18 January 2010 CIMB Research Report RECOM BUY. SINGAPORE Anchored by Indonesian domestic demand BOARD Mainboard

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1 INITIATING COVERAGE 18 January 2010 CIMB Research Report RECOM BUY First REIT PRICE/TARGET PRICE S$0.855/S$1.08 MKT CAPITALISATION S$235.5m SINGAPORE Anchored by Indonesian domestic demand BOARD Mainboard SECTOR REITs FIRT SP Janice Ding, (65) Initiate with BUY and DDM-based target price of S$1.08. First REIT is a healthcare real estate investment trust with eight healthcare-related assets in Indonesia and Singapore. Its sponsor is PT Lippo Karawaci Tbk, Indonesia's largest broad-based property company listed on the Jakarta and Surabaya stock exchanges with a market capitalisation of Rp.13.8tr. Our DDM-derived target price of S$1.08 represents a prospective total return 35% from a forward yield of 8.7% and potential price upside of 26.3%. We like First REIT for its income resilience anchored by reputable tenants and positive industry prospects. At 0.9x P/BV, First REIT still looks attractive despite its recent price rally. Siloam Hospitals is the leading private hospital group in Indonesia. Siloam Hospitals, operator of First REIT s Indonesian hospitals, is a subsidiary of the sponsor-cum-master lessee, Lippo Karawaci. Established through a joint venture between Lippo Group and Parkway Holdings, Siloam Hospitals has built a premium brand as the leading private hospital group with world-class facilities in Indonesia. Severe shortage of quality healthcare in Indonesia. Indonesia has one of the largest populations in the world. Yet, its total expenditure on healthcare is the lowest in South-East Asia. Huge domestic demand for quality healthcare augurs well for First REIT s assets. Forex risks for Indonesian assets averted. The Indonesian assets would be paid in S$ at a pre-determined rate of S$1.00 to Rp5, for 15 years. This effectively removes all risks of any rupiah devaluation against the S$. Financial summary (S$m, FYE Dec) F 2010F 2011F Revenue (S$ m) Net property income (S$ m) Net property income margins (%) Pretax profit (S$ m) Net profit (S$ m) Core net profit (S$ m) Distributable profit (S$ m) EPS (S cts) Gross DPU (S cts) Dividend yield (%) 8.3% 8.9% 8.7% 8.7% 9.2% P/BV (x) ROE (%) 8.2% 2.3% 1.9% 1.9% 2.0% Asset leverage (%) 14.9% 15.0% 15.0% 18.4% 20.5% EV/EBITDA (x) % change in DPU estimates CIMB-GK/Consensus (x) N.A N.A N.A Source: Company, CIMB-GK estimates Market capitalisation & share price info Market cap S$235.5m Share price perf. (%) 1M 3M 12M 12-mth price range S$0.41/S$0.88 Relative mth avg daily volume S$0.20m Absolute # of shares (m) Major shareholders % held Est. free float (%) 71 Lippo Karawaci 20.0 Wrts/ICULS o/s (m) None Penta Investment 12.6 Conv. price (S$) None Golden Rainbow International 9.1 Source: Company, CIMB-GK Research, Bloomberg

