Basic Profile & Financial Metrics
First REIT invests mainly in hospitals and nursing homes across Indonesia, Singapore, and South Korea. The above sector weightage is estimated from the latest annual report based on gross rental income.
Lease Profile
Occupancy of 100% is common in healthcare REIT. From the latest presentation, WALE of 7 years is based on the gross floor area (GFA) and 22% of the lease expiring in the year 2021. As mentioned previously, I prefer WALE by gross rental income (GRI). Estimated from the annual report, WALE by GRI is long at 6.04 years and close to 27.3% of lease expiry in the year 2021. Although most properties are in Indonesia, the rental is paid in SGD, thus the value of 100% for income in SGD/major currencies. For the upcoming lease renewal, there may be chances of receiving rental in IDR instead of SGD. Weighted average land lease expiry is slightly short at 63.29 years.
Debt Profile
Gearing is healthy at 34.9%. Cost of debt is high at 4.1% despite 100% secured debt. Fixed debt is low at 39.9% which is favorable now at low interest environment. Interest cover ratio drops from 5 times in the end of Dec 2019 to the current 3.3 times. WADE is short at 1.51 years, where the highest debt maturity of 40.4% falls in the year 2022, which post concentrated debt maturity risk.
Diversification Profile
Top geographical and top property contributions are low at 33.7% and 18.2% respectively. However, its top tenant and top 10 tenants contribution are high at 81.6% and 100% respectively. 81.6% is from PT Lippo Karawaci Tbk and subsidiaries. I believe many should know by now PT Lippo Karawaci facing financial problems. And it recently announced publicly to restructure lease with First REIT, without approaching First REIT before this announcement.
Key Financial Metrics
Property yield and distribution on capital are high at 7% and 3.9% respectively. Management fee is not competitive which shareholders received S$ 5.05 for every dollar paid. Distribution margin is high at 54.8%.
Related Parties Shareholding
Both sponsors holding of 24.17% is close to SREITs median level. REIT Manager holding of 8.81% is the highest manager shareholding for SREITs. Directors of manager holding a very less stake at 0.01%.
Trend
If we look at pre-COVID time, DPU and NAV per unit are quite consistent where distribution margin drops slightly.
Fundamental Valuation
| Favorable | Less Favorable |
| WALE | Cost of Debt |
| Top Geographical Contribution | Unsecured Debt |
| Top Property Contribution | Interest Cover Ratio |
| Property Yield | WADE |
| Distribution on Capital | Concentrated Debt Maturity |
| Distribution Margin | Top Tenant & Top 10 Tenants Contribution |
| Management Fee |
Its sponsor PT Lippo Karawaci Tbk financial issue and the recent announcement had given a big hit on the share price. Investors (at least for retail investors) have generally lost confidence in First REIT. For the 2021 lease renewal, rental is expected a drop. Maybe when more information is available, I will review it again.
Relative Valuation
i) Average Dividend Yield
Apply past 4 quarters DPU of 6.6 cents to average value of 6.82% will get S$ 0.965.
ii) Average Price/NAV
Apply NAV of S$ 0.97 to average value of 1.18 will get S$ 1.14.
Author's Opinion:
There are a lot of uncertainties surrounding First REIT, which causing First REIT share price drop. Without sufficient information made available to the public, it is very difficult to estimate its future performance without plucking figures from the sky. First REIT should make information available in an early stage, instead of announced in the later stage like the recent rental relief case. For valuation:
i) Fundamental Intrinsic Value = (Removed)
ii) Relative Valuation - Dividend Yield = S$ 0.965
iii) Relative Valuation - Price/NAV = S$ 1.14
At the current price of S$ 0.56, it looks undervalued, but whether is it a yield trap? You guess is as good as mine, time will tell.
*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.
It is not easy to judge the performance of *anything* during exceptionally good or bad times, which are usually once-off situations. FIRST REIT looks like a good long term investment in a resourceful country with ever growing population and middle class, however the recent *sudden* announcements about giving away rental reliefs, cutting dividends, the disconnect between the sponsor and the REIT manager raised questions about REIT management's reliability.
ReplyDeletePersonally, I am okay with giving rental relief, but the announcement come in too late. The disconnect between sponsor and manager as you mentioned is another major problem. These 2 issues are preventable by both sponsor and manager.
DeleteSeems like First Reit's manager need a "push" before they wanna add. Before the announcement yesterday (31 Aug 2020), I did send emails to First Reit to "Screw" them for being inactive and not taking any actions on the falling prices. Below is their reply.
ReplyDelete"In any case, we would like to assure you that we are always acting in the best interest of our unitholders, actively looking at opportunities to maximise returns for unitholders and working with all our stakeholders to ride through such unprecedented times brought on by this pandemic that has crippled world economies and many industries. First REIT is not alone in this. At such uncertain times, it is paramount for everyone to come together and work as a team to rebuild our business that has been impacted by this protracted pandemic.
With the current situation, the Manager has to be extra prudent and cautious with our actions. At the moment, the Manager is in active discussions with our stakeholders to finalise the renewal of our four IPO properties in Indonesia and the settlement for the new Surabaya hospital. As a listed entity, constrained by listing rules, we cannot divulge more and will make SGX announcement promptly once any agreements are signed. We are also looking at divestment and asset enhancement opportunities to unlock value for our existing properties. With our new sponsor, OUE Lippo Healthcare, on board, we are looking at opportunities to diversify our geographical risks to invest in assets in other more dynamic markets in Asia to maximise returns for our unitholders. However, with the current situation, we need to be prudent with our capital structure, financing options and gearing level.
Please be assured that the Manager is working very hard. All these are not decisions that can be made overnight and require time to evaluate with proper due diligence, especially with the current situation where there are travel constraints and social distancing, we need to find a balance to work in this new normal environment until a vaccine is found. We are not at a standstill but there are many factors and constraints to consider and we seek your understanding and patience, and hope that you will continue to have faith in First REIT and ride through this pandemic with us."
Seems that they are working hard (but only they themselves know), but the investors were kept in the dark, which is not a very sound strategy.
At least they reply you promptly. But they never reply on the price falling matter.
DeleteYet another honesty show from the very hard working FIRST REIT manager : Stock price falls 13% in the last 2 days prior to the public announcement.
DeleteWas there a private announcement that the retail investors missed?
Maybe got insider from PT Lippo on the lease restructuring proposal ?
Delete