OUE’s First REIT Presses Unitholders to Back $597M Indonesia Exit

First REIT’s manager is urging unitholders to support the Singapore-listed healthcare trust’s proposed exit from Indonesia, arguing that the divestment would give the OUE-sponsored vehicle transaction certainty, a stronger balance sheet and a clearer path to redeploy capital into developed markets.

At a dialogue session of the Securities Investors Association Singapore on Monday, the manager laid out its case for independent unitholders to approve the sale of eight hospitals and three non-core assets in Indonesia for S$471.5 million, along with put options that could lift total proceeds from the trust’s Indonesia exit to S$766 million ($597 million).

The proposed sale, first announced in April, would see First REIT sell the eight hospitals to Siloam International Hospitals for S$389.2 million, while divesting two non-core assets to Lippo Karawaci and granting a prepaid lease over a Kupang mall to Metropolis Propertindo Utama for a combined S$82.4 million. The manager warned unitholders that rejecting the deal could leave the trust without a better path to exiting the portfolio.

“As at the date of the announcement, the proposed divestments represent the best available offer for the Indonesia divestment properties,” the manager said in the SIAS presentation. “Should the proposed divestments not receive the requisite approval from the independent unitholders, there is no certainty that the manager will receive a superior offer in the future or any offer at all.”

Majority Vote Required

The transaction will be put to unitholders at an extraordinary general meeting on 23 June, with the hospital divestment and the non-core asset sale each requiring approval from more than 50 percent of votes cast by independent unitholders.

The two resolutions are mutually conditional, meaning neither the hospital sale nor the non-core divestments can proceed unless both are approved, with the manager warning that there will be no special distribution if the deal is voted down.

OUE Ltd, OUE Healthcare and their respective associates will abstain from voting on the resolutions, leaving minority unitholders to decide whether First REIT should press ahead with the planned exit from Southeast Asia’s largest economy.

SAC Capital, the independent financial advisor, has concluded that the proposed divestments are on normal commercial terms and not prejudicial to the interests of First REIT and its minority unitholders, according to the presentation. The independent directors and audit and risk committee are recommending that unitholders vote in favour of the resolutions.

To help secure support, the manager is waiving a S$2.4 million divestment fee and committing S$9.7 million in proceeds to a special distribution, equivalent to the premium over the appraised valuation of the hospital and non-core properties being sold.

The manager also used the SIAS presentation to underline the risks of holding on to the Indonesia portfolio, saying the rupiah has weakened by 28 percent against the Singapore dollar over the past five years, offsetting gains in constant-currency rental income and weighing on distribution per unit and net asset value.

The manager said the hospital properties being sold have a weighted average age of 20.5 years and weighted average lease expiry of 10 years by gross floor area, implying significant near- to medium-term capital expenditure, while leases for Siloam Hospitals Lippo Cikarang and Hotel Aryaduta Manado that are currently denominated in Singapore dollars are expected to shift to rupiah leases when they expire within two years.

Portfolio Surgery

The eight hospitals being sold to Siloam comprise Siloam Sriwijaya, Siloam Hospitals Purwakarta, Siloam Hospitals Lippo Village, Siloam Hospitals Kebon Jeruk, Siloam Hospitals Bali, Siloam Hospitals Kupang, Siloam Hospitals Baubau and Siloam Hospitals Manado, with the assets set to change hands at a 2.8 percent premium to their average independent valuations.

The non-core assets comprise Lippo Plaza Baubau and Hotel Aryaduta Manado, which are being sold to Lippo Karawaci — a property firm controlled by the Riady family behind Lippo Group and REIT sponsor OUE — and Lippo Plaza Kupang, where First REIT is granting a prepaid lease to Metropolis Propertindo Utama, another Lippo affiliate.

Siloam has also granted First REIT put options to sell the remaining six hospitals in its Indonesia portfolio — Siloam Hospitals Labuan Bajo, Siloam Hospitals TB Simatupang, Siloam Hospitals Makassar, Mochtar Riady Comprehensive Cancer Centre, Siloam Hospitals Lippo Cikarang and Siloam Hospitals Yogyakarta — for S$294.8 million.

First REIT expects to complete the hospital and non-core divestments in August, subject to unitholder approval, with the trust set to identify, evaluate and execute potential acquisitions and put-option divestments from August onwards as it seeks to reconstitute its portfolio around developed markets including Singapore and Japan.