2 Figure 1: First REIT s assets as at Dec 09 Background Listed on the Singapore Exchange in Dec 06, First REIT is the first Singapore-based REIT to invest in income-producing real estate and/or real-estate related assets in Asia that are primarily used for healthcare and/or healthcare-related purposes. These could include hospitals, nursing homes, medical offices, R&D, and warehousing or manufacturing facilities catering to the medical, biomedical, and pharmaceutical and biotech sectors. Its sponsor is PT Lippo Karawaci Tbk, Indonesia's largest broad-based property company listed on the Jakarta and Surabaya stock exchanges with a market capitalisation of Rp.13.8tr. Lippo Karawaci owns 21.2% of the REIT. The manager of First REIT, Bowsprit Capital Corporation Limited, is an indirect subsidiary of the sponsor, through an 80% stake held by LK REIT Management Ltd, an indirect whollyowned subsidiary of the sponsor. Indonesian concentration. First REIT's initial portfolio of four properties in Indonesia had doubled by 2008 to eight properties in Indonesia and Singapore. These include three hospitals and one hotel in Indonesia, and three nursing homes and one hospital in Singapore. As at 31 Dec 09, First REIT s assets were valued at S$340.9m. The master lessee of all of the Indonesian assets is the sponsor Lippo Karawaci, and the operators are The Siloam Hospitals and Aryaduta Group (for the hotel). Both operators are subsidiaries of the sponsor. The Singapore-listed Pacific Healthcare Holdings is the key master lessee of three Singapore assets. The Lentor Residence is leased by a private operator. Asset leverage capped at 35%. First REIT does not have a credit rating, thus its asset leverage is limited of 35%. Location Asset Latest Gross Floor Operational Acquisition Valuation Leaseback Type of Area beds Price as at Dec 09 period asset (sq ft) (no) (S$ m) (S$ m) (years) Indonesia, Jakarta Siloam Hospitals Lippo Karawaci Hospital 293, Indonesia, Jakarta Siloam Hospitals West Jakarta Hospital 196, Indonesia, Surabaya Siloam Hospitals Surabaya Hospital 97, Indonesia, Jakarta Imperial Aryaduta Hotel & Country Club Hotel 187, Singapore Pacific Healthcare Bukit Merah Nursing home 38, Singapore Pacific Healthcare Bt Panjang Nursing Home 38, Singapore Adam Road Hospital Hospital 13, Nursing Singapore The Lentor Residence home 31, Source: Company, CIMB-GK Research 897,292 1, Indonesian hospitals driving revenue. First REIT s revenue is driven by its Indonesian assets which contribute the lion s share of 87% (Singapore assets 13%). Hospitals form the major component at 78% of the total, supported by hotel (12%) and nursing homes (10%). 2

3 Figure 2: Portfolio by property value and gross revenue, as at Dec 08 Property value Contribution to gross revenue Indonesia 83% Indonesia 87% Singapore 17% Singapore 13% Source: Company, CIMB-GK Research Figure 3: Revenue breakdown by type of asset Hospital 78% Hotel 12% Nursing home 10% Source: Company, CIMB-GK Research Figure 4: Asset value, revenue and gross yields Asset value Revenue Gross Yield % of total S$ m Asset S$ m revenue % Siloam Hospitals Lippo Karawaci % 9.1% Siloam Hospitals West Jakarta % 9.6% Siloam Hospitals Surabaya % 10.7% Imperial Aryaduta Hotel & Country Club % 10.7% Pacific Healthcare Bt Merah % 7.8% Pacific Healthcare Bt Panjang % 8.0% Adam Road Hospital % 6.7% Lentor Residence % 7.8% Portfolio % Source: Company, CIMB-GK Research Long master leases. First REIT s leases have all been structured as master leases to ensure defensible income. These include: year leases for its Indonesian assets ; year leases for its Singapore assets. These are much longer than the average five years for industrial REITs and three years for commercial REITs. 3

4 Revenue growth of IPO assets pegged to Singapore s inflation rate and Indonesian hospital performances. First REIT s leases are structured for stable and moderate growth. Its Indonesian assets have a rental formula based on a base rent and a variable component. The base rent for the first year of lease was determined during listing at S$24.1m. In each subsequent year, this base component would grow by twice the rate of Singapore s inflation, subject to a floor of 0% and a ceiling of 2%. The variable component is payable if the Indonesian assets preceding year s gross revenue grows by more than 5%. The variable to be paid is % of the master lessee s gross revenue. According to management, the variable component now forms 5% of the total rent paid to First REIT. Lippo Karawaci s 2008 Annual Report reflects 18% growth in gross operating revenue at its Siloam Hospitals. If this growth continues, First REIT is likely to enjoy additional growth from the variable component. Revenue growth of Singapore assets to grow by 2% p.a. Revenue from First REIT s Singapore assets has an annual step-up increase of 2% for the period of the leases. Figure 5: Rental structure for First REIT s assets (1) Indonesian assets Rental structure (up to 15 years): Base rent in 1st year of lease: Variable component: (Base rent growth pegged to 2 times of Singapore s CPI growth, subject to floor of 0% and ceiling of 2%) + variable component S$24.1m (as stated in IPO prospectus) Payable as follows, if growth of Master Lessee's Gross Revenue for the preceding calendar year exceeds 5%: ~ 0.75% of Master Lessee's Gross Revenue if increase ranges from 5-15% ~ 1.25% of Master Lessee's Gross Revenue if increase ranges from 15-30% ~ 2% of Master Lessee's Gross Revenue if increase is 30% or more (2) Singapore assets Rental structure (up to 10 years) Fixed annual rent step-up of 2% Source: Company Figure 6: Indonesian hospital performances from Lippo s 2008 Annual Report Source: Company 4

