SINGAPORE Company Update Results SINGAPORE Sector Update 10 March 2011

MITA No. 010/06/2009 MITA No. 016/06/2010

Overweight

Healthcare REITs
Robust outlook underpinned by strong growth drivers
Positive 4QFY10 results. Currently, there are only two healthcare REITs listed on SGX. They are First REIT (FREIT) [BUY, FV: S$0.80] and Parkway Life REIT (PLREIT) [NOT RATED]. FREIT and PLREIT both reported a respectable set of 4QFY10 results recently. FREIT's growth was largely driven by higher rental income from its Indonesian properties; while PLREIT registered a 16.1% YoY increase in DPU to 2.38 S cents as a result of higher rent from its Singapore hospitals and contribution from the 11 Japan nursing homes acquired in 2010. Favourable stable and long master leases. Both healthcare REITs function on long-term master leases that offer downside revenue protection, hence providing investors with stability. Moreover, there is also potential upside rental reversion that can be reaped. These master leases are important because the operations for healthcare REITs are specialised. Hence having the right operator/master lessee is critical as frequent turnover of operators would be very disruptive to operations. Healthcare services as growth driver. Growth for Singapore's healthcare REITs is driven by demand for healthcare and nursing home services. According to the Department of Statistics, Singapore's private consumption expenditure on healthcare has increased at a CAGR of 8.8% to S$8.29b from 2006 to 2010. On the other hand, statistics from WHO revealed that Indonesia's private expenditure on health grew at a CAGR of 12.7% to Rp45.3t from 2000 to 2008. We believe that such healthy growth trends are likely to continue, underpinned by strong fundamentals. These include Singapore's aging population and influx of medical tourists; and Indonesia's rising affluence which has increased demand for higher quality healthcare services. This would lend support to the rental income growth of PLREIT and FREIT. OVERWEIGHT on healthcare REITs. We are OVERWEIGHT on healthcare REITs given their favourable master lease structure, strong sponsor support and optimistic outlook on the healthcare sector in Singapore and Indonesia. As seen from Exhibit 5, healthcare REITs on average command a higher yield and have a lower leverage ratio than their S-REIT peers, although their price-to-book ratio is higher. We believe this premium is justified due to the quality of assets owned and defensive nature of earnings which result in increased stability. In terms of recent share price performance, PLREIT has increased 5.5% YTD while FREIT has risen 5.0% YTD, ranking them first and second respectively in the entire S-REIT universe (FSTREI Index has declined 2.1% YTD and STI Index has dropped 3.0% YTD). This corroborates the defensiveness of healthcare REITs in times of current market uncertainty.

3500 3000 2500 2000 1500 1000 J an-09 J ul-09 A pr-09 STI

Parkway Life REIT

First REIT

1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5 0.3 J an-11
Price S $0.74 S $1.74

J an-10

O c t-09

A pr-10

J ul-10

Company First REIT Parkway Life REIT

Rating BUY

Chg Maintain NOT Rated

Fair value S $0.80

Wong Teck Ching (Andy) (65) 6531 9817 e-mail: AndyWong@ocbc-research.com

Please refer to the important disclosures at the back of this document.

O c t-10

Sector Update

Exhibit 1: Portfolio highlights of FREIT

Source: FREIT Note: FREIT has entered into a sale-and-purchase agreement on 23 Feb 2011 to divest the Adam Road Hospital/Specialist Centre for S$33m.

Exhibit 2: Portfolio highlights of PLREIT

Source: PLREIT

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10 March 2011

Sector Update

Exhibit 3: Total assets and aggregate leverage in comparison

1,600,000 34.6% 1,400,000 1,200,000 1,351,768 1,000,000 S $ '0 0 0 800,000 654,571 600,000 400,000 200,000 0 FREIT Total assets (LHS) PLREIT Aggregate leverage in comparison (RHS) 8.8%

40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

Source: Companies' 4QFY10 results Note: FREIT announced on 31 Jan 2011 that it has drawn down a loan facility of S$50m, which would increase its leverage ratio to 15.2%.

Exhibit 4: Share price performance, YTD

115.0%

110.0%

105.0%

100.0%

95.0%

90.0%

85.0% 31/12/2010 07/01/2011 14/01/2011 21/01/2011 28/01/2011 04/02/2011 11/02/2011 18/02/2011 25/02/2011 04/03/2011

FREIT

PLREIT

FSTREI Index

STI Index

Source: Bloomberg, OIR

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10 March 2011

Sector Update

Exhibit 5: Healthcare REITs in comparison with S-REIT sector
Latest Announc. Qtr DPU (in cents) Realised (Implied) Annualised Yield (%)

