First REIT - OCBC Investment 2017-10-03: Quality Portfolio Assets

FIRST REAL ESTATE INV TRUST AW9U.SI

First REIT - Quality Portfolio Assets

We visited four of First REIT’s (FREIT) hospitals in Jakarta recently – Siloam Hospitals Lippo Village (SHLV), Siloam Hospitals Kebon Jeruk (SHKJ), Mochtar Riady Comprehensive Cancer Centre (MRCCC), and Siloam Hospitals TB Simatupang (SHTB).
The hospitals are operated by PT Siloam International Hospitals TBK (Siloam) and are well-equipped with modern medical facilities. Each hospital also has its own Centre of Excellence, which is its areas of specialisation, such as heart surgery and neurosurgery at SHLV.
We also understand that both SHLV and SHKJ have obtained the coveted JCI-accreditation, which bears testament to their level of medical excellence.

According to The Jakarta Post, the Jakarta administration has plans for all hospitals in the capital to become partners of the Healthcare and Social Security Agency (BPJS Kesehatan), and this could be a requirement for the extension of hospital permits and accreditation.
As of 12 Sep 2017, only 64 out of the 160 private hospitals registered in Jakarta currently co-operate with the BPJS.
During our visit, we noted that the 4 First REIT assets had arrangements / facilities in place to cater to patients under the BPJS scheme, with the Class III wards catered for them in very good condition. While we believe that the margins from patients seeking treatment under the BPJS scheme might not be as high as those under private insurance or self-payment, we still think that the programme will nonetheless help operators like Siloam increase utilisation of their wards and facilities.

The latest reported inflation for Singapore in August 2017 was up 0.4% YoY, moderating from July’s 0.6%; Jan-Aug 2017 registered 0.6% YoY growth. Consequently, the median Bloomberg consensus for 2017’s CPI has been revised downwards from 0.9% to 0.8%.
We believe that the slight dip should not significantly affect base rental revisions, and that potential accretive acquisitions this year should help to provide DPU support.
Based on our projections, First REIT is currently trading at a FY17 distribution yield of 6.4% and a P/B ratio of 1.3x.
We maintain our HOLD rating and our fair value estimate of S$1.38.

Joseph Ng OCBC Investment | http://www.ocbcresearch.com/ 2017-10-03

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.380 Same 1.380