5 Strong sponsor support. Lippo Karawaci is the largest listed property in Indonesia by market capitalization, assets, revenue and net profit. Healthcare is its second largest contributor at 19% of its EBITDA. First REIT is able to benefit from the sponsor s support through: (1) The parent taking up the role of master lessee of all its Indonesian assets. This gives assurance to the reliability of rental income. (2) First right of refusal to the sponsor s healthcare assets which include the Siloam Hospital Semanggi (housing the Mochtar Riady Comprehensive Cancer Center), the Siloam Hospital Lippo Cikarang and future hospitals to be developed by the sponsor. (3) The reputation of its parent (which owns the Siloam Hospital Group), which could translate into higher hospital revenue and higher variable rents. (4) The location of its Indonesian assets, which are housed in the parent s townships with captive audiences. Two of First REIT s assets, Siloam Hospital Lippo Karawaci and Imperial Aryaduta Hotel and Country Club, are located in Lippo Karawaci, the flagship city of the sponsor. Founded in 1993 in West Jakarta and 30km from central Jakarta, Lippo Karawaci is the most successful integrated satellite city in Indonesia with complete international standard facilities and infrastructure for residential, commercial, healthcare and education. With more than 40,000 residents in the middle and middleupper income brackets and 45,000 jobs created in the township, both assets should benefit from a captive audience in its immediate locale. (5) The parent s commitment and interest in developing healthcare facilities in Indonesia. Reputable master lessess and operators. The Siloam Hospital, operator of First REIT s Indonesian hospitals, is a subsidiary of the master lessee-cum-sponsor. The hospital group was established in 1996 as a joint venture between the Lippo Group and the Singapore-based Parkway Holdings. Through continual collaboration and exchanges with various internationally recognised health providers including Singapore s public health provider SingHealth, Siloam Hospitals has built up a premium brand as the leading private hospital group with world-class facilities in Indonesia. Under its operator, Siloam Hospital Lippo Karawaci is the first and only hospital in Indonesia to be accredited by the Joint Commission International (JCI), a US-based healthcare accreditation body. Voluntary accreditation underscores the group s commitment to ensuring a safe environment for its patients. The Siloam Group endeavours to achieve JCI accreditation for all its hospitals. Additionally, it seeks to build up tertiary healthcare within all its hospitals (which are general hospitals) by establishing centres of excellence. These include the Neuroscience & Heart Centre (Siloam Hospital Lippo Karawaci); Urology, Obsterics & Gynaecology, and Orthopaedic (Siloam Hospital Kebon Jeruk); and Fertility Centre (Siloam Hospital Surabaya). In Singapore, First REIT s key master lessee-cum-operator Pacific Healthcare, is also a reputed healthcare operator. Listed on the Singapore Exchange with a market cap of S$31m, Pacific Healthcare is an integrated healthcare provider offering comprehensive healthcare services encompassing specialist medical care, general practice medicine, dentistry, health screening, and wellness services. It also operates a nursing home, day surgery centres and a psychiatric hospital. Pacific Healthcare has a presence in Singapore, Hong Kong and India. 5

