SINGAPORE (Oct 21): CIMB is downgrading First REIT to “hold” with a target price of $1.38 after its unit price outperformance. With limited near-term upside and lack of major catalysts, the stock is now expected to perform on par with the rest of the market.

In a Thursday note, analyst Lock Mun Yee notes that the REIT’s 3Q16 results were in line with forecasts, with growth underpinned by acquisitions Siloam Kupang, and higher interest income from the first progress payment for the development works on new Siloam Hospitals Surabaya, which was partially offset by coupon payment on perpetual securities.

Current master leases are only to be renewed from 2021 at the soonest, notes Lock, requiring new acquisitions to drive First REIT’s bottom line growth. The REIT current has a gearing of 30% post repayment of debt from the proceeds from the $60 million 5.68% perpetual securities issued in Jul 16, with no refinancing due till FY17. First REIT currently has a $70 million debt headroom to fund new acquisitions, highlights Lock.

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