First REIT has minimal exposure to Indonesian Rupiah volatility

Savvy investors take notice, says OCBC.

OCBC noted that concerns over Indonesia’s easing economic growth, high inflation and sharp depreciation in the IDR have adversely impacted stocks with large exposure to Indonesia, such as First REIT (FREIT).

The research firm cited added that coupled with QE tapering fears, FREIT’s share price has dipped 28% since mid-May this year.

"However, FREIT has minimal exposure to the IDR volatility, in our view. This is because the base rental for its Indonesian properties is denominated in SGD, while the variable rental component is pegged to a fixed SGD/IDR rate throughout the entire lease tenure. We had also previously taken into account the spike in the Singapore government 10-year bond yield in our risk-free rate assumption (2.6% used in our model)," said OCBC.

"We believe that the correction in FREIT’s share price is overdone. Hence we upgrade FREIT from Hold to BUY on valuation grounds, with an unchanged fair value estimate of S$1.20. FREIT also offers an attractive forecasted distribution yield of 7.6% in FY13 and 8.3% in FY14," it recommended.