6 Figure 7: Specialisation of the three Indonesian hospitals Source: Company Forex risks for IPO assets averted. From the listing of First REIT and for the entire duration of the leases of 15 years, rent from the Indonesian assets would be paid in S$ at a pre-determined rate of S$1.00 to Rp5, This effectively removes all risks of any rupiah devaluation against the S$. Tax leakage from Indonesian properties. There are two sources of tax leakages from its Indonesian assets: 1) income tax at a rate of 10% of the gross value of the land and/or building rental. For First REIT, this is based on 10% of rental revenue; and 2) withholding tax capped at 10% of dividends paid to First REIT in Singapore (under the income tax treaty between Singapore and Indonesia). Property tax for the Singapore assets is paid for by the tenants. Outlook Severe shortage of quality healthcare services in Indonesia. According to the 2009 CIA World Factbook, Indonesia has a population of 240.3m, one of the largest in the world. However, its total expenditure on healthcare is the lowest in South-East Asia at only 2.5% of GDP. According to the Indonesia Public Expenditure Review 2007, the utilisation of public health facilities remains low with fewer than half of Indonesians seeking treatment at public health facilities. The reasons include poor access to these facilities, low quality of treatment and restricted opening hours, the results of persistently low government spending on healthcare. Indonesia has 1,178 hospitals with 128,284 beds. Private hospital owners have a 49% market share and ownership has not changed much over time. Most of the public hospitals provide only general care and only about 30% of specialised health interventions are performed in these hospitals. Private hospital providers dominate the provision of specialised care. The private hospital sector in Indonesia is cornered by two big players: The Siloam Hospital Group (four hospitals) and the Australian group, Ramsay Health Care (three hospitals). With a severe shortage in quality healthcare, and a limited number of private players, the Siloam Hospital Group has considerable potential for growth in the Indonesian market. 6

7 Figure 8: Indonesia has the lowest expenditure on health in South-East Asia Source: World Health Statistics WHO Figure 9: Private hospital owners have 49% of the market and dominate the provision of specific care services Hospital owners by type of provider / owner Specialised and general care in public and private hospitals Source: Indonesia MOH, 2004 M&A growth through sponsor s pipeline in Indonesia. First Reit has the right of refusal to the sponsor s healthcare assets which include the Siloam Hospital Semanggi (housing the Mochtar Riady Comprehensive Cancer Center), the Siloam Hospital Lippo Cikarang and future hospitals to be developed by the sponsor. Additionally, we understand that a piece of land adjacent to Siloam Hospital Surabaya has been acquired by the sponsor. This would be developed as an extension of the current hospital, and could be injected into the REIT when completed. 7

8 Organic growth through asset enhancement and redevelopment. In additional to organic growth via step-up rents, unitholders can expect growth via upcoming asset enhancements: (1) Adam Road Hospital redevelopment: The Adam Road Hospital would be enhanced to a modern 3-storey purpose-built cancer hospital, doubling its floor area to 27,400sf. While First REIT would bear the redevelopment cost of S$18.6m, the tenant Pacific Healthcare will continue to fulfil its lease obligations throughout construction. Upon completion (estimated in mid- 2011), the lease shall cease and the tenant will take up a new lease for a term of years at an agreed revised annual rent, with annual escalation. The redevelopment is expected to yield 10% returns net, moderately above the current portfolio property yield of 9.2%. (2) Lentor Residence asset enhancement: The manager plans to start asset enhancement for The Lentor Residence. We estimate that S$5m will be spent on this nursing home at a net yield of 9.2%, in line with the current portfolio property yield. Risks Heavy reliance on master lessees for rental income. First REIT is highly dependent on its two master lessees for rental income. In particular, it is heavily reliant on its sponsor Lippo Karawaci as the sole lessee of all its Indonesian assets (83% of First REIT s revenue in 2008). Any negative impact on Lippo Karawaci s operations may affect its ability to pay rent to First REIT promptly. We note that the sponsor s rent to EBITDA ratio is 60% (rents paid to First REIT over Lippo Karawaci s healthcare EBITDA). This is high compared with Parkway Holdings rent to Singapore EBITDA ratio of 40% (rents paid to PLife REIT over Parkway Holding s Singapore EBITDA). This implies that rental payments from the master lessee may not be certain should its EBITDA deteriorate. Nonetheless, we believe that this risk could be reduced by the following: 1) The Indonesian hospitals are operated by The Siloam Hospitals, the largest private healthcare operator in Indonesia; 2) Lippo Karawaci has vested interests in First REIT being both sponsor and major shareholder. Hence prompt payment would be to the sponsor s own interests; and 3) high domestic demand for quality specialised healthcare services in Indonesia. High concentration in Indonesia. Some 75% of First REIT s revenue comes from its Indonesian hospitals. This represents a significant risk to First REIT s cash flows should there be major disruptions to hospital operations such as epidemics, natural disasters, acts of terrorism or other disasters. Competition in Indonesia. The Siloam Group is the market leader in Indonesia s private hospital sector. The second largest private hospital player is the Australian Group Ramsay Health Care. The other players include a mix of profit and non-profit organisations, spearheaded mostly by ethnic or religious groups. Hence, we deem the degree of competition in Indonesia rather low. Difficulty in finding alternative healthcare operators. As healthcare is a niche industry with high barriers to entry, there could be some difficulty in finding alternative reputable healthcare operators as lessees if the master lessee chooses not to renew its lease at the end of the initial 15 years, especially with the limited number of privatehospital players in Indonesia. However, in view of Lippo Karawaci s vested interest in First REIT as its stake holder (21.2% stake), and a high replacement cost for hospital assets, we view non-renewal a limited risk. Competition for foreign patients from regional medical hubs. In 2007, medical tourists in the Asia Pacific numbered 2m, spending US$3bn. Thailand, Malaysia, India and Singapore were their key destinations. Indonesians are also Singapore s largest source of medical tourists. While there will always be top-tier patients able to travel to any part of the world for medical treatment, we believe the domestic mid-tier market is more than sufficient for Siloam Group to harness in view of Indonesia s large population. Intense competition for healthcare assets in Singapore. While we believe First REIT would find it rather easy to acquire healthcare assets in Indonesia due to support from its sponsor, acquisitions in its secondary market, Singapore, may not be so smooth. The manager s last attempt to acquire Tuas View Lane, a pharmaceutical warehouse, failed in the face of strong competition from other potential buyers. We believe that competition for healthcare and healthcare-related assets in Singapore will intensify as credit conditions ease. Competitors are many and include Parkway Life REIT, a yet un-named upcoming healthcare fund, other industrial REITs and funds 8

