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First REIT: The Closest Trust To A Bond
Corporate Digest | 29 April 2014
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By: Shane Goh
Articles (99) Profile

First Real Estate Investment Trust (First REIT) holds a portfolio concentrated with healthcare assets. It owns hospitals, nursing homes as well as a hotel and country club.

In FY13, the portfolio generated $83.3 million in gross revenue and $52.1 million, or $0.0752 per unit, in distributable amount to unitholders. The distribution translates to a 6.6 percent dividend yield based on the closing price of $1.14 on 28 April.

Strong Property Pipeline And Capital Structure
As of 31 December 2013, it has 14 properties in Indonesia (10), Singapore (3) and South Korea (1) valued at $1.05 billion. Within Indonesia, two properties are located within the Core Central Region (CCR), five in Fringe Central Region (FCR) and three Outside Central Region (OCR).

The properties have a total gross floor area of 227,376 square metres (sqm) with a weighted average age of 9.6 years. Its portfolio has a weighted average lease expiry of 11 years.

The trust is sponsored by PT. Lippo Karawaci, Indonesia’s largest listed property company by total assets, revenue and net profit.

First REIT is managed by Bowsprit Capital Corporation Limited, a subsidiary of Lippo Karawaci. Through its subsidiaries, Lippo Karawaci has about 28.7 percent deemed interest in First REIT.

Backed by a strong sponsor, First REIT has access to acquisition targets in Indonesia. This can be seen from a 36.9 percent compound annual growth rate (CAGR) jump in assets from $315.9 million in FY09 to $1,108.5 million in FY13.

Based on FY13’s figures, First REIT has a total debt of $357.8 million, scheduled to mature from 2016 to 2018. This will give the trust a debt-to-asset ratio of 0.32.

Out of the total debt figure, 46.5 percent is exposed to floating interest rate while the remainder is pegged to a fixed rate. In FY13, First REIT’s finance costs were $12.4 million. This puts average cost-of-debt at 3.5 percent.

Indonesia Outlook
From 2002 to 2012, the country’s population rose 1.5 percent CAGR from 215 million to 246.9 million.

Over the same period, Indonesia’s gross domestic product (GDP) jumped in excess of 4-folds, from US$195.7 billion to US$878 billion, or US$909.89 to US$3,556.79 on a GDP per capita basis.

The healthcare industry has benefitted from the economic improvement as health expenditure grew 21.5 percent CAGR from US$20 per capita in 2002 to $95 per capita in 2011.









On 31 December 2013, Indonesia launched its universal healthcare programme which provides healthcare insurance for all its citizens.

The initial phase of its roll-out currently covers 121.6 million poor and unemployed Indonesians and public servants.

By January 2019, the programme will be made available for all 250 million Indonesians. The scheme enables lower-income Indonesians to obtain free outpatient and class III treatment – the lowest category of care.

With long-term contracts (10 to 15 years) providing steady rental income, coupled with a potential upside through the contracts’ variable components, First REIT does not need to pursue AEIs in an aggressive manner.

During its FY13 earnings briefing, management highlighted potential asset-enhancement initiatives for three properties. Notably, these are the three oldest properties under First REIT’s portfolio with development completion in 1977, 1991 and 1994 respectively.

    Investment Merits

  • First REIT has right-of-first-refusal on healthcare-related properties developed by Lippo Karawaci in Indonesia.
  • As of 31 December 2013, Lippo Karawaci has a strong and steady pipeline of 24 hospitals available for future acquisitions.
  • First REIT possesses a 27.1 net debt-to-property ratio, which is significantly lower than regulatory limit of 35 percent. This provides First REIT will have ample headroom to pursue further acquisitions to add to its healthcare property portfolio when opportunities arise.

    Investment Risks

  • A negative incident occurring at the hospitals which rents First REIT’s premises could impair the hospital’s branding with existing and prospective clients.
  • This might deter customers from returning or visiting the hospitals and weaken the hospitals’ financial performance.
  • With the nearest rental renewal up in 2017, unitholders will not expect a surge in fixed gross revenue from First REIT’s existing properties for the next 3 years.
  • As consumers’ spending power in the market where First REIT’s hospitals operate in increases, it could attract premium international brands to set up shop in the country.
  • As international brands build their presence in Indonesia, First REIT’s major tenant, Siloam Hospitals Group, could face competition.
  • This might narrow profitability of its product and services and may cause customers to substitute away from the brand.

SI Research Takeaway

With long-term lease agreements in place and a full occupancy rate, First REIT has similar characteristics as a bond. However, the long-term tenure of the contracts between the hospitals and the trust serves as a double-edge sword as it trades away potential positive rental revisions for the certainty of rents locked in.

Backed by a strong sponsor, First REIT looks set to maintain its portfolio quality moving forward. Taking a conservative stance, I would wait for a fall in share price to lock in a dividend yield that suits my appetite.

Currently pursuing his Chartered Financial Analyst qualification, Shane provides coverage on the property, consumer and environmental sectors at Shares Investment.

Please click here for more information about this author.

First REIT  1.010 -0.010 -0.98%   
Business: Co is a healthcare real estate investment trust. [FY18 Geographical] Indonesia (96%), Singapore (3.4%), Korea (0.6%).

Insight: Apr-19, 1Q19 gross revenue was slightly down by 0.... Read More

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