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www.siasresearch.com UUppddaattee RReeppoorrtt

30 Se tember 2011

IInnccrreeaassee EExxppoossuurreeFlagship To Medical Tourism in Indonesia

S$0.965

S$0.765

Intrinsic Value

Prev Close

Main ActivitiesFirst Real Estate Investment Trust (First REIT)invests in a diversified portfolio of income producingreal estate used for healthcare and/or healthcare-related purposes. The Companys assets are locatedin Singapore, Korea and Indonesia.

Financial Highlights(Y/E Dec) S$m FY09 FY10 FY11F

Gross Revenue 30.2 30.3 53.0

Net Prop Income 36.0 60.5 46.0

Distr Earnings 21.0 21.3 41.7

Distr Per Unit(S$) 0.076 0.066 0.067

Distribution Yield 9.1% 7.9% 8.7%

Source: Company, Bloomberg, SIAS Research Estimates

Key ratios (FY11F)

PER 10.5

P/BV 1.0

ROE (%) 9.6

ROA (%) 7.1

Debt / Equity 0.25

Source: SIAS Research Estimates

Indexed Price Chart

Green (FSSTI)White (First REIT)

Source: Bloomberg

52wks High-Low S$0.840 /S$0.650

Number of Shares 626.4m

Market Capitalization S$482.33m

Analyst:SIAS [email protected]: 6227 2107

We wereinvited to First REITs (FREIT) Analyst Indonesia

trip in late September 2011 and were presented a

compelling story on how FREIT intends to capitalize on the

growth of medical tourism in Indonesia and the untapped

domestic demand. Out of the four FREIT assets we visited,

we were most impressed with Mochtar Riady

Comprehensive Cancer Centre (MRCCC) and are

expecting it to further contribute to FREITs profit numbersmoving forward. We maintain our Increase Exposure

rating on FREIT with an upgraded intrinsic value of S$0.965.

Site Visit Summary:

Updating ourselves on the operations of FREIT:

Our trip was fulfulling as we keep up with Siloam

Hospitals Group (SHG), the operator of FREITs

assets. SHG intends to be a dominant provider of

specialised healthcare services, appealing to

Indonesians who seek these services abroad. Moving

forward, SHG may want to further capitalise on their

technological advantage to be the flagship to medical

tourism in Indonesia.

Update on latest Indonesian acquisition, MRCCC:

MRCCC is the latest Indonesian acquisition by FREIT

funded partially through its rights issue in 4QFY10. We

are very impressed with the cutting-edge medical

devices that MRCCC is equipped with, making it one

of the best equipped cancer centres in Asia. SHG is

currently generating awareness through corporations

and private clinics. We expect higher rental incomefrom the increased capacity of MRCCC moving

forward.

Ground site visits highlighting tech sophistication

and services offered: Overall, we are impressed by

the hospital site visits. SHG has been active in

acquiring medical devices for specialised medical

treatment and providing a comprehensive set of

medical services.

First Real Estate Investment Trust
mailto:[email protected]:[email protected]:[email protected]

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Meeting the Siloam

One of the main objectives of this FREIT trip was to learn more about the

operator of FREITs Indonesian properties, SHG, as part of FREITs top line

income is determined by SHGs gross revenue. SHG is one of the division arm

of Indonesias property conglomerate, Lippo Karawaci. SHG is regarded as

being one of the most well-organised hospitals in Indonesia, having won The

Best Building and Managing Corporate Image in the Hospital Categroy and

Corporate Image Index Survey by Business Week Magazine and Frontier

Consulting Group.

One of the takeaways from our meeting with the CFO of SHG, Romeo F. Lledo,

is that he is very confident on the groups revenue growth in the long term,among others, by:

(1) Providing the best in terms of operating facilities, speciallised equipment

and services provided.

(2) Recruiment of prominent doctor specialists under the Siloam Doctors

Partnership Development Program (SDPDP) model of SHG.

Ongoing efforts to increase awareness: Despite being a leader in hospital

treatment, SHG is active in gaining exposure and establishing awareness in

Indonesia through its marketing strategies. SHG is currently marketing check-

up service to corporations and clinics so as to increase awareness and its

customer base. For example, SHG is offering cheap PET/CT Scans and MRIscans to further bring awareness and as part of SHGs commitment to society.

Building a technological moat: During this trip, we were very impressed with

the services offered due to the number of sophisticated medical machines

owned by SHG. For example, SHG is in charge of bringing state of the art

machines such as the LINAC Varian with simulator for cancer treatment to their

newly opened MRCCC.

