Tuesday, September 25, 2012

First REIT - Healthcare REIT to Buy 2 New Properties

Long have I held First REIT.  Bought and sold First REIT multiple times making a good profit.  Have also received multiple dividends from it.  While First REIT has usually traded around $0.78cents (at least base on my memory), it has now surged past $1.00 perhaps on news that they are about to acquire two new properties.

First REIT has basically entered into a conditional sale and purchase agreements for the proposed acquisition of two new properties in Indonesia - comprising an integrated hospital and hotel in Manado, and another hospital in Makassar in Indonesia’s southern province of Sulawesi.  Both properties will be purchased from two wholly‐owned units of PT Lippo Karawaci Tbk (First REIT’s sponsor) for a combined purchase consideration of approximately S$142.9 million.  As the properties are partly funded by debt, it should give First REIT sufficient gearing for future expansion or acquisitions.

In addition, PT Lippo Karawaci Tbk, First REIT’s sponsor and Master Lessee of the two properties, has signed conditional master lease agreements for lease terms of 15 years, with an option to renew for a further term of 15 years. The two properties are estimated to earn a total of $14.1mil in net rental income, or 26% of First REIT's $53.4mil net profit in 2011.  This is quite a substantial increase.

It is not surprising then that some analysts view this as a positive development for First REIT. The  acquisitions  of two hospitals in Indonesia not only improves its portfolio diversification in terms of locations and medical specializations but also enhances its weighted average lease expiry profile (WALE). The  acquisitions  are expected to improve its WALE from 10.8 years to 11.7 years. More importantly, the  acquisitions  would strengthen First REIT’s reach in Indonesia, a market perceived to be highly attractive on the back of strong underlying demographics and the government’s aim of improving healthcare access to the public.

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