Bloomberg Ticker Last Price Ccy Office Frasers Commercial Trust* CapitaCommercial Trust* K-REIT Asia Suntec REIT* Indiabulls Properties Inv Trust Treasury China Trust Office Average Retail CapitaMall Trust* Frasers Centerpoint Trust* Starhill Global REIT* CapitaRetail China Trust Fortune REIT (in HK$) Lippo-Mapletree Indonesia* Retail Average Hospitality Ascott Residence Trust* CDL Hospitality REIT Hospitality Average Industrial Ascendas REIT* Cambridge Industrial Trust AIMS AMP Capital Indus REIT Mapletree Industrial Trust Mapletree Logistics Trust* Cache Logistics Trust Sabana Shariah Comp. Ind REIT Ascendas India Trust Industrial Average Residential Saizen REIT Residential Average S-REITs Average Healthcare Parkway Life REIT First REIT* PREIT SP FIRT SP 1.740 0.740 SGD SGD SZREIT SP 0.165 SGD AREIT SP CREIT SP AAREIT SP MINT SP MLT SP CACHE SP SSREIT SP AIT SP 2.010 0.510 0.210 1.050 0.935 0.940 0.955 0.940 SGD SGD SGD SGD SGD SGD SGD SGD ART SP CDREIT SP 1.210 2.050 SGD SGD CT SP FCT SP SGREIT SP CRCT SP FRT SP LMRT SP 1.850 1.490 0.640 1.250 4.050 0.540 SGD SGD SGD SGD HKD SGD FCOT SP CCT SP KREIT SP SUN SP IPIT SP TCT SP 0.820 1.430 1.320 1.530 0.250 1.650 SGD SGD SGD SGD SGD SGD

Mkt Cap (S$m)

Distribution Freq

Cons FY-1 DPU (in cents)

Cons FY-2 DPU (in cents)

FY-1 Yield (%)

FY-2 Yield (%)

Leverage ratio (%)

Bk value per unit (in S$) P/B (x)

511.8 4040.2 1791.7 3380.3 906.5 422.9 1,842.2

Semi-Anl Semi-Anl Semi-Anl Quarter None Irreg

1.55** 1.99 1.69 1.68 0.05 2.50

7.6% 5.6% 5.1% 5.9% 0.8% 6.1% 4.2%

5.90 7.20 7.20 9.10 NA 8.80

6.70 7.60 6.90 9.30 NA 5.40

7.2 5.0 5.5 5.9 NA 5.3 5.8

8.2 5.3 5.2 6.1 NA 3.3 5.6

38.7 28.3 31.8 38.4 19.0 33.3 31.6

1.92 1.51 1.52 1.80 0.50 3.91 1.86

0.43 0.94 0.87 0.85 0.50 0.42 0.67

5892.1 1145.8 1243.5 781.7 6770.0 585.0 2,736.4

Quarter Quarter Quarter Semi-Anl Semi-Anl Quarter

2.36 2.16 1.00 2.08 5.76 1.09

5.1% 5.8% 6.3% 6.7% 5.7% 8.1% 6.3%

9.90 8.30 4.20 8.30 25.40 4.20

10.70 9.10 4.20 8.60 26.40 4.40

5.4 5.6 6.6 6.6 6.3 7.8 6.4

5.8 6.1 6.6 6.9 6.5 8.1 6.7

35.1 30.6 29.9 31.5 20.6 11.2 26.5

1.55 1.29 0.94 1.17 6.18 0.83 1.99

1.19 1.16 0.68 1.07 0.66 0.65 0.90

1343.1 1965.5 1,654.3

Semi-Anl Semi-Anl

1.85 2.54

6.1% 5.0% 5.6%

8.20 11.90

8.60 12.70

6.8 5.8 6.3

7.1 6.2 6.7

39.2 20.4 29.8

1.28 1.52 1.40

0.95 1.35 1.15

3767.3 539.1 463.5 1535.8 2268.6 596.7 604.3 719.7 1,311.9

Quarter Quarter Quarter Not Yet Quarter Irreg None Semi-Anl

3.30 1.19 0.40 3.10 1.78 1.94 0.00 1.70

6.6% 9.3% 7.6% NM 6.6% 8.3% NM 7.3% 7.6%

13.80 4.90 2.00 3.10 6.50 8.20 8.63 6.80

14.00 5.10 2.10 7.46 6.70 8.40 8.67 7.70

6.9 9.6 9.5 6.7 7.0 8.7 9.0 7.2 8.1

7.0 10.0 10.0 7.1 7.2 8.9 9.1 8.2 8.4

34.4 33.9 33.2 38.5 37.5 23.0 26.9 16.6 30.5

1.60 0.61 0.27 0.86 0.85 0.91 0.99 0.83 0.86

1.25 0.84 0.79 1.22 1.09 1.04 0.96 1.14 1.04

193.6 193.6 1,547.7

Semi-Anl

0.52

6.3% 6.3% 6.3%

NA

NA

NA NA 6.9

NA NA 7.1

33.5 33.5 29.8

0.40 0.40 1.45

0.41 0.41 0.89

1052.6 461.2

Quarter Quarter

2.25 1.94

5.2% 10.5%

9.90 6.40

10.40 6.40

5.7 8.6

6.0 8.6

34.4 8.8

1.41 0.77

1.23 0.96

Healthcare Average
*Under OIR coverage **After unit consolidation

756.9

7.9%

7.2

7.3

21.6

1.09

1.10

Source: Bloomberg consensus, company

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Sector Update

SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds shares in the above security.

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Carmen Lee Head of Research 10 March 2011