First REIT was the first healthcare REIT listed on the Singapore Exchange. Most of its assets are housed in
This research note considers First REIT a reasonable addition to an investor's portfolio at around $0.75 or less.
The Siloam group of hospitals is one of the main hospital groups in
Financial & Profitability Analysis
| First REIT | Parkway Life REIT | |
| Revenues (FY est.) | $24,896 | $45,000 |
| Operating Profit (Persistent) | $22,024 | $36,930 |
| Net Profit (Persistent) | $17,080 | $33,110 |
| Total Assets | $306,660 | $786,735 |
| Total Liabilities | $67,582 | $36,420 |
| Equity | $239,078 | $750,315 |
| Liab/Assets | 22.04% | 4.63% |
| ROE | 7.14% | 4.41% |
| ROA | 5.57% | 4.21% |
| Operating Margin | 88.46% | 82.07% |
| Net Margin(Persistent) | 68.61% | 73.58% |
| CFO/PBT | NA | NA |
| Earnings Growth y-o-y | ||
| Shares Outstanding ('000) | 601669 | |
| EPS/Payout Estimate | $0.065 | $0.061 |
| NAV | $0.88 | $1.25 |
| Stock Price | $0.75 | $1.20 |
| P/E | 11.54 | 19.80 |
| P/B | 0.85 | 0.96 |
| Yield | 8.67% | 5.05% |
The table above shows key comparative ratios for the two healthcare REITs listed on the Singapore Exchange. As can be seen, First REIT is yielding a very respectable 8.57% based on a stock price of $0.75. Taking into consideration that the REIT is still quite conservatively leveraged (Liab/Assets = 22.04%), this means that there is still room for the REIT to squeeze out higher returns on shareholders’ funds by taking up leverage to acquire hospital properties.
Furthermore, the REIT seems to be returning a respectable return on assets of 5.57%. Compared to Parkway which is projected to return 4.21%, this is surprising because one would expect a premium collection of hospitals like Mount Elizabeth and Gleneagles to squeeze out a higher return than a supposedly 2nd tier group of hospitals like the Siloam group. The operating margin of Siloam 88% is also higher than the projected Parkway numbers 82% (operating margins are calculated while excluding finance costs). If anything, this demonstrates that Siloam is able to manage their hospitals effectively and efficiently.
Valuation & Evaluation
At 8.67% yield, First REIT is quite attractive compared to its REIT peers. Other REITs seem to be yielding somewhere in the region of 5%. Furthermore, this yield is created using reasonable leverage. It appears that First REIT is unfairly punished due to the recent subprime sell-down and the perceptions that
First REIT looks like a good buy at around $0.75.
For a research note on Parkway Life REIT, click here.
1 comment:
A good effort.
However, for First REIT you might want to take a look at the implied forex risk from the viewpoint of a Singapore domiciled investor. For example, you can probably get much better than the 8.67% yield if you could take your S$, convert to rupiah and take a one year FD in Jakarta. But you would worry about the rupiah devaluing.
If you think the rupiah will be stable, your investment in First REIT, allows you an easy way to tap the higher interest rate prevailing in Indonesia.
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