Base rent

+ 2 times Singapore CPI to a maximum of 2%

+ Siloam's revenue sharing scheme

> 0% to 15% increase in gross revenue - 0.75% of gross revenue

> 15% to 30% increase in gross revenue - 1.25% of gross revenue

> above 30% increase in gross revenue - 2% of gross revenueSource: SIAS Research, Company

Figure 1: Rental structure of FREITSiloams Lease Agreement

Source: SIAS Research

Figure 2: Marketing

Banner By Siloam

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Siloam Hospitals Lippo Village

Siloam Hospitals Lippo Village (SHLV) was the first hospital visit in our

agenda. This site is located in the Lippo Karawacis township, approximately

21 kilometres away from the Soekarno-Hatta International Airport. The hospital

is also across a road to another one of FREITs assets, Imperial Aryaduta

Hotel & Country Club (IAHCC).

SHLV is also a centre of excellence for neuroscience and cardiology and is

also home to various sophisticated medical machines. SHLV is also the first in

Indonesia to be accredited in 2007 and re-accredited in 2010 by Joint

Commision International (JCI), the international gold standard with its key

focus on patient safety in all its processes. With process guidelines in place,SHG can easily replicate the SHLV model to its other hospitals to be

accredited as JCI.

SHLV is situated at a key strategic location along the Jalan Tol Jakarta

Freeway with easy accessibility to locals. At the same time, SHLV has great

appeal to foreign visitors looking for specialised treatment due to its close

proximity to the Jakarta Airport (approximately 21km away, half an hour s

drive), next to Imperial Gold Club Lippo Karawaci and a five star hotel -

Imperial Aryaduta Hotel and Country Club (IAHCC).

Source: Google Map

Figure 3: Location map of SHLV and IAHCC

IAHCC

SHLV

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The image of the ground floor is reminiscent of our last trip to FREITs

hospitals where its was packed full of people queuing and hanging around the

cafes and shops. This can be said to be similar in concept to our local

government hospitals such as SGH and NUH.

Facilities and Equipment: SHLV uniquely positions itself to offer specialised

services such as MRI scans and neuro-treatment by having much more

sophisticated treatment machines compared to other hospitals. For example,

SHLV is one out of four hospitals in Indonesia that has the 3-tesla MRI

machine in Indonesia. We note that SHLV aims to keep rates affordable for the

middle income level as part of their commitment to the society.

Source: SIAS Research Source: SIAS Research

Figure 4: Corner Shops in SHLV Figure 5: Patients queuing in SHLV


Figure 6: Cath Lab Figure 7: Executive Medical Check-up

& Executive Class Wards Entrance


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SHLV also offers VIP patient rooms and exclusive medical checkup rooms to

appeal to the wealthier Indonesians and for medical tourism with developed

country citizens looking for cheaper alternatives for medical treatment. Our

Siloam guide for the site visit also stated that family members tend to

accompany the patient and would check in to these rooms to enjoy the sofa

beds.

Moving forward, SHLV is bringing in gamma knife technology which is used to

treat brain tumors using radiation therapy. The equipment for the project costs

approximately US$5 million which sets SHLV up to compete in medical tourism

scene regionally. SHLV also plans to expand the size of its premise, with the

development cost handled by Lippo Karawaci, thereby adding about 30 to 40 A

class beds.

Room to expand if needed: Management also stated that there are

opportunities for expansion or services through redeveloping a portion of

Imperial Aryaduta Hotel & Country Club (IAHCC) or working together in

promoting medical tourism.


Figure 8: Portion of potential

redevelopment space

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Siloam Hospitals Kebon Jeruk

Siloam Hospitals Kebon Jeruk (SHKJ) is situated in Kebon Jeruk, a

subdistrict of West Jakarta and is approximately 8 kilometres from Central

Jakarta. SHKJ has established itself as a Centre of Excellence in Urology and

Orthopaedics. Similar to the other FREIT hospitals we visited, we were greeted

by eateries located at the entrance which creates a bright atmosphere and

relaxed environment for patients and visitors.

We were further introduced to various top-end equipment by our Siloam guides,

underpinning the message on what it takes to achieve the Centre of

Excellence status. Similar to SHLV, SHKJ also offers exclusive class wards at

a very competitive rate. Siloam Suites, the best rooms that the hospital has to

offer, has a guest room on top of a spacious patient room, flat-screen TVs and

personalised services.

Adjusting to the competition: We were told that there had been recent

competition with the opening of two hospitals launched over the past threeyears: Puri Indah Hospital and Grha Kedoya Hospital. The Siloam guide

mentioned that SHKJ has been around for twenty years and services offered

by them were much more comprehensive than the other two. We were also

told that with its competitve rates and established reputation, patients generally

put SHKJ as one of their first choice in specialised treatment.


