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3 Things Investors Should Know About First REIT’s Latest Earnings

Last week, First Real Estate Investment Trust (SGX: AW9U) released its 2019 second-quarter results. 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 sponsors are PT Lippo Karawaci Tbk and OUE Lippo Healthcare Limited.

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 is a high-level summary of First REIT’s income statement:

Source: First REIT’s earnings presentation

From the above, we can see that the REIT delivered a rather flattish quarter.

The REIT’s growth in rental and other income was offset by higher operating expenses for its Korea and Indonesia properties. This resulted in a marginally lower net property income.

First REIT has also provided the following outlook guidance:

“Despite the global economic environment, the healthcare market is a resilient sector and the demand for quality healthcare services continues to rise in Indonesia and the rest of Asia. First REIT will continue to look for accretive acquisition opportunities from third parties, or from the pipeline of healthcare assets from its sponsors PT Lippo Karawaci Tbk and OUE Lippo Healthcare Limited, to grow its portfolio to maximise returns to Unitholders. The recent review by the Monetary Authority of Singapore to further raise the current leverage limit of 45% for S-REITs, if implemented, will further bolster growth opportunities across the industry”

The next slide I want to discuss shows First REIT’s distribution per unit (DPU) going all the way back to the start of 2013:

Source: First REIT’s 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, it’s DPU has increased from 1.58 cents in the first quarter of 2011 to 2.15 cents in the fourth quarter of 2017 (and remained steady after that).

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

Source: First REIT’s 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 30 June 2019, none of First REIT’s leases will expire until August 2021. In fact, 78.0% of the REIT’s leases will expire only after five years, and 32.2% will expire after 10 years. Having a long lease expiry profile is a strength for First REIT. It should provide investors with a level of defensiveness and also an 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. The Motley Fool Singapore has recommended the shares of  First Real Estate Investment Trust.