First Real Estate Investment Trust (SGX: AW9U), or First REIT, is a healthcare-focused real estate investment trust. It 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 sponsors are PT Lippo Karawaci Tbk and OUE Lippo Healthcare Limited (SGX: 5WA).
There are two things to know about the REIT right now: its latest financial performance and valuation.
Here is a table showing important items from First REIT’s financial performance for the first quarter of financial year ending 31 December 2019 (FY19).
Source: First REIT Result Presentation
The above is a table from First REIT latest earnings update.
Gross revenue fell marginally due to lower variable rental component for its Indonesia properties. In addition, net property income (NPI) fell 1.4% year-on-year due to higher property expenses. Distribution per unit was flat at 2.15 Singapore cents.
Victor Tan, chief executive officer of First REIT’s manager, commented in the earnings release:
“Despite a marginal decline in our rental income and NPI, the Trust continues to deliver stable returns to our Unitholders. Our gearing also remained steady at 34.5% as at 31 March 2019, giving us ample headroom for further yield-accretive acquisitions. Going forward, the Trust will continue to explore opportunities to unlock the value of our existing portfolio through asset enhancement initiatives or strategic divestment of assets for capital gains. With OUE Limited (“OUE”) and OUE Lippo Healthcare Limited (“OUELH”) on board, we will also look at diversifying our income streams by expanding into other geographical markets.”
As of 31 March 2019, the REIT’s gearing and committed occupancy rate stood at 34.5% and 100% respectively.
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 39 REITs that are in Singapore’s stock market.
Source: Yahoo Finance, OCBC Weekly S-REITs Tracker
We can see that First REIT’s valuation is at a discount to the market average due to its high distribution yield and low 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. Motley Fool has a recommendation for First Real Estate Investment Trust.