Figure 9: Corner Shops/Waiting Area


Figure 10: Dual Source CT scanner

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Mochtar Riady Comprehensive Cancer Centre

Mochtar Riady Comprehensive Cancer Centre (MRCCC) is the latest

Indonesian acquisition by FREIT, funded through part of net proceeds of its

rights issue of S$167.3 million on 22 December 2010. This addition is the first

private cancer hospital in Indonesia, offically launched on 7July 2011 by

Indonesias President Susilo Bambang Yudhoyono. We are very impressed

with the site and reckon it will be the flagship hospital in the region with its

state-of-the-art facilities and equipment. Siloam intends to target patients

seeking cancer treatment overseas due to the lack in advancement in

Indonesias clinical and treatment technology.

First of its kind in technological edge: MRCCC is one of the first inIndonesia to be equipped with cutting-edge medical devices such as PET-CT

scanning and IBA Cyclotron used for cancer detection. Also, MRCCC adds to

FREITs stable of hospitals offering one out of four MRI 3 tesla scanning

devices in Indonesia.

Bringing in state-of-the-art equipment: MRCCC houses some of the very

top-end equipments and facilities in the region such as the Linac Varian with

simulator. This machine basically provides curative treatment of cancer

through precise radiotherapy of tumours after laser simulation. This is one of

the most advanced forms of cancer treatment using inverse planning as

opposed to forward planning, using pintpoint precise treatment instead of using

trial and error.

Personalised Hospital Treatment: MRCCC also offers personalised services

such as helicopter lifting patients to the hospital as opposed to the

conventional motorcycle and van ambulance. This will bypass road jams which

is common during peak hours in Jakarta.


Figure 10: Particle Accelerator For

Cancer Treatment


Figure 11: LINAC Varian
http://www.thejakartaglobe.com/health/indonesias-first-private-cancer-hospital-launched/451369http://www.thejakartaglobe.com/health/indonesias-first-private-cancer-hospital-launched/451369http://www.thejakartaglobe.com/health/indonesias-first-private-cancer-hospital-launched/451369http://www.thejakartaglobe.com/health/indonesias-first-private-cancer-hospital-launched/451369http://www.thejakartaglobe.com/health/indonesias-first-private-cancer-hospital-launched/451369http://www.thejakartaglobe.com/health/indonesias-first-private-cancer-hospital-launched/451369http://www.thejakartaglobe.com/health/indonesias-first-private-cancer-hospital-launched/451369http://www.thejakartaglobe.com/health/indonesias-first-private-cancer-hospital-launched/451369http://www.thejakartaglobe.com/health/indonesias-first-private-cancer-hospital-launched/451369

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Not Hitting Full Capacity Yet: MRCCC is still in its infant stage with less than

three months since its official launch. SHG is focused on creating awareness

through offering affordable check-ups, aliasing with corporations and clinics.

Our SHG guides also stated that the opening of MRCCC by the Indonesias

President has generated interest from many corporations with indirect feature

in the media.


Figure 13: Simulator used inconjunction with LINAC Varian Figure 14: Exclusive patientrooms


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Imperial Aryaduta Hotel and Country Club

The 197-room five-star Imperial Aryaduta Hotel and Country Club (IAHCC) is

situated within the Lippo Village and poised to benefit from the new shopping

malls and upcoming developments by Lippo Karawacis development town.

IAHCC boasts the largest country club in Indonesia with the hotel and country

club spanning a total land area of 54,410 sqm.

We were given a brief tour around the hotel and the country club, which gives a

resort getaway feel with the numerous amount of facilities offered, including

squash courts, resort pools, etc.

To date, this asset still provides excellent asset yield at 10.2% on its fair value*.

Moving forward, the new developments in Lippo Village will bring in more

attractions to this area which will benefit IAHCC.


Figure 15: IAHCC Entrance

*Based on 2010 figures

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How does this trip change our view on FREIT?

We have gained a better understanding of the operational aspects of FREIT s

assets and are more optimistic than before on the potential growth that FREIT

may experience.

Being relevant in an untapped market: Based on a quote from the health

ministry in Indonesia, many middle to high end patients tend to seek medical

treatment aboard due to poor healthcare offered in the country*. This market

has been quoted to be worth approximately Rp 100 trillion (US$11.5 billion) a

year. We believe that FREIT will stand much to gain with SHG bringing in high-

end equipment to Indonesia without the need for large capital expenditure.

Benefiting from Siloams operational expertise: With their operator SHG

being active in expanding their services and awareness, FREIT stands much to

benefit from its revenue sharing program if rendered successful. We believe

that FREIT has much to gain from the operational expertise as well as the

specialised equipment that SHG are providing which is imperative for

healthcare REIT.

