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Report Results MITA No.MITA No. 010/06/2009

18 February 2011
First REIT
Previous Rating: HOLD Stability in times of risk aversion
Current Price: S$0.74
Fair Value: S$0.82 Providing stability amidst uncertain times. We believe that
First REIT's (FREIT) stability makes it an attractive investment
thesis amidst such times of uncertainty. Growth is driven
largely by Indonesia's private healthcare sector, which is
0.8 relatively inelastic in demand. Recall that FREIT performed
0.7 decently in its recent FY10 results. Gross revenue increased
2000 0.7 4.4% to S$31.49m (including deferred rental income); while
Firs t REIT 0.6 distributable income rose 1.8% to S$21.35m. Looking ahead,
500 we expect growth via both organic and inorganic means, since
0 0.5
FREIT has a target to raise its asset base to S$1b in the next






two to three years. Inorganic growth is likely to come from the

acquisitions of hospitals from its sponsor Lippo Karawaci

Sponsor's growth to spur FREIT's earnings momentum.

Lippo reported a good set of results last week. Revenue and
net profit rose 21.8% and 35.4% to Rp3.13t and Rp525.3b
Reuters Code FRET.SI respectively for FY10. We believe that the improving financial
ISIN Code AW9U strength of Lippo will provide stronger support and stability for
FREIT, given that Lippo contributed 86.7% of FREIT's gross
Bloomberg Code FIRT SP
rental income as at 31 Dec 10. In particular, Lippo's healthcare
Issued Capital (m) 623 segment for FY10 experienced a healthy 15.8% growth to
Mkt Cap (S$m / US$m) 461 / 355 Rp1.04t (33.2% of total revenue), underpinned by rising demand
Major Shareholders for better quality healthcare services in Indonesia. FREIT is
likely to be a key beneficiary of this trend, since the master
Lippo Karawaci 21.7%
leases for its Indonesian hospitals have a variable rental
Free Float (%) 78.3% component to capture the upside in topline growth. Indonesia's
Daily Vol 3-mth (‘000) 1,465 growing healthcare needs is likely to continue to lend support
52 Wk Range 0.581 - 0.770 to Lippo, and hence FREIT's growth momentum moving

Higher emphasis on Singapore's nursing homes.

Singapore's Ministry of Health has highlighted that there will
(S$ m) FY09 FY10 FY11F FY12F
be increasing emphasis placed on nursing homes in
Singapore. The long waiting times and rising affluence of
Revenue 30.2 30.3 54.7 58.0
Singaporeans could entice more people to take up private
NPI 29.9 29.9 54.1 57.4 nursing home services. While rental income from FREIT's
Distributions 21.0 21.3 40.1 40.5 nursing homes is fixed at a 2% annual increase, the possible
Distr yield (%) 10.3 9.0 8.6 8.6 increase in profitability of the operators would help to boost
P/NAV (x) 0.8 1.0 1.0 1.0 their ability to fulfil their obligations to FREIT.

Reiterate BUY. We believe that FREIT has showcased its

resilience and defensiveness during the current market
downturn. Its share price has declined 2.6% (+5.0% YTD)
Wong Teck Ching (Andy) since China announced its interest rate hikes on 8 Feb 11,
(65) 6531 9817 which is milder than the broader market's 3.4% decline (-3.4%
e-mail: YTD) and also the S-REIT universe's 3.4% fall (-2.2% YTD).
The prospective yield of 8.6% (our FY11F estimate) further
enhances FREIT's attractiveness, in our view. Reiterate BUY
and fair value estimate of S$0.82.

Please refer to the important disclosures at the back of this document.

First REIT

First REIT's Key Financial Data


Year Ended 31 Dec (S$m) FY09 FY10 FY11F FY12F As at 31 Dec (S$m) FY09 FY10 FY11F FY12F

Gross revenue 30.2 30.3 54.7 58.0 Investment properties 340.9 612.8 617.3 621.3
Property operating expenses -0.3 -0.4 -0.6 -0.6 Total non-current assets 340.9 612.8 617.3 621.3
Net property income 29.9 29.9 54.1 57.4 Cash and cash equivalents 11.5 27.6 23.1 15.3
Fees -2.9 -3.2 -5.4 -5.8 Total current assets 13.7 41.8 30.7 20.4
Net interest expense -1.9 -2.2 -4.1 -4.1 Total assets 354.7 654.6 648.0 641.7
Other expenses -0.3 -1.0 -0.5 -0.6 Current liabilities ex debt 10.2 81.3 25.3 19.0
Total return before tax 38.7 80.0 44.0 47.0 Debt 52.3 57.4 107.4 107.4
Income tax expense -2.7 -19.5 -9.7 -10.3 Total liabilities 83.6 175.5 169.5 163.2
Total return after tax 36.0 60.5 34.3 36.6 Total unitholders' funds 271.0 479.1 478.5 478.5
Total distribution to unitholders 21.0 21.3 40.1 40.5 Total equity and liabilities 354.7 654.6 648.0 641.7

Year Ended 31 Dec (S$m) FY09 FY10 FY11F FY12F KEY RATES & RATIOS FY09 FY10 FY11F FY12F

Net cash from operations 22.7 27.6 -5.7 40.8 DPU (S cents) 7.6 6.6 6.4 6.4
Increase in invt properties -2.0 -160.8 -4.5 -4.0 NAV per share (S$) 1.0 0.8 0.8 0.8
Net cash from investing -2.0 -160.8 -4.5 -3.9 Distr yield (%) 10.3 9.0 8.6 8.6
Proceeds from unitholders 0.0 167.9 0.0 0.0 P/CF (x) 9.0 16.7 -81.8 11.5
Increase in borrowings 1.3 4.8 50.0 0.0 P/NAV (x) 0.8 1.0 1.0 1.0
Interest paid -1.9 -2.2 -4.2 -4.2 NPI margin (%) 99.0 98.7 99.0 99.0
Net cash from financing -25.6 153.4 5.7 -44.7 Distr to revenue (%) 69.5 70.5 73.4 69.8
Net cash flow -4.9 20.1 -4.4 -7.9 Total debt/total assets (x) 14.7 8.8 16.6 16.7
Cash at beginning of year 12.4 7.5 27.6 23.1 ROE (%) 13.3 12.6 7.2 7.7
Cash at end of year 11.5 27.6 23.1 15.3 ROA (%) 10.1 9.2 5.3 5.7

Source: Company data, OIR estimates

Page 2 18 February 2011

First REIT

The analyst/analysts who wrote this report holds NIL shares in the above security.


OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading
- However, OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month
investment horizon. OIR’s Buy = More than 10% upside from the current price; Hold = Trade within +/-10%
from the current price; Sell = More than 10% downside from the current price.
- For companies with less than S$150m market capitalization, OIR’s Buy = More than 30% upside from the
current price; Hold = Trade within +/- 30% from the current price; Sell = More than 30% downside from the
current price.
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Carmen Lee
Published by OCBC Investment Research Pte Ltd Head of Research

Page 3 18 February 2011