First Real Estate Investment Trust (SGX: AW9U) is a healthcare-focused REIT. It currently has a portfolio of 20 properties (16 in Indonesia, three in Singapore, and one in South Korea) that are mostly hospitals and nursing homes. The REIT’s sponsor is Indonesia’s largest listed property company, PT Lippo Karawaci Tbk.
There are three things investors may want to know about the REIT right now: Its latest financial performance, change in leadership, and valuation.
Here is a table showing important items from First REIT’s income statement for the third quarter of 2018:
Source: First REIT 2018 third quarter earnings update
We can see that First REIT had produced a good set of results, with growth seen in gross revenue, net property income, distributable amount, and distribution per unit. The improvement in First REIT’s results was primarily due to new contributions from Siloam Hospitals Buton, Lippo Plaza Buton, and Siloam Hospitals Yogyakarta, which were all acquired in the fourth quarter of 2017. Higher rental income from First REIT’s existing properties also played a role.
As of 30 September 2018, First REIT’s gearing ratio was 34.9%, which is a safe distance from the regulatory gearing limit of 45%. Meanwhile, its occupancy rate stood at a strong 100%.
Change in leadership
Investors may want to note that OUE Lippo Healthcare Ltd (SGX: 5WA) announced in mid-September that it is looking to acquire a 10.63% stake in First REIT. OUE Lippo Healthcare also intends to buy a 40% stake in Bowsprit Capital Corporation Limited, First REIT’s manager. The remaining 60% will be purchased by OUE Lippo Healthcare’s parent, OUE Ltd (SGX: LJ3). First REIT’s sponsor, Lippo Karawaci has close ties to the two OUE entities.
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 42 REITs that are in Singapore’s stock market.
Source: Stock Facts on SGX.com
We can see that First REIT has a more attractive dividend yield than the REIT-average in Singapore, although the picture in terms of the PB ratio is reversed – First REIT has the less attractive PB ratio.
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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. The Motley Fool Singapore has a recommendation for First Real Estate Investment Trust.