Value Prospects: We are increasing the growth in FREITs distributable

income on the basis of the outlook for the large potential of FREIT has in

benefiting from SHG and the expanding services that they are providing. As

mentioned before, FREIT stands to gain from these through SHGs potential

increase in gross revenue (we highlight that this ignores any capitalexpenditure by SHG in the process of expanding their services). We maintain

our Increase Exposurerating at an intrinsic value of S$0.965.

*http://www.thejakartapost.com/news/2011/04/05/poor-healthcare-indonesia-boosts-medical-tourism.html
http://www.thejakartapost.com/news/2011/04/05/poor-healthcare-indonesia-boosts-medical-tourism.htmlhttp://www.thejakartapost.com/news/2011/04/05/poor-healthcare-indonesia-boosts-medical-tourism.htmlhttp://www.thejakartapost.com/news/2011/04/05/poor-healthcare-indonesia-boosts-medical-tourism.htmlhttp://www.thejakartapost.com/news/2011/04/05/poor-healthcare-indonesia-boosts-medical-tourism.html

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S$ FY11F FY12F FY13F FY14F

DPU 0.067 0.068 0.070 0.072

Discount 92.3% 85.2% 78.6% 72.5%

Explicit Value 0.227

Terminal Value 0.737 Cost of Equity 8.4%

Price Per Share (S$) 0.965 Terminal Growth 1.25%Source: SIAS Research

Figure 16: Dividends Discount Model

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Figure 17: Financial Forecasts and Estimates

SGD(S$ m) FY08 FY09 FY10 FY11F

Gross Revenue 30.2 30.2 30.3 53.0

Income After Tax 23.0 36.0 60.5 46.0

Distributable Income 20.8 21.0 21.3 41.7

DPU (S$) 0.076 0.076 0.066 0.067

Total Current Assets 14.6 13.7 41.8 48.4

Total Non-Current Assets 324.9 340.9 612.8 595.4Total Current Liabilities 61.4 10.2 81.3 32.8

Total Non-Current Liabilities 23.1 73.4 94.2 87.4

Total Equity 255.1 271.0 479.1 483.7

Net Income Before Tax 23.8 38.7 80.0 45.6

Cash from Operating Activities 20.6 22.7 27.6 37.1

Cash from Investing Activities 0.3 -2.0 -160.8 17.4

Cash from Financing Activities -22.1 -25.6 153.4 -35.9

Net Change in Cash -1.2 -4.9 20.1 18.6

Net Cash - Beginning Balance 13.6 12.4 7.5 27.6

Net Cash - Ending Balance 12.4 7.5 27.6 46.2

ROE 9.0% 13.7% 16.1% 9.6%

ROA 6.8% 10.4% 12.0% 7.1%

Distribution yield 9.1% 9.1% 7.9% 8.7%

Debt/Equity 0.33 0.31 0.37 0.25

P/E 4.8 6.2 4.5 10.5

P/B 0.9 0.9 1.1 1.0

Source: Company, SIAS Research

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Rating Definition:

Increase Exposure The current price of the stock is significantly lower than the underlying fundamental valuehigher level.Invest The current price of the stock is sufficiently lower than the underlying fundamental value of the firm.Readers can consider adding this stock to their portfolio.

Fairly Valued The current price of the stock is reflective of the underlying fundamental value of the firm.Readers may not need to take actions at current price.Take Profit The current price of the stock is sufficiently higher than the underlying fundamental value of thefirm. Readers can consider rebalancing their portfolio to take advantage of the profits.

Reduce Exposure - The current price of the stock is significantly higher than the underlying fundamental valueof the firm. Readers can consider reducing their holdings in their portfolio.

IMPORTANT DISCLOSURE

As of the date of this report, the analyst and his immediate family may own or have positions in any securitiesmentioned herein or any securities related thereto and may from time to time add or dispose of or may bematerially interested in any such securities. Portfolio structure should be the responsibility of the investor andthey should take into consideration their financial position and risk profile when structuring their portfolio.Investors should seek the assistance of a qualified and licensed financial advisor to help them structure theirportfolio. This research report is based on information, which we believe to be reliable. Any opinions expressedreflect our judgment at report date and are subject to change without notice. This research material is forinformation only. It does not have regards to the specific investment objectives, financial situation and theparticular needs of any specific person who may receive or access this research material. It is not to beconstrued as an offer, or solicitation of an offer to sell or buy securities referred herein. The use of this materialdoes not absolve you of your responsibility for your own investment decisions. We accept no liability for anydirect or indirect loss arising from the use of this research material. We, our associates, directors and/oremployees may have an interest in the securities and/or companies mentioned herein. This research materialmay not be reproduced, distributed or published for any purpose by anyone without our specific prior consent.

20110930 - First Reit - Sias

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