First REIT: CIMB initiates with Add and TP of $1.48. Indonesia healthcare needs are underserved. Indonesia healthcare expenditure is predicted to grow at CAGR of 14.9% over 2012-2018, driven by a combination of rising affluence, changing lifestyles, urbanisation and pent-up demand.
FIRT offers direct exposure to the growth of healthcare infrastructure in Indonesia, without foreign exchange and operating risks. Operating risks are limited, as Indonesian hospitals (95% of total assets) are master leased for 15+15 years, with the leases consisting of mainly base rental (annual escalation of 0 2%). Foreign exchange risk is mitigated by S$-denominated rental revenue from its Indonesian and Singapore assets.
Lippo Karawaci (LK), FIRT’s sponsor, and its subsidiary Siloam Hospitals plan to double bed capacity by 2017. As a result, FIRT has nine completed hospitals as potential acquisition targets and another 30 in the pipeline under development. CIMB expects S$150m of acquisitions at 10% gross yield to increase DPU and target price by 4-6%, and lift gearing to 34.7% (with 50% debt funding). Thereafter, every S$50m acquisition will result in ~1% upside to our DPU assuming 25% debt funding. There is also hidden
value within the portfolio in the form of untapped GFA. These have not been factored into CIMB’s model.