Investment Highlights
''  An attractive and sustainable yield.  Underpinned by the defensiveness of the healthcare sector and its long'term lease structure, we are con'dent about the   sustainability of First REIT's FY2012 forward dividend yield of 7.38%. First REIT's lease terms range from 10'15 years, which factors in step'up escalation rates, thus providing long'term visibility in its income stream. Moreover, we note that First REIT's lease agreements for its Indonesian properties include a variable component that is a function of turnover growth, thereby allowing it to capture upside potential in favourable market conditions.

''  Poised to leverage on demographic shifts.  With its assets based in Indonesia, Singapore and South Korea, First REIT is in a strong position to leverage on the growing healthcare needs of a burgeoning population in Indonesia as well as an ageing population in Singapore and South Korea. Demonstrating the surging demand for nursing home services in Singapore, the government plans to build 10 new nursing homes between 2012 and 2016.

''  Boasts  'nancial  'repower to support its acquisition appetite.  First REIT recently entered into conditional agreements  for the acquisition of Siloam Hospitals Manado & Hotel Aryaduta Manado, which is an integrated hospital and hotel, and Siloam Hospitals Makassar for S$142.9mil. Assuming that the acquisition  of  the  former  is  to  be 'nanced by a debt'to'equity ratio of 30%, First REIT's asset leverage ratio will increase to 24.0%, which is still much lower than the regulatory limit. With a right'of''rst refusal to seven hospitals under its sponsor, First REIT has a healthy pipeline of assets to bolster its growth plans.

''  A steady generation of operating cash 'ows. First REIT has consistently generated su'cient operating cash  'ows to cover its distribution payments over the past  'scal years. Given its sturdy fundamentals and the quality of its earnings, this should support the sustainability of its yield .

''  Forex exposure mitigated.  First REIT's rental income from its Indonesian assets are based on a 'xed SGD'IDR exchange rate of IDR/SGD5,623.50 over the entire lease term, providing greater visibility over its earnings stream.

Key Risks 
''  First REIT's overreliance on the Indonesian market and its two master lessees Paci'c Healthcare as well as Siloam Hospitals (a subsidiary of Lippo Karawaci) for rental income are key risks. However, we are not particularly concerned about the latter given the master lessees' reputation and Lippo Karawaci's vested interest as a shareholder and sponsor.

Source: AmFraser