Tuesday 16 April 2013

First REIT

OCBC on 16 Apr 2013

News agency Reuters reported that Lippo Karawaci (Lippo), which is First REIT’s (FREIT) sponsor, is seeking to raise at least US$200m in an IPO of its Siloam Hospitals healthcare division. We do not foresee any major impact to FREIT’s prospects, as we believe that FREIT would remain as an important vehicle for Lippo to implement its asset-light strategy. Moreover, FREIT has a right-of-first-refusal for the purchase of healthcare assets from its sponsor and/or any of its subsidiaries. Meanwhile, FREIT will hold an EGM on 29 Apr to seek unitholders’ approval in relation to its two proposed acquisitions from Lippo. As we expect the acquisitions to be DPU accretive and value-enhancing to unitholders, we expect unit-holders to vote in favour of the proposed conditions. Maintain HOLD and S$1.31 fair value estimate on FREIT.

Lippo Karawaci’s Siloam Hospitals unit may seek an IPO
News agency Reuters reported that Lippo Karawaci (Lippo), which is First REIT’s (FREIT) sponsor, is seeking to raise at least US$200m in an IPO of its Siloam Hospitals healthcare division. Should this IPO materialise, we believe that proceeds would be used to fund Lippo’s aggressive healthcare expansion plans, which includes the construction of a large number of hospitals. Lippo has a target to operate 27 hospitals by 2015 (currently operates ~13), with expected total revenue of US$500m in 2015. We also expect Lippo to retain a strong majority of the controlling stake of the listed entity, given that it has earmarked its healthcare division as one of its core growth drivers.

No major impact to FREIT’s prospects
We expect FREIT to remain as an important vehicle for Lippo to implement its asset-light strategy. As the Siloam Hospitals entity would likely continue to be consolidated in Lippo’s financial statements, we believe that future hospitals will still be injected into FREIT. Moreover, FREIT has a right-of-first-refusal for the purchase of healthcare assets from its sponsor and/or any of its subsidiaries. Lippo also has a deemed interest of ~28.7% in FREIT. Hence, we believe that both parties’ interests would remain aligned. Having a separate listed entity to operate and carry out the healthcare operations of Lippo may in fact lead to a better focus and thus could be beneficial for FREIT. 


To obtain unitholders’ approval at upcoming EGM
FREIT has dispatched the Circular (dated 12 Apr 2013) to its unitholders in relation to its proposed acquisition of Siloam Hospitals Bali (SHBL) and Siloam Hospitals TB Simatupang (SHTS) from Lippo. An EGM has been scheduled on 29 Apr to obtain unitholders’ approval for the aforementioned acquisitions, issuance of new units to Lippo as partial payment for SHTS and proposed whitewash resolution for a waiver of a mandatory offer from Lippo. As we expect the acquisitions to be DPU accretive and value-enhancing to unitholders, we expect unit-holders to vote in favour of the proposed conditions. Meanwhile, we retain our HOLD rating and S$1.31 fair value estimate on FREIT.

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