First REIT (FREIT) recently announced its proposal to acquire two Indonesian properties (one integrated hospital and hotel and the other a hospital) from its sponsor Lippo Karawaci for a total purchase consideration of S$142.9m. This would be funded largely by debt and partly by a private placement exercise. While the lease structure was largely similar to its existing Indonesian asset portfolio and would continue to provide unitholders with stability and income visibility, there were some lease terms which we were disappointed with. We had previously assumed new acquisitions in our model and hence finetune our assumptions in accordance to the updated details. We also roll forward our valuations to FY13, although this is partially mitigated by an enlarged unit base from its impending private placement exercise. Our RNAV-derived fair value estimate increases from S$0.96 to S$0.98. Maintain HOLD given FREIT’s rich valuations.
Plan for new acquisitions from sponsor
First REIT (FREIT) recently announced that it has entered into two conditional sale and purchase agreements with its sponsor Lippo Karawaci (Lippo). This entails the proposed acquisition of Siloam Hospitals Manado & Hotel Aryaduta Manado (MD) which are located in the same building in North Sulawesi, and Siloam Hospitals Makassar (SHMK) in the South Sulawesi Province. The purchase consideration for MD is ~S$83.6m, while that of SHMK is ~S$59.3m. The purchase of MD would be funded by a combination of debt and a private placement exercise (proportion not finalised), while SHMK would be financed wholly by a drawdown from its committed debt facility.
Lease terms largely similar to existing Indonesian portfolio
Similar to its existing Indonesian asset portfolio, these two proposed acquisitions are structured on a triple net master lease for 15 years (option to renew for a further 15 years thereafter) with 100% committed occupancy and downside base rental protection. Exchange rate risk for FREIT is also eliminated as the base rental is structured in SGD while the variable rental component is based on a fixed SGD/IDR rate (1 SGD = IDR 7,000) throughout the entire lease term. This provides greater stability and visibility to FREIT’s unitholders. However, the initial base rental yield of 9.7-10.0% for the two assets is a tad below our expectations. The base rental component for the leases would also be stagnant for the first three years of the lease, with rental escalation only possible in the fourth year.
Valuations still rich, reiterate HOLD
We had previously assumed new acquisitions in our 29 Jun 2012 report. Hence we finetune our assumptions in accordance with the updated asset details and also roll forward our valuations to FY13. This is partially mitigated by an enlarged unit base from its impending private placement exercise. Our RNAV-derived fair value estimate increases from S$0.96 to S$0.98. But we maintain HOLD on FREIT as valuations still appear rich, in our view, with the stock trading at 1.3x FY13F P/B.
First REIT (FREIT) recently announced that it has entered into two conditional sale and purchase agreements with its sponsor Lippo Karawaci (Lippo). This entails the proposed acquisition of Siloam Hospitals Manado & Hotel Aryaduta Manado (MD) which are located in the same building in North Sulawesi, and Siloam Hospitals Makassar (SHMK) in the South Sulawesi Province. The purchase consideration for MD is ~S$83.6m, while that of SHMK is ~S$59.3m. The purchase of MD would be funded by a combination of debt and a private placement exercise (proportion not finalised), while SHMK would be financed wholly by a drawdown from its committed debt facility.
Lease terms largely similar to existing Indonesian portfolio
Similar to its existing Indonesian asset portfolio, these two proposed acquisitions are structured on a triple net master lease for 15 years (option to renew for a further 15 years thereafter) with 100% committed occupancy and downside base rental protection. Exchange rate risk for FREIT is also eliminated as the base rental is structured in SGD while the variable rental component is based on a fixed SGD/IDR rate (1 SGD = IDR 7,000) throughout the entire lease term. This provides greater stability and visibility to FREIT’s unitholders. However, the initial base rental yield of 9.7-10.0% for the two assets is a tad below our expectations. The base rental component for the leases would also be stagnant for the first three years of the lease, with rental escalation only possible in the fourth year.
Valuations still rich, reiterate HOLD
We had previously assumed new acquisitions in our 29 Jun 2012 report. Hence we finetune our assumptions in accordance with the updated asset details and also roll forward our valuations to FY13. This is partially mitigated by an enlarged unit base from its impending private placement exercise. Our RNAV-derived fair value estimate increases from S$0.96 to S$0.98. But we maintain HOLD on FREIT as valuations still appear rich, in our view, with the stock trading at 1.3x FY13F P/B.
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