The manager of First REIT has announced a new growth strategy following the completion of its corporate restructuring.
Dubbed the First REIT 2.0 Growth Strategy, the new roadmap is structured around four strategic pillars - to diversify into developed markets; to strengthen capital structure through diversification of funding sources; to reshape the portfolio for capital efficient growth by recycling non-core assets; and to pivot to ride megatrends.
“Following its restructuring, First REIT has delivered total unitholder returns of 51% with a 36% increase in unit price from January to November this year. First REIT is now ready to embark on its 2.0 Growth Strategy. Today’s announcements mark the inflexion point as we work towards creating value for our investors in the long term,” says Christopher Williams, chairman of the manager.
In tandem with the new strategy, the manager also announced two transactions - the acquisition of nursing homes in Japan and the proposed settlement of claims relevant to terminated development worlds adjacent to Siloam Hospital Surabaya. The transactions are subject to unitholders approval at an extraordinary general meeting that will be convened at a later date.
First REIT will be making its maiden entry into the Japan nursing home market through the acquisition of 12 nursing homes at a purchase price of JPY24.2 billion ($291 million).
The 12 freehold assets have a combined gross floor area of approximately 90,989 sq m and 1,451 rooms, which are 100% master-leased to tenants who are independent local nursing home operators.
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The assets are being acquired from the REIT’s sponsor, OUE Lippo Healthcare. First REIT will acquire OUELH Japan Medical Facilities (JMF), which owns 100% interest in the nursing homes.
The purchase price represents a discount of 2.9% to the average of two independent valuations conducted on the assets. Taking into account the adjusted net value of JMF, the aggregate purchase acquisition is estimated to be approximately $163.2 million.
Approximately 78.3% of the purchase consideration or $131.5 million will be funded by the issuance of approximately 431 million new First REIT units at a 9.3% premium to First REIT’s three-month volume weighted average price of 27.9 cents.
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For the remaining purchase consideration, $15.8 million will be in cash while $16.2 million will be in intercompany balances that shall be assumed by First REIT.
Post-acquisition, First REIT’s exposure to developed markets will bump up from 3.6% of the value of its assets to 27.1%, while its total assets will grow by 29.1% to $1.3 billion, based on 1H2021 figures.
The acquisition is expected to increase distribution per unit by 0.8% to 1.31 cents on a 1H2021 pro forma basis.
Upon completion of the proposed transaction, OUE Lippo Healthcare's holdings in First REIT will more than double from 15.3% to 33.2%.
Meanwhile, FIRST REIT is also proposing the full settlement of claims in relation to the terminated development works adjacent to Siloam Hospital in Surabaya.
In June 2020, First REIT served a termination notice in respect of the works after road subsidence had a serious impact on the project. As part of the proposed settlement with PT Saputra Karya, an indirect wholly-owned subsidiary of PT Lippo Karawaci Tbk, First REIT today proposed to receive an aggregate settlement amount of approximately $30.6 million comprising $27 million in progress payments, $2.7 million in interest; and $0.9 million in project expenses incurred.
Units in First REIT closed up 1 cent or 3.39% higher at 30.5 cents on Dec 7, while units in OUE Lippo Healthcare closed up 0.1 cents or 2.7% higher at 3.8 cents.
