers, there are other positives from its earnings update that has made me very bullish about its future.

Consistent appreciation in value of its properties

In its earnings update, the REIT showed a summary of the value of its properties since 2006 (the year it went public) to 2017. In that slide, it reported that almost every single one of First REIT’s properties has appreciated in value since it was purchased. This is testament to the stellar line-up of properties within its portfolio.

A portfolio that can appreciate in value can increase the REIT’s asset base and give it a larger base to increase its debt load to fund more acquisitions for growth. Moreover, the REIT can also realise the valuation gain when it decides to divest its assets.

Long weighted average lease expiry and step-up rental escalation

First REIT also has a favourably long weighted average lease expiry profile of 9.3 years by gross floor area. Its earliest tenant contract only expires in August 2021, which gives it visible income stream and ample time to negotiate a new contract with its tenants.

Below is a pie chart showing a summary of the lease expiry profile of the REIT:

Source: First REIT’s investor presentation

As shown, only 22% of its leases expire in the next three to five years. Furthermore, almost half of all its leases have more than 10 years to run.

On top of that, First REIT has negotiated with its Indonesian tenants a built-in annual rental escalation tied to the consumer price index of Singapore. This will provide consistent rental income growth over the next few years.

Favourable macroeconomic conditions

Lastly, First REIT operates in an industry that has been consistently expanding. Demand for private healthcare in Indonesia is expected to continue to rise with the nationwide adoption of national health insurance scheme.

Indonesia’s economy is also expected to grow by around 5% in 2018. With most of its properties located in Indonesia, First REIT is well placed to capitalise on the strong macro-economic tailwinds.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of First Real Estate Investment Trust. Motley Fool Singapore contributor Jeremy Chia owns units in First Real Estate Investment Trust.