-  We reaffirm our HOLD recommendation on Al’-Aqar Healthcare REIT with an unchanged fair value of RM1.45/unit, based on a DCF valuation.

-  Al’-Aqar reported a distribution income of RM14.6mil for 2QFY14, bringing the 1HFY14 total to RM29.5mil. This is in-line with our full-year estimate of RM56mil, accounting for 53%.

-  The REIT declared an interim income distribution of 3.86 sen/unit. This brings the total declared to-date to 7.9 sen/ unit.

-  Net property income increased by 0.4% YoY driven by the yearly increment (2% escalation) of rental income.

-  Portfolio occupancy remains strong at 100%. Its total asset value as at end-1HFY14 stood at RM1.5bil, comprising a total of 25 properties.

-  Balance sheet remains strong with a gearing level of 46%.

-  No change to our EPS estimates for now. We have yet to input the gain on disposal of Selesa Tower into our estimates.

-  We do not expect any acquisition to materialise in the near term, given the infancy phase of KPJ Healthcare’s new hospitals. Therefore, we expect the earliest injection to materialise only in FY17, underpinned by a gestation period of at least three years for new hospitals.

-  So far, only three KPJ hospitals have not been injected into the REIT – Pasir Gudang Hospital, Sabah Medical Centre, and Rawang Specialist.

-  Our HOLD call is premised on the lack of a near-term accretive acquisition. The stock is currently trading at a distribution yield of 5.7%, implying a yield spread of 155bps over the 10-year Malaysia Government Securities.

Source: AmeSecurities