9 including AREIT, MapleLog, Cambridge Industrial Trust and AIMSAMP Industrial REIT; as well as other healthcare operators in Singapore. As such, we believe there could be limited acquisition growth in Singapore for First REIT. Financials Asset leverage at 14.8%. As at 3Q09, First REIT had S$50m of debt, drawn earlier to finance the acquisition of its Singapore assets. This represents a 14.8% leverage on its S$338.2m assets. Non-rated REITs have a regulatory gearing limit of 35%. Management does not intend to have the REIT rated as it does not intend to gear beyond 35%. Credit facilities. First REIT has a S$70m term loan facility with OCBC, of which about S$50m had been drawn down for the acquisition of its Singapore assets. The remainder is likely to be utilised for the redevelopment of Adam Road Hospital. Growth assumptions. For its Indonesian assets, we have assumed a CPI growth rate of 2% p.a. and an additional 2% growth in its variable rent component. For the Singapore assets, we have assumed growth of 2% p.a as guided by management. NPI margin assumption of 99%. Management expects net property income (NPI) margins from new acquisitions to match those of its existing portfolio as it is likely to structure similar triple net lease terms with future tenants or master lessees. We have applied the same margins of 99% to its potential acquisitions. Limited capex needs. The sponsor had undertaken capex for its Indonesian hospital assets till end From 2010, First REIT will be responsible for repair and replacement work of a capital nature. Repair and replacement work of an expense nature will still be borne by the Siloam Group. The manager guides for 1-2% capex on investment properties. Assuming cost of debt of 4.2% in FY10. First REIT s annualised cost of debt is estimated at 3.6% for FY08. However, to reflect possibly more difficult funding conditions, we are using a more conservative 4% from FY09 and 4.2% in FY10. 9

