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30 September 2011 www.siasresearch.

com Update Report

First Real Estate Investment Trust


Flagship To Medical Tourism in Indonesia
We were invited 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 numbers moving 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 income from 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.

Increase Exposure
Intrinsic Value Prev Close

S$0.965 S$0.765

Main Activities
First Real Estate Investment Trust (First REIT) invests in a diversified portfolio of income producing real estate used for healthcare and/or healthcarerelated purposes. The Companys assets are located in Singapore, Korea and Indonesia. Financial Highlights
(Y/E Dec) S$m Gross Revenue Net Prop Income Distr Earnings Distr Per Unit(S$) Distribution Yield FY09 30.2 36.0 21.0 0.076 9.1% FY10 30.3 60.5 21.3 0.066 7.9% FY11F 53.0 46.0 41.7 0.067 8.7%

Source: Company, Bloomberg, SIAS Research Estimates

Key ratios (FY11F)


PER P/BV ROE (%) ROA (%) Debt / Equity
Source: SIAS Research Estimates

10.5 1.0 9.6 7.1 0.25

Indexed Price Chart


Green (FSSTI) White (First REIT)

Source: Bloomberg

52wks High-Low Number of Shares Market Capitalization Analyst: SIAS Research admin@siasresearch.com Tel: 6227 2107

S$0.840 /S$0.650 626.4m S$482.33m

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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.

Figure 1: Rental structure of FREIT Siloams Lease Agreement


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 revenue
Source: SIAS Research, Company

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 checkup service to corporations and clinics so as to increase awareness and its customer base. For example, SHG is offering cheap PET/CT Scans and MRI scans 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.

Figure 2: Marketing Banner By Siloam

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Source: SIAS Research

30 September 2011 www.siasresearch.com Update Report

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 hours drive), next to Imperial Gold Club Lippo Karawaci and a five star hotel Imperial Aryaduta Hotel and Country Club (IAHCC).

Figure 3: Location map of SHLV and IAHCC

Source: Google Map

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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.

Figure 4: Corner Shops in SHLV

Figure 5: Patients queuing in SHLV

Source: SIAS Research

Source: SIAS Research

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.

Figure 6: Cath Lab

Figure 7: Executive Medical Check-up & Executive Class Wards Entrance

Source: SIAS Research

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Source: SIAS Research

30 September 2011 www.siasresearch.com Update Report

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.

Figure 8: Portion of potential redevelopment space

Source: SIAS Research

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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.

Figure 9: Corner Shops/Waiting Area

Figure 10: Dual Source CT scanner

Source: SIAS Research

Source: SIAS Research

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 three years: 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.

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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 7 July 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 in Indonesia 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.

Figure 10: Particle Accelerator For Cancer Treatment

Figure 11: LINAC Varian

Source: SIAS Research

Source: SIAS Research

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. Page 7 of 13

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Figure 13: Simulator used in conjunction with LINAC Varian

Figure 14: Exclusive patient rooms

Source: SIAS Research

Source: SIAS Research

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.

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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.

Figure 15: IAHCC Entrance

Source: SIAS Research

Page 9 of 13 *Based on 2010 figures

30 September 2011 www.siasresearch.com Update Report

How does this trip change our view on FREIT?


We have gained a better understanding of the operational aspects of FREITs 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 highend 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 capital expenditure by SHG in the process of expanding their services). We maintain our Increase Exposure rating at an intrinsic value of S$0.965.

Page 10 of 13 *http://www.thejakartapost.com/news/2011/04/05/poor-healthcare-indonesia-boosts-medical-tourism.html

30 September 2011 www.siasresearch.com Update Report

Figure 16: Dividends Discount Model


S$ DPU Discount Explicit Value Terminal Value Price Per Share (S$)
Source: SIAS Research

FY11F 0.067 92.3% 0.227 0.737 0.965

FY12F 0.068 85.2%

FY13F 0.070 78.6%

FY14F 0.072 72.5% 8.4% 1.25%

Cost of Equity Terminal Growth

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Figure 17: Financial Forecasts and Estimates SGD(S$ m) Gross Revenue Income After Tax Distributable Income DPU (S$) Total Current Assets Total Non-Current Assets Total Current Liabilities Total Non-Current Liabilities Total Equity Net Income Before Tax Cash from Operating Activities Cash from Investing Activities Cash from Financing Activities Net Change in Cash Net Cash - Beginning Balance Net Cash - Ending Balance ROE ROA Distribution yield Debt/Equity P/E P/B
Source: Company, SIAS Research

FY08 30.2 23.0 20.8 0.076 14.6 324.9 61.4 23.1 255.1 23.8 20.6 0.3 -22.1 -1.2 13.6 12.4 9.0% 6.8% 9.1% 0.33 4.8 0.9

FY09 30.2 36.0 21.0 0.076 13.7 340.9 10.2 73.4 271.0 38.7 22.7 -2.0 -25.6 -4.9 12.4 7.5 13.7% 10.4% 9.1% 0.31 6.2 0.9

FY10 30.3 60.5 21.3 0.066 41.8 612.8 81.3 94.2 479.1 80.0 27.6 -160.8 153.4 20.1 7.5 27.6 16.1% 12.0% 7.9% 0.37 4.5 1.1

FY11F 53.0 46.0 41.7 0.067 48.4 595.4 32.8 87.4 483.7 45.6 37.1 17.4 -35.9 18.6 27.6 46.2 9.6% 7.1% 8.7% 0.25 10.5 1.0

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Rating Definition: Increase Exposure The current price of the stock is significantly lower than the underlying fundamental value higher 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 the firm. 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 value of 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 securities mentioned herein or any securities related thereto and may from time to time add or dispose of or may be materially interested in any such securities. Portfolio structure should be the responsibility of the investor and they 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 their portfolio. This research report is based on information, which we believe to be reliable. Any opinions expressed reflect our judgment at report date and are subject to change without notice. This research material is for information only. It does not have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive or access this research material. It is not to be construed as an offer, or solicitation of an offer to sell or buy securities referred herein. The use of this material does not absolve you of your responsibility for your own investment decisions. We accept no liability for any direct or indirect loss arising from the use of this research material. We, our associates, directors and/or employees may have an interest in the securities and/or companies mentioned herein. This research material may not be reproduced, distributed or published for any purpose by anyone without our specific prior consent.

Update Report

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