SG: First REIT - Healthy fundamentals likely priced in

FIRST REIT 23 Apr 2012

HEALTHY FUNDAMENTALS LIKELY PRICED IN - 1Q12 DPU of 1.93 S cents - Organic and inorganic growth likely in FY12 - Higher S$0.935 FV, but downgrade to HOLD First REIT (FREIT) reported its 1Q12 results which were within our expectations. Gross revenue rose 6.3% YoY to S$14.0m, meeting 24.6% of our FY12 forecast. Distributable income and DPU jumped 22.7% and 22.2% YoY to S$12.1m and 1.93 S cents, respectively. This constituted 24.5% and 24.8% of our full-year forecasts, respectively, if we exclude a special distribution of S$2.2m. We see both organic and inorganic growth as drivers for FREIT in FY12. Although conditions in the healthcare sector remain buoyant, we ease our revenue growth assumptions for some of FREIT's hospitals. But as we also update our WACC assumptions by incorporating a lower equity risk premium, our RNAV-derived fair value estimate is lifted from S$0.89 to S$0.935. Given the 21.7% YTD appreciation in FREIT's share price, we downgrade the stock from Buy to HOLD on valuation grounds.