10 Figure 10: Key assumptions for our revenue projections EXISTING INDONESIAN IPO PORTFOLIO (S$ m) F 2010F 2011F Annual base rent Annual escalation based on CPI 2% 2% Variable rent based on Master Lessee Gross Revenue 3% 3% Total Indonesia contribution EXISTING SINGAPORE PORTFOLIO (S$ m) Stepped up rents 2.0% 2.0% Total Singapore contribution REVENUE FROM ASSET ENHANCEMENT (S$ m) Adam Road Hospital Average net property yields 10% 10% Estimated NPI margins 99% 99% Gross contribution from acquisition % contribution in current year 0% 30% Contribution in current year Cummulative contribution from AEI REVENUE FROM ASSET ENHANCEMENT (S$ m) Lentor Residence Average net property yields 9% 9% Estimated NPI margins 99% 99% Gross contribution from acquisition % contribution in current year 0% 0% Contribution in current year - - Cummulative contribution from AEI TOTAL REVENUE PROJECTION Existing portfolio New acquisitions & AEI Total Revenue Valuation and recommendation Initiate coverage with BUY and target price of S$1.08 (discount rate 8.6%). We use DDM to value First REIT, the methodology we use to value all REITs under our coverage. We use a discount rate of 8.6%, derived from a risk-free rate of 4.1%, an equity risk premium of 4.5% and a beta of 1.0. We also assume a terminal growth rate of 1.5%. We arrive at a target price of S$1.08. This represents a prospective total return 35% from a forward yield of 8.7% and potential price upside of 26.3%. We like First REIT for its income resilience anchored by reputable tenants and positive industry prospects. At 0.9x P/BV, and with dividend yields above the SREIT sector average of 6.6%, First REIT still looks attractive despite its recent price rally. Its closest competitor PLife REIT is trading at 1.0x P/BV with a lower yield of 6.5%. 10

11 Technical BUY The stock s uptrend is still very much intact but there are signs of tiredness creeping in. This uptrend could be due for a consolidation soon. MACD is about confirm its dead crossover while its RSI is now overbought, suggesting that a pullback is on the cards. Traders may opt to take some profits now and buy back around the S$0.81 or S$0.78 support levels. Upside resistance is at S$

12 Financial tables PROFIT & LOSS (S$ m, FYE Dec) F 2010F 2011F Revenue Operating expenses (3.7) (4.1) (3.9) (3.9) (4.3) EBITDA Depreciation & amortisation EBIT Net interest & invt income (1.4) (1.6) (1.8) (2.5) (3.1) Exceptional items 91.0 (0.7) Pretax profit Tax (31.7) (0.8) (5.2) (5.4) (5.5) Net profit Core net profit Distributable profit Wt. shares (m) Shares at year-end (m) BALANCE SHEET (S$ m, FYE Dec) F 2010F 2011F Fixed assets Intangible assets Investment properties Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders' funds Minority interests NTA/share (S$) CASH FLOW (S$ m, FYE Dec) F 2010F 2011F Pretax profit Depreciation & non-cash adjustments Working capital changes 8.0 (0.3) (0.0) Cash tax paid (3.1) (6.3) (5.2) (5.4) (5.5) Others (89.1) Cash flow from operations Capex (25.1) (7.0) Net investments & sale of FA (234.5) Others Cash flow from investing (234.5) (24.9) (7.0) Debt raised/(repaid) Equity raised/(repaid) Dividends paid (14.5) (20.3) (20.4) (20.4) (21.8) Cash interest & others (0.9) (1.8) (2.0) (2.7) (3.1) Cash flow from financing (22.1) (22.4) (8.8) (15.6) Change in cash 13.6 (1.2) (0.0) (10.7) 2.5 Change in net cash/(debt) (36.1) (22.3) (3.7) Ending net cash/(debt) (37.0) (38.4) (38.4) (63.4) (70.3) KEY RATIOS (FYE Dec) F 2011F Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rates (%) Source: Company, CIMB-GK estimates 12

