SINGAPORE (Dec 11): OCBC Investment Research is maintaining its “buy” call on First REIT with a  fair value estimate of $1.44, on expectations of an enlarged right of first refusal (ROFR) asset pool for accretive acquisitions.

This comes after the trust saw its hospital asset, PT Siloam International Hospitals TBK, register a healthy set of 3Q results as at end Sept, which saw gross operating revenue grow 21% y-o-y to Rp1.53 trillion ($32.1 billion) with increases for both inpatient and outpatient visits over the quarter.

See: First REIT's 3Q DPU up 0.9% to 2.14 cents

In a Monday report, lead analyst Joseph Ng says Siloam’s latest set of figures augurs well for First REIT’s top-line, as the rent from its Indonesian assets has a variable component pegged to two times Singapore’s consumer price index (CPI), subject to a floor of 0% and cap of 2%.

Based on the latest 0.4% y-o-y increase in inflation for Oct based on official data as well as the median Bloomberg consensus for 2017’s CPI, which currently stands at 0.6% y-o-y, the analyst continues to expect positive base rental revisions for First REIT’s Indonesian assets.

Ng also notes that the REIT currently trades at a FY17F price-to-book ratio of 1.38 times, lower than Parkway Life REIT’s 1.66 times, based on Bloomberg’s consensus.

“As mentioned in our last report, Parkway Life REIT typically trades at a premium of 14.6% over a 5-year period, and there still is a considerable gap of 20.3% at this juncture. Given the mild inflationary environment in Singapore and continued revenue growth in the underlying asset base, it would be reasonable to expect the P/B chasm to narrow,” says Ng.  

See: Why OCBC is upgrading First REIT to 'buy'

“Also, having raised Rp3.1 trillion following the completion of its second rights issue, Siloam now has the dry powder necessary to develop and/or expand its hospital portfolio. This would help to enlarge First REIT’s ROFR asset pool, which it can tap on for accretive acquisitions,” he adds.

As at 10:55am, units in First REIT are trading 1 cent lower at $1.38, which translates to a FY18 distribution yield of 6.25%.