Thursday, 17 July 2014

First REIT - Progressively Higher DPU

On 15 Jul, First REIT delivered another pretty good quarterly results. DPU is at 2c, the highest ever. There are many reasons to believe that even higher CPU can be expected in future.

The management has handed in a nice P/L sheet: strong growth in gross revenue and NPI, They have also done a good job in managing its balance sheet. All debt is on fixed-rate and no refinancing needs until 2017, making it insulate to rising interest environment.

Besides, its rental are in SGD and USD, making it insulate to IND volatility. What's more, its Indonesian properties have built-in rental escalation indexed by Singapore Inflation, although capped at 2%, which is low comparing to current CPI in Singapore.

With all above points in mind, the counter is almost like an inflation-indexed bond dominated in SGD, except that it has growing potential by new acquisitions and planned AEIs. So, it is like growing company and pays progressively growing dividends. 

At today's closing price of S$1.25, the yield stands at 6.5%, which is about the average yield of S-REITs. The price is at 52 weeks high. Does that mean it is fairly valued? Maybe. OCBC gives it a HOLD rating as "it had a good run" and "target price" of S$1.21. ( see below) 

Take a look at the chart. MAs are upward and are placing in ascending orders, forming another rising wave. But with recent surge and Ex-D next week, we could see the price being pulled back a bit. But if the previous resistance level of 1.26/7 can be broken, it can enter another gravity-defying region to rise freely. 

Good stocks are scarcity, and their prices usually don't settle at fair value. With steadily growing DPU and incoming catalyst---most likely new acquisitions from sponsor, the price could see another rising wave.

I have accumulated First REIT since last Sep when the market went panic due to IND fast depreciation and the price had a free fall. I have not sold any so far. After deduction of accumulated dividends, the break even price now is below 90c. (NAV is 0.97). I know that many veterans has been holding this counter since IPO days. The break even could be lower than 40c now. I intend to hold this progressively growing cash generating machine. 

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