Monday, September 16, 2013


Fair value S$1.20
add: 12m dividend forecast S$0.079
versus: Current price S$1.035

• Hospitals well-equipped
• FY14F distribution yield of 8.3%
• Value has re-emerged

Indonesian properties visit
We visited five of First REIT’s (FREIT) properties (four hospitals and one hotel and country club) in Indonesia over a two-day period last week. This included its Siloam Hospitals TB Simatupang (SHTS), which is located in South Jakarta and acquired by
FREIT only in May this year. The hospitals are operated by Siloam International Hospitals (subsidiary of Lippo Karawaci) and are generally well-maintained and equipped with modern medical equipment from international brands such as Siemens and Philips. For example, SHTS, Siloam Hospitals Lippo Village (SHLV) and Mochtar Riady Comprehensive Cancer Centre (MRCCC) all offer the 3-tesla magnetic resonance imaging (MRI) machines, which we consider as advanced in today’s medical field.

Floating rate exposure reduced following refinancing exercise
FREIT announced on 28 Aug 2013 that it had successfully refinanced S$92m of its floating rate debt to a 4-year fixed-rate secured Transferable Term Loan Facility (all-in cost of borrowing of ~3.7%). We estimate that this would lower FREIT’s floating rate exposure from 72% to 46% of its total debt. Following this successful refinancing exercise, FREIT’s next refinancing need will only come in 2016.

Share price correction overdone; upgrade to BUY
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 FREIT. 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). 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.

Strong IPO debut for Siloam International Hospitals
Siloam International Hospitals made its trading debut on the IDX on 12 Sep 2013, raking in an impressive 7.2% increase in its share price from its IPO price of IDR9,000. Its share price rose another 4.2% the following day. Lippo Karawaci still retains ~86.5% control of Siloam International Hospitals after the IPO. According to Siloam International Hospitals’ IPO prospectus, its total revenue grew 22.2% and 42.0% to IDR1.26t and IDR1.79t in 2011 and 2012, respectively (includes hospitals which are not owned by FREIT but could be potential
acquisition targets in the future). A significant proportion of the proceeds raised from its IPO would be used for the development and acquisition of new hospitals. Hence we believe this will provide FREIT with a strong pipeline of possible acquisition targets in the future. We expect FREIT to remain as an important vehicle for Lippo Karawaci to implement its asset-light strategy via a sale and leaseback business model.

Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 16/09/13

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