13 APPENDICES 13

14 1. Management profile Dr Ronnie Tan Keh Poo Chief Executive Officer & Executive Director Mr Victor Tan Kok Mian Chief Financial Officer Mr Jacky Chan Seng Leong Senior Asset and Investment Manager Dr Ronnie Tan is CEO and Director of Bowsprit Capital Corporation, the manager of First REIT. Dr Tan qualified as a Medical Doctor from the University of Melbourne in He had worked in various government and private healthcare facilities in Australia and Singapore as a Medical Practitioner until After receiving his Master of Health Administration from Loma Linda University, he joined Parkway Holdings Limited as its international business development manager, and also served as CEO of Gleneagles Hospital. In 1995, he worked in Indonesia as Executive Director of Lippo Group and Chief Executive Officer of the Siloam group of hospitals. Mr Victor Tan has been CFO of the manager since Jul 08. Prior to joining Bowsprit, Mr Tan worked at Parkway Holdings Limited from 1997 to His last position was Financial Controller, where he also assisted Parkway s CFO in preparation of the consolidated accounts for the Parkway Group. Mr Tan graduated in 1997 with professional qualifications from the Association of Chartered Certified Accountants (ACCA). Mr Chan is the Senior Asset and Investment Manager of the Manger. He holds a Master of Science (Real Estate) degree from the National University of Singapore (1999) and a Mater of Business Administration degree from the University of Western Australia, Perth (2002). A member of the Singapore Institute of Surveyors and Valuers as well as a Licensed Appraiser (Lands and Buildings), Mr Chan has extensive real estate and property experience in Singapore, Hong Kong and China. His work responsibilities had involved, among others, property valuation, property sales and marketing, real estate research and feasibility studies, structuring property investment and development deals, conducting property due diligence, planning and implementation of leasing and asset enhancement strategies to improve efficiency. He held positions at Chesterton International Property Consultants (Executive Director, Valuations & Investment Advisory), and Ascendas-MGM Funds Management (Investment Manager of AREIT). Source: Company, CIMB-GK Research 14

15 2. Trust structure Source: Company 15

16 3. Property ownership structure Source: Company 16

17 4. Sponsor PT Lippo Karawaci PT Lippo Karawaci is the property arm of the Lippo Group conglomerate and the largest listed property in Indonesia by market cap, assets, revenue and net profit. With a market cap of Rp.13.8tr, PT Lippo Karawaci makes up 1.3% of the Jakarta Composite Index (JCI), 31.3% of the Indonesian property sector, and is included in the LQ45 and MSCI Global Indices. It is the only property company in Indonesia to be rated by three ratings agencies: Standard & Poor s, Moody s and Fitch. Figure 11: PT Lippo Karawaci is a subsidiary of the Lippo Group Source: Company In 2008, Lippo Karawaci grouped its operations under six business lines: Urban Development Large Scale Integrated Development Retail Malls Healthcare Hotels and Hospitality Property & Portfolio Management Figure 12: PT Lippo Karawaci s EBITDA breakdown in 3Q09: healthcare at No. 2 Source: Company 17

18 Urban development. PT Lippo Karawaci pioneered the concept of urban development or townships in Indonesia in the early 1990s, and this continues to be its trademark. It has four townships: Lippo Lippo Cikarang, Tanjung Bunga and the San Diego Hills Memorial Park. These townships have comprehensive residential, commercial and industrial communities. Large scale integrated development. The company also has a strong track record in developing self-contained large-scale integrated developments, which provide an alternative to slow development in city infrastructure by integrating residential, office, entertainment, education and healthcare facilities in a single location. In 2008, the company continued the development of City of Tomorrow in Surabaya, Kemang Village in South Jakarta and launched St. Moritz in West Jakarta. Healthcare: Siloam Hospitals Group. While Urban Development and Large Scale Integrated Development remain its anchor segments, healthcare is the second largest contributor at 19% of PT Lippo Karawaci s EBITDA. A shortage of high-quality hospitals in Indonesia and the growing trend of Indonesians seeking superior medical care overseas prompted PT Lippo Karawaci to enter the healthcare business by establishing its private hospitals with world-class facilities and standards for the medium-to-high-income population in Indonesia. The Siloam Group was established in 1996 by the Lippo Group in collaboration with Singapore-based Parkway Holdings. Currently, there are four hospitals under the Siloam Group s management: (1) Siloam Hospitals Lippo Village; (2) Siloam Hospitals Kebon Jeruk; (3) Siloam Hospitals Surabaya; (4) Siloam Hospitals Lippo Cikarang; and (5) Siloam Hospitals Semanggi which incorporates The Mochtar Riady Comprehensive Cancer Centre. Siloam Hospitals Lippo Karawaci is the first hospital in Indonesia to receive accreditation from US-based Joint Commission International (JCI). The group aims to get all its hospitals accredited by JCI. 18

19 Figure 13: Sponsor s assets that could be injected into First REIT Source: Company 19

20 20

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