First REIT: FY16 AGM

On 19 Apr 16, First REIT held its AGM at Mandarin Orchard Singapore, 1 day after the release of its first quarter’s results. It was an interesting AGM as the board shared very candidly about their internal processes. The meeting ended comically after an elderly lady “abruptly” interrupted the Q&A session, urging for shareholders to stop asking questions so that she can go have her refreshments.

Here were 6 takeaways from the AGM.

  1. Universal Healthcare will benefit First REIT.

Source: JKN website
Source: JKN website

In Indonesia, where First REIT derive 95% of its rental income, President Joko Widodo recently rolled out the universal healthcare (similar to Singapore’s medishield) coverage, dubbed Jaminan Kesehatan Nasional (JKN). The policy will help to drive the demand for healthcare needs. Currently only 50% of the population signed up the scheme. The government aims to cover 100% of the population by 2018. The Siloam Hospitals Group, which operates 20 hospitals in the country is planning to provide facilities for JKN patients in the same premises as its private provision. Siloam operates some of their hospital within First REIT’s asset, thereby paying rent to First REIT. Although JKN was critique to be too ambitious or ineffective, any improvement in the healthcare system would definitely benefit Siloam and eventually, First REIT.

  1. Efficient and shareholder friendly management


It was heartening to notice that all of First REIT’s Board of directors attended the meeting, regardless where they were based. Their presence revealed a lot on how they viewed the AGM.

It was noted that their board size was not excessively big. For a REIT with market cap of approximately S$1 billion, their board size is of the size of 5. Comparing 3 other REIT with about the same market cap, the boardroom size were at 8, 8 and 7. Noticed that First REIT has an excellent DPU/Board Seat compared to its peers and comparable NAV/Board Seat. And in-depth study could be done later to compare First REIT’s board of directors and senior management’s efficiency compared to its peers.

First REIT REIT 1 (KDC) REIT 2 (PLife) REIT 3 (FCOT)

Market Cap

(as of 6 May 16)

S$945 million S$958 million S$1.4 billion S$1.01 billion
Board Size 5 8 8 7

FY 15’s DPU (cents)

8.38 6.84 13.29 9.71
NAV (S$) 1.038 0.921 1.69 1.53

DPU/Board Seat (cents)

1.676 0.855 1.66 1.387
NAV/Board Seat 0.208 0.115 0.211 0.219

CEO also shared that the AGM date was selected to coincide with the release of 1Q’s results. This hints on a very pro-shareholder action as they could address both AGM matters and 1Q’s results at the same time.

  1. Strong sponsor in Indonesia with healthy pipeline

Lippo Karawaci (LK) is a real-estate developer and also the sponsor of First REIT. At the same time, they manage Siloam Hospital Group which is a healthcare provider. Under the business arrangements, LK has granted First REIT the rights of first refusal (ROFR) over LK’s hospital. Currently there are potentially 44 hospitals in the pipeline. However management shared that acquisitions require time. Should they expand too fast, the REIT may suffer “indigestion”; expanding too fast and may cause the REIT to over-gear (borrow too much debt).

Source: Company's Presentation
Source: Company’s Presentation
  1. CEO offered insights on their acquisition process and thoughts of their recent acquisitions.

Management then shared intimate details of the acquisition process. Before First REIT acquire any asset, they will conduct due diligence. Some of the processes include checking whether if the property meets the REIT’s requirements, appointing building surveyors to check on its structure followed by appraising the value of the property accordingly. Chairman commented that the board is very hands-on as the directors occasionally accompanied the CEO for site visits.

When management are satisfied with the property, they will conduct an Extraordinary General Meeting (like the EGM in Dec) and propose the acquisition to the shareholders for decision. On their views of the purchase price of the properties, management emphasis that the purchase price must both be attractive to First REIT, yet at the same time, attractive for LK to accept too.

Management continued to share on the upcoming Siloam Hospital Yogyakarta deal. CEO said that the acquisition was a new concept, rather than buy an integrated mall and hospital. First REIT entered into a joint-venture with Lippo Mall Indonesia Retail Trust (LMIR), creating 2 classes of shares, one which First REIT have all economic rights to the hospital, while LMIR has another class of shares that owns the mall. The acquisition will cost First REIT about S$40 million.

Some shareholders asked why invest in Yogyakarta?

Yogyakarta, being one of Indonesia’s well known centre for higher education has become a densely populated city in Indonesia. The hospital has one of the most modern facilities. It was designed not only for private patients but also for insurance patients, aligned to the national needs.

CEO then shared about Siloam Hospitals Kupang deal at East Nusa Tenggara. He cited that the populace there have disposable income, but yet lacked healthcare facilities. Because of that, there’s lots of room for growth, adding that the deal was yield accretive on non-geared basis.

  1. Risk management in place against earthquake.

With earthquakes in Venezuela and Japan happening successively on 7 and 16 Apr, wrecking billions of dollars in damages, many investors were curious of how First REIT manages its risk against acts of god. CEO explained that as Indonesia lies along the pacific rim, they are also at risk of seismic activities. Before management purchases anything, they will engage third party to do building surveillance on structures regardless of whether the building was new or old. Not only that, they also check on compliance with building codes, such as those that withstand earthquakes.

At the same time, while First REIT takes insurance on the building, they ensure that operators take insurance on their equipment too. CEO then cited that two years ago, there was a minor earthquake on Sulawesi, and that management responded swiftly, getting surveyors to inspect structure integrity and assessed the damage, which was found to be minor.

  1. Decent capital management to power future DPU growth.

CEO shared that First REIT pays about 4% for its cost of debt, adding that there was no need for refinancing till 2017. With its debt combined with its dividend reinvestment plan (DRP), CEO opined that First REIT has a strong capital structure to drive future DPU growth.

Based on its 1Q16 quarterly results, it has a cash ratio of 0.35, current ratio of 0.76, debt and gearing ratio of 0.57 and 0.34 and 6.5 times interest coverage based on FY15’s net property income. Below is a table of how it is stacked up to its peers when balance sheets were compared.


First REIT REIT 1 (KDC) REIT 2 (PLife) REIT 3 (FCOT)

Cash Ratio

0.35 0.72 1.10


Current Ratio

0.76 1.77 1.67


Debt Ratio

0.57 0.46 0.63


Gearing Ratio

0.34 0.37 0.35


Interest Coverage

(Latest FY)

6.57 7.42 10.94


It is noted that First REIT cash ratio, current ratio and debt ratio were below 1. On a deeper analysis, the reason for low capital ratios was because it had been on a capital intensive acquisition spree that allowed high DPU growth. It acquired 7 properties in the last 6 years.

Source: Company's Presentation
Source: Company’s Presentation

The board shared that they aim to keep gearing below 40%, however should opportunities arises, they are ready to raise the gearing above 40% as MAS allows up to 45% with certain conditions.

First REIT: A good REIT to invest in

Management honest sharing exudes knowledge of its operations and exhibited shareholder friendly behavior. First REIT’s earnings growth seems promising, driven by its DRP and debt. However some caution had to be taken in view of its capital structure as its cash ratio, current ratio and gearing ratio were less than 1, suggesting that it may have a difficulties paying up their loans should interest rise or credits dry up.

Note: Byte Sized Investments has vested stakes in First REIT.


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