First REIT Announced Major Tenant Buying Over Hospitals- The Art of Destroying Unit-Holders Value.

In August 2024, it was announced in media that Indonesian conglomerate Lippo Karawaci has officially sold most of its stake in local hospital chain Siloam International Hospitals to CVC Capital Partners, which has become the majority stakeholder. Following hot on the heel of this major acquisition, the new owner, CVC Capital Partners, has made another offer to buy over the physical buildings from First REIT where their hospital businesses are being operated. Siloam makes up approximately 39% of First REIT annual rental income which makes this upcoming deal a major one. First REIT has a very interesting history and I was once vested in it. It used to trade at S$1 per unit and then got thrown under the bus by its sponsor, the Lippo Karawaci group to become its current sorry state. Let me recap below.

History of First REIT being run to the Ground by its Sponsor and Management Team

In 2020, Lippo Karawaci plans to default on the rental income support for Siloam hospitals stipulated in the rental agreements. The sponsor has cleverly crafted it as a "rental restructuring" instead of a planned default. Since the "rental restructuring" forced down on retail unit-holders, First REIT market unit price has collapsed from its glorious day of S$1 per unit. 

The subsequent rights issue exercise at 50% discount off its last traded market price of S$0.405 per unit as at 20 December 2024 sunk First REIT into oblivion. For those interested, can read my previous post here:

"First REIT Twisted The Knife Further Into The Heart Of All Unitholders- Nightmare of Nightmares Right Issues Announced At More Than 50% Discount Off Last Market Price."

2. Is this deal good for Unit-Holders?

We have to await further news from the acquirer, CVC Capital Partners, on their exact offer package. But since the ulitmate owner, Lippo Karawaci, already "signalled" abandoning the Siloam ship, it seems that First REIT will most likely be selling it off and then buying other medical properties or nursing homes with the sales proceed.  

My guess is its current direct Sponsor OUE Healthcare (related to Lippo Karawaci), will start to inject and monetise some of its assets into First REIT given the sales proceed from the sales of Siloam hospitals. Whether you like or dislike the properties owned by OUE Healthcare is another issue. 

Parting Thoughts

I will not be surprised if Lippo Karawaci starts to throw unit-holders of First REIT under the bus again with the kick off of the disposal exercise relating to the Siloam assets. In the meantime, the poignant saga continues. Strange that there are finfluencers who are recommending First REIT as a good buy since medical REITs cashflow are deemed resilient in nature- but from what happened during these past 4 years, I am highly skeptical of such assertion.