The analyst likes its senior-focused nursing homes in Japan, which are supported by the ageing population. Additionally, as First REIT’s nursing homes are in prefectural capitals, they do not face direct competition from the large Japan REIT counterparts in metropolitan areas.
“We also like the different length of stay the nursing homes offer versus its hospitals, for better diversification,” she adds.
In Indonesia, its hospitals are also benefiting from more affluent Indonesians who choose private local hospitals over medical tourism, Li points out. Due to travel restrictions at the height of Covid-19, an increasing number of Indonesia’s outbound medical tourists have grown accustomed to local private hospitals. As such, the revenue of premium private hospital chain Siloam Hospitals has increased since FY2022.
As part of the new lease agreement, the hospitals pay the higher of 4.5% annual rent escalation or 8% of the previous year’s gross operating revenue (GOR). “If the revenue of more Siloam Hospitals surpass their benchmark and they switch to performance-based rent, this should help drive organic growth for First REIT,” says Li.
He notes that First REIT is cash-rich, making asset buybacks possible. Its long-term target is to have 50% of AUM in developed markets. As such, it has positive growth potential on possible capital recycling. Maybank forecasts an attractive FY2024 DPU of 10%.
As at June 27, units in First REIT are trading at an unchanged 24.5 cents.