First REIT - Phillip Securities 2018-09-19: A New Dawn


First REIT - A New Dawn

  • OUE Limited (SGX:LJ3) and OUE Lippo Healthcare (SGX:5WA) collectively acquiring 100% of the shares in Bowsprit Capital Corporation Limited (Bowsprit), the Manager of First REIT (SGX:AW9U), from Lippo Karawaci (LPKR).
  • OUE Lippo Healthcare also acquiring 10.63% of First REIT units from Bridgewater International Limited (Bridgewater) (subsidiary of LPKR).
  • OUE Lippo Healthcare and LPKR will each have 10.63% stake in First REIT upon completion of transaction.
  • New ROFR pipeline from OUE Lippo Healthcare – which includes healthcare assets in Japan, China, Malaysia – in addition to existing ROFR pipeline from LPKR.
  • Cash infusion from LPKR’s divestment of stake in Bowsprit and First REIT through its holding companies, will ease its cash flow status and potentially improve receivables at First REIT.
  • Maintain NEUTRAL with an unchanged Target Price of S$1.31.

What is the news?

  1. OUE Limited (SGX:LJ3) and OUE Lippo Healthcare (SGX:5WA) acquiring 60% and 40% respectively of shares in Bowsprit from LPKR, for S$39.6mn.
  2. At the same time, OUE Lippo Healthcare will be acquiring 10.63% of units in First REIT from Bridgewater, via OLH Healthcare Investments Pte. Ltd. (OHI), for S$102.7mn (c.S$1.23/unit).

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  • Total purchase consideration of S$144.8mn (incl fees & expenses) to be settled in cash.
  • Proposed acquisition is subject to OUE Lippo Healthcare’s shareholders’ approval and MAS’ approval, and is expected to be completed by end November 2018.

Refer to Appendix in PDF report attached for ownership and trust structure.

The Positives

Expanded ROFR pipeline to access Japan, China, Malaysia.

  • OUE Lippo Healthcare will be granting First REIT a right-of-first-refusal (ROFR) to acquire any of its healthcare assets, subject to the completion of the proposed acquisition, which could pave inroads for First REIT to access geographies it currently does not have a presence in.

Potential improvement in tenant concentration risk management.

  • Moving forward, this could also reduce First REIT’s reliance on LPKR as the single biggest lessee of its properties (83% of First REIT’s GRI in FY17). The existing ROFR pipeline from LPKR will remain.

Potential improvement in receivables with cash infusion into core tenant LPKR.

  • The purchase consideration of S$144.8mn (incl. fees & expenses) for the 10.63% stake in First REIT will be paid in cash to LPKR. This could have a positive spillover effect into rentals owed by LPKR. First REIT’s receivables of S$29.1mn represent more than a quarter of FY17 revenue.
  • As per our conversation with the Manager following this latest announcement, there had not been any delays on LPKR’s end for payments past their due dates.


  • Outlook has improved for First REIT’s receivables as the cash infusion into LPKR could potentially be used to pay outstanding rental owed to First REIT. This transaction only changes the ownership structure of the REIT and the Manager, and does not affect operations of the REIT.
  • The expanded ROFR pipeline from OUE Lippo Healthcare would allow First REIT to pursue inorganic growth in other markets such as Japan, China and Malaysia. The existing ROFR from LPKR remains in place and is focused on Indonesia healthcare assets.
  • Current gearing of 34.1% affords a debt headroom of c.S$82.9m (assuming 40% gearing) to pursue inorganic growth strategies.

Maintain NEUTRAL with unchanged Target Price of S$1.31

  • No changes made to our forecasts as this transaction does impact the REIT operationally, and it is pending approval by OUE Lippo Healthcare shareholders and the MAS.
  • Our target price translates a FY18e yield of 7.2% and a P/NAV of 1.12x.

Tara Wong Phillip Securities Research | https://www.stocksbnb.com/ 2018-09-19
SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.310 Same 1.310