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Understanding OUE Lippo Healthcare’s Acquisition of First REIT

by: Tam Ging Wien


All examples and stocks quoted here in this article and on the ProButterflyTM and REITScreenerTM site are for learning purposes; it does NOT constitute financial advice or a Buy/Sell recommendation. Contents are reflective of personal views and readers are responsible for their own investments and are advised to perform their own independent due diligence and take into account their own financial situation. If in any doubt about the investment action you should take, you should consult a professional certified financial advisor.


On the 18th September 2018 (Tue), First REIT requested for a trading halt on its units pending an announcement that triggered numerous speculations. First REIT’s unit price closed at $1.24 prior to this announcement. Just a month ago, it was trading at close to $1.30. It traded at a high of $1.38 this year.

Just after lunch hour, an announcement was made that OUE Lippo Healthcare Ltd (OUELH) would be raising a 1-for-1 rights issue of 2,221,564,603 new shares at an issue price of S$0.0675 to raise close to $150mil to purchase 83,593,683 units in First REIT’s units and 40% of Bowsprit Capital Corp. Ltd, the manager of First REIT. OUE Ltd would be purchasing the remaining stake in Bowsprit Capital Corp. Ltd (Bowsprit) for a consideration of $59.33mil.

The transaction of 83,593,683 units represents 10.63% of First REITs total units and will transact at the price of $1.228 per unit. This results in the total purchase consideration of $102.653mil.

Visualising the Bowsprit Capital Acquisition

Figure 1: Structure Prior to the Acquisition of Bowsprit Capital Corp. Ltd
Source: ProButterfly Research

The diagram is Figure 1 describes the current ownership structure of Lippo Karawaci and its relation to First REIT. Notice that Lippo Karawaci has a 21.25% stake in First REIT through an intermediate entity known as Bridgewater International. Lippo Karawaci controls a further 7.0% state in First REIT through Bowsprit Capital Corp. Ltd who is also the manager of First REIT.


Figure 2: Structure After to the Acquisition of Bowsprit Capital Corp. Ltd
Source: ProButterfly Research

The diagram is Figure 2 describes the post-acquisition ownership structure of Bowspirt Capital. Bowsprit Capital Corp. Ltd will now be 60% owned by OUE Ltd and 40% owned by OUE Lippo Healthcare Ltd.

As a consideration for this transaction, OUE Ltd would pay PT Lippo Karawaci Tbk $59.33mil for 60% stake in Bowsprit while OUELH would pay $39.55mil for a 40% stake.

Visualising the First REIT Acquisition


Figure 3: Structure After to the Acquisition of First REIT
Source: ProButterfly Research

The diagram is Figure 3 describes the post-acquisition ownership structure of First REIT. 10.63% or a total of 83,593,683 units in First REIT will be transferred to OUE Lippo Healthcare Ltd’s subsidiary OLH Healthcare Investments Pte. Ltd.

As a consideration for this transaction, OUE Lippo Healthcare Ltd would pay PT Lippo Karawaci Tbk $102.653mil for the 10.63% stake.

What Does This Mean For Shareholders of First REIT?

Prior to this announcement, there were much speculation on the cause of the share price fall.

This announcement is the long awaited missing piece in finally understanding the cause of price fall in First REIT. It is likely that insiders or people with advance knowledge of the transactions, sold units in First REIT to lock in profits prior to the announcement.

Because of this transaction, Lippo Karawaci stands to receive more than $200mil in cash immediately strengthening its balance sheet. However, over the long term, it would have less cash flow as it would no longer have access to the management fees and lesser entitlement to First REIT’s distribution.

Using this transaction as reason, OUE Lippo Healthcare raised $150mil via the rights issue and transfer more than $140mil of the $200mil.

With Bowsprit Capital and First REIT now in OUE Ltd and OUE Lippo Healthcare’s possession, it would constitute an interested party transaction as the Indonesian Riady family has control over both Lippo Karawaci and OUE Ltd. This would mean that while the entities has changed hands, but ultimately it is still firmly within the Riady family’s control.

The additional funding raised through the rights issue however benefits Lippo Karawaci immediately.

There does not seem to be any fundamental change in First REIT compared to prior to the transaction. It will continue to have all the benefits it had prior to the transaction with the added benefit of having access to OUE Lippo Healthcare's existing portfolio of assets.

The key difference is that the publicly known transacted price of $1.228 per unit may likely put a suppression on First REIT’s share price in the near term. 

Positioning to Ride the Recovery

Opportunities and Risk Post-COVID-19 Pandemic in the S-REIT Sectors

The COVID-19 crisis has brought about an unprecedented economic shock to many sectors, and yet it has also generated opportunities in others.

The tech sector has been a major beneficiary and along with that, S-REITs exposed to the Data Centre sector such as Keppel DC REIT and Mapletree Industrial Trust gained phenomenally.

But are the investment opportunities in REITs now gone? Personally, we do not think so. There are still many REITs below their pre-COVID-19 levels poise to recover strongly in the coming quarters – and now it is the best time to prepare to capture the post-COVID recovery.

Join us as we discuss the opportunities and risk in the S-REIT space sector-by-sector as we try to uncover recovery opportunities for FY2021 and beyond. Real estate sectors that we will be covering include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.

Our speaker Tam Ging Wien will be sharing his knowledge and experience including:

  • Part 1: A Survey of the REITs Landscape Around The World
  • Part 2: Key Metrics in Identifying Strong REITs
  • Part 3: Real Estate Sector Review Amidst the COVID Crisis
  • Part 4: Screening for Opportunities
  • Part 5: Q&A

Some key highlights that will be covered includes:

  • Real estate sector-by-sector review on COVID-19 impact and recovery opportunities. Sectors covered include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.
  • Opinion on which sector will continue to stay resilient and which are poised to recover quickly post-pandemic
  • The right metric to use when screening for high quality REITs
  • Case studies of REITs which are considered high quality
  • Step-by-step demo of how to screen for high quality REITs on your own

During the sharing session, various Singapore-listed REIT examples will be used.

There will also be a Q&A so that members of the investing community may engage in open dialog and discussions in order to deepen their understanding of REITs. Do prepare your writing materials for note taking.

Please note that the duration of the on-site seminar is 7pm to 9:30pm Singapore Time (GMT +8).

The details of the event are as follows:

  • Seminar: Positioning To Ride The Recovery
  • Date: 20th January 2021 (Wed)
  • Time: 7:00pm to 9:30pm
  • Venue: RNN Conference Centre - Osaka Training Room (Level 5), 137 Cecil Street, Cecil Building #05-01, Singapore 069537
  • Fees: S$10.00
  • Sign-up Link: http://reitessentials.eventbrite.com/

To learn more about REITs, we recommend the article: What are REITs?

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