Singapore

Investment Thesis:
First REIT focuses on investing in healthcare and healthcare-related real estate assets within and outside of Asia. First REIT has 32 assets with an AUM of S$1.15bn, with 15 assets in Indonesia (72.1% of AUM), 14 Japan nursing homes (25.1%), and 3 nursing homes in Singapore (2.8%).
Sustainable rental income model including upside-sharing with Siloam International Hospitals (Siloam). We like First REIT for its long-term cash flow visibility following its 2021 Master Lease Agreement (MLA) restructuring, which ensures a minimum rental escalation of 4.5% per annum for Indonesian assets, alongside stable nursing home assets in Singapore and Japan, and a long weighted average lease expiry (WALE) of >12 years. We think the rebased rental rates are more sustainable, with revised rents now aligned with industry rates (was previously higher than industry) and Siloam being added as a party to the MLAs, which helps to reduce the exposure to PT Lippo Karawaci (LPKR). Furthermore, there is a potential upside in rental income via performance-based rents in tandem with Siloam’s stronger growth, with consensus Siloam’s FY23F/24F revenue growth at +15%/11%. We observe a positive correlation between First REIT’s and Siloam’s share prices; First REIT could be a beneficiary to Siloam’s improving performance.

Watch for capital recycling and expansion activities. Potential divestment of non-core and/or Indonesian assets to build sufficient firepower for future expansion activities, e.g., Japan, Australia.

Initiate with BUY with TP of S$0.30. First REIT is currently trading at attractive valuations with a forward P/B ratio of 0.9x (at -1SD of the historical average of 1.0x) and forward dividend yield of c.10% (at +1SD of the historical average of 8.2%). Our TP implies a forward P/B ratio and dividend yield of 1.0x and 8%, aligned with the historical average.

Key Risks
Weaker-than-expected operations from Siloam Hospitals due to the macroeconomic slowdown, rising competition, and more. Other risks include forex risks relating to IDR and JPY against the SGD.

First Real Estate Investment Trust is a Singapore-based healthcare real estate investment trust. It invests in a diversified portfolio of income-producing real estate and related assets in Asia, primarily used for healthcare and healthcare-related purposes, including hospitals and nursing homes. The Trust was listed on the SGX-ST in December 2006 and is headquartered in Singapore.

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First Real Estate Investment Trust (FIRT SP)

kopi-C with First REIT's CEO: Harnessing healthcare opportunities

DBS initiation report on First REIT: A Breath of New Life

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