FirstREIT – AmFraser

First REIT has entered into conditional sale and purchase agreements for the proposed acquisition of two new properties in Indonesia. The proposed acquisitions comprise an integrated hospital and hotel in Manado, and another hospital in Makassar in Indonesia's southern province of Sulawesi, both of which will be purchased from two wholly‐owned units of PT Lippo Karawaci Tbk (First REIT's sponsor) for a combined purchase consideration of approximately S$142.9 million.

The acquisition of Siloam Hospitals Manado & Hotel Aryaduta Manado at a consideration of S$83.6 million will be funded by a combination of committed debt and proceeds from a proposed private placement exercise while the purchase of the S$59.3 million Siloam Hospitals Makassar will be financed entirely by a drawdown of committed debt.

PT Lippo Karawaci Tbk, First REIT's sponsor and Master Lessee of the two properties, has signed conditional master lease agreements for lease terms of 15 years, with an option to renew for a further term of 15 years. The two properties are estimated to earn a total of $14.1mil in net rental income, or 26% of First REIT's $53.4mil net profit in 2011.

We view this as a positive development for First REIT (UNRATED, S$1.03). The acquisition of two hospitals in Indonesia not only improves its portfolio diversification in terms of locations and medical specializations but also enhances its weighted average lease expiry profile (WALE). The acquisitions are expected to improve its WALE from 10.8 years to 11.7 years. More importantly, the acquisitions would strengthen First REