• Purchase consideration of S$31m
• Lease terms similar to May 2013 acquisitions
• Raise FV slightly and maintain BUY

Penetrating further into Indonesia

First REIT (FREIT) has entered into a conditional sale and purchase agreement with PT Purimas Elok Asri (PT PEA), an unrelated party, for the acquisition of Siloam Hospitals Purwakarta (SHPW), which is located in West Java, Indonesia. The purchase consideration is S$31.0m (subject to unitholders’ approval), and represents a discount of 17.3% to the average of two independent valuations obtained. SHPW is currently undergoing major refurbishment works, but this has been substantially completed in 1Q14 (full completion expected in Sep 2014). It has an operational capacity of 100 beds and a maximum capacity of 230 beds. FREIT will finance this acquisition mainly with debt (S$26.5m of bank borrowings), with the remaining S$4.5m to be funded by the issuance of new units.

Lease structure provides continued stability

The initial NPI yield of this acquisition works out to be 10.8%, which is slightly higher than that of its last four Indonesian acquisitions made in 2012 and 2013 (~10%). In terms of lease structure, it is broadly similar to the two assets purchased in May last year. This comprises a 15+15 years master lease agreement which has downside base rental protection but upside is capped at 2%. Once again, FREIT will be unscathed from the volatility in the SGD-IDR exchange rate as the base rental is denominated in SGD while the variable rental component is based on a fixed SGD-IDR rate throughout the entire lease tenure.

Maintain BUY

We incorporate this acquisition into our model (assuming contribution to commence on 1 Jul 2014), and raise our FY14 and FY15 gross revenue by 1.9% and 3.6%, respectively. We retain our FY14 DPU forecast due to a larger unit base from the issuance of new units to partially finance this acquisition and also for FREIT’s distribution reinvestment plan. Our FY15 DPU projection is raised by 1.3%. Maintain BUY on FREIT, with a slightly higher DDM-derived fair value estimate of S$1.21 (previously S$1.19).

Source: OCBC Research - 14 Mar 2014