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First Real Estate Investment Trust’s 2018 Second-Quarter Earnings: What Investors Should Know

First Real Estate Investment Trust (SGX: AW9U) is Singapore’s first healthcare real estate investment trust (REIT). Currently, the REIT has 20 properties located in Indonesia, Singapore and South Korea. In Singapore, it owns three nursing homes, namely, Pacific Healthcare Nursing Home @ Bukit Merah, Pacific Healthcare Nursing Home II @ Bukit Panjang, and The Lentor Residence.

Yesterday, the healthcare REIT announced its financial results for the second quarter ended 30 June 2018. Let’s take a look at its latest performance.

Gross revenue for the 2018 second-quarter came in at S$28.9 million, an increase of 5.3% from S$27.5 million a year ago. The better showing was due to contributions from two new assets – Siloam Hospitals Buton & Lippo Plaza Buton and Siloam Hospitals Yogyakarta – which were acquired in 2017. Existing properties also contributed to the higher gross revenue.

Despite an increase in property operating expenses, net property income grew 5% year-on-year to S$28.5 million.

Distributable amount climbed 1.6% to S$16.9 million while distribution per unit (DPU) inched up 0.5% to 2.15 Singapore cents. However, on a quarter-on-quarter basis, DPU was flat. The following chart shows how DPU has increased since the first quarter of 2013:

Source: First Real Estate Investment Trust 2Q 2018 earnings presentation

It is commendable that First REIT has managed to increase its distributable amount and DPU on a consistent basis, from the first quarter of 2013 until now.

As at 30 June 2018, First REIT’s gearing was 34.2%, way below the regulatory limit of 45%. The REIT had an interest cover of 4.9 times. Even though I would prefer the interest cover to be higher, it is still decent. In contrast, another healthcare REIT listed in Singapore, Parkway Life REIT (SGX:C2PU), has an interest cover of 13.2 times. The interest cover is used to determine how easily a REIT can pay its interest expenses on outstanding debt.

The REIT’s net asset value per unit dropped from S$1.0147 at the end of last year to S$1.0114 as of 30 June 2018.

As for its outlook, First REIT said:

“BMI Research reported that healthcare spending in Indonesia amounted to Rp403.9 trillion in 2017 and projects it to rise to Rp1,224 trillion by 2027, and that healthcare spending per capita will more than double between 2017 and 20273 . Against this trend, together with the growing nationwide adoption of the national health insurance scheme, private healthcare demand will continue to rise. As such, First REIT remains well-positioned for further growth, with a strong acquisition pipeline of around 40 hospitals in Indonesia from its Sponsor, PT Lippo Karawaci Tbk.”

First REIT’s units are currently selling at S$1.33. This translates to a price-to-book ratio of 1.32 and a distribution yield of 6.5%.

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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 and Parkway Life REIT. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.