OCBC Report 16 Sep 13

First REIT: Upgrade to BUY on valuation grounds

Summary: We visited five of First REIT’s (FREIT) properties (four hospitals and one hotel and country club) in Indonesia over a two-day period last week. The hospitals are operated by Siloam International Hospitals (subsidiary of Lippo Karawaci) and are generally well-maintained and equipped with modern medical equipment from international brands such as Siemens and Philips. Meanwhile, FREIT recently lowered its floating rate exposure from 72% to 46% of its total debt following a refinancing exercise. Its next refinancing need will only come in 2016. We believe that FREIT’s sharp share price correction has been overdone, as it has minimal exposure to the volatility in the IDR thanks to its lease structure. Hence we upgrade FREIT from Hold to BUY on valuation grounds, with an unchanged fair value estimate of S$1.20. FREIT also offers an attractive forecasted distribution yield of 7.6% in FY13 and 8.3% in FY14. (Wong Teck Ching Andy)

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NEWS HEADLINES

- US stock markets are pricing in a decision by the Federal Reserve to start scaling back its bond purchase when it concludes a two-day policy meeting Wed. The consensus view among economists is a reduction in Fed’s monthly bond purchase starting in September of US$15b per month.

- Former Treasury Secretary Lawrence Summers has withdrawn his name from consideration to be chairman of the Federal Reserve.

- Datapulse Technology announced a proposed capital reduction exercise involving a cash distribution of S$0.035 each share.

- CSC Holdings awarded foundation contract for Changi Airport’s Terminal 4, providing expertise to construct foundations for airport terminal, building terminal, ancillary buildings and infrastructure.

- Singapore Kitchen revenue soared 42.5% to S$7.8m in 1H 2013.

- UOL Group says Amedeo Patrick Imbardelli has resigned as president/director and CEO of Pan Pacific Hotels Group to pursue other career opportunities.

- Freight Links reported 1Q 2013 net income S$3.6m vs S$6.6m a year earlier.