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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
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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
Source: SIAS Research
Figure 6: Cath Lab Figure 7: Executive Medical Check-up
& Executive Class Wards Entrance
Source: SIAS Research
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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.
Source: SIAS Research
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.
Source: SIAS Research
Figure 9: Corner Shops/Waiting Area
Source: SIAS Research
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.
Source: SIAS Research
Figure 10: Particle Accelerator For
Cancer Treatment
Source: SIAS Research
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/4513698/4/2019 20110930 - First Reit - Sias
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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.
Source: SIAS Research
Figure 13: Simulator used inconjunction with LINAC Varian Figure 14: Exclusive patientrooms
Source: SIAS Research
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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.
Source: SIAS Research
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$0.965.
*http://www.thejakartapost.com/news/2011/04/05/poor-healthcare-indonesia-boosts-medical-tourism.html
http://www.thejakartapost.com/news/2011/04/05/poor-healthcare-indonesia-boosts-medical-tourism.htmlhttp://www.thejakartapost.com/news/2011/04/05/poor-healthcare-indonesia-boosts-medical-tourism.htmlhttp://www.thejakartapost.com/news/2011/04/05/poor-healthcare-indonesia-boosts-medical-tourism.htmlhttp://www.thejakartapost.com/news/2011/04/05/poor-healthcare-indonesia-boosts-medical-tourism.html8/4/2019 20110930 - First Reit - Sias
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S$ 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.
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