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First REIT
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Pinnacle
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20-Nov-2007 23:11
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UOB KH - High yield a reflection of riskier profile First REIT invests in a diversified portfolio of income-producing real estate assets in Asia used primarily for healthcare and related purposes. Riding on healthcare growth in Indonesia. First REIT?s initial portfolio comprises Siloam Hospitals Lippo Karawaci, Siloam Hospitals West Jakarta, Siloam Hospitals Surabaya and Imperial Aryaduta Hotel. The largest asset Siloam Hospitals Lippo Karawaci is located in Lippo Karawaci Township and is just 8km away from Soekarno-Hatta International Airport in Jakarta. It specialises in neuro-science and cardiology and provides annual base rental of S$11.7m. Sponsor Lippo Karawaci has leased the four properties for 15 years with option to renew for another 15 years. The total base rent is S$24.1m, subject to annual increase equivalent to 2xCPI but capped at 2%. The rentals will be paid in S$ based on predetermined exchange rate of Rp5623.5 per S$. The variable rent is calculated based on growth in gross revenue generated at the four properties in the preceding calendar year: a) 0.75% of gross revenue if growth is more than 5% but less than 15%; b) 1.25% of gross revenue if growth is more than 15% but less than 30%, and; c) 2% of gross revenue if growth is 30% or more. Assets in Singapore provide diversification. First REIT has acquired Pacific Healthcare Nursing Homes at Bukit Merah and Senja in Apr 07, The Lentor Residence in Jun 07 and the Adam Road Hospital in Jul 07. The four healthcare facilities in Singapore have increased value of its portfolio from S$257m to S$308.8m. Rental income expanded 8.2% qoq to S$7m, reflecting contributions from the newly acquired properties. First REIT plans to redevelop Adam Road Hospital to increase net lettable area. Acquisition growth strategy in China. First REIT signed MOUs to acquire 90- bed Wuxi New District Phoenix Hospital, 200-bed Shanghai Woman & Child Healthcare Hospital, the proposed Hengshan Urology Hospital and 500-bed Nantong Rich Hospital. First REIT will also explore potential acquisitions with Sponsor, Lippo Karawaci in Indonesia. Management is confident of raising portfolio of investment properties to S$500m before end-2009. Sponsor Lippo Karawaci is the largest property developer listed on Jakarta Stock Exchange with market capitalisation of US$1087.5m. It owns a diversified portfolio comprising township and residential developments, commercial and retail developments and healthcare, infrastructure and hospitality properties. Lippo Karawaci has a 20.3% stake in First REIT and has granted first right of refusal over future sales of healthcare related hospitality assets. High yield but high risk. 83.3% of First REIT?s investment properties is located in Indonesia and denominated in Indonesian Ruppiah. It adopts a natural hedge strategy by borrowing in the same currency as the underlying assets. DPU was 1.72 cents for 3Q07, representing distribution yield of 9.1%. This provides a spread of only 0.7% over Bank Indonesia intervention rate at 8.25%. First REIT trades at a discount of 13.6% to NAV/unit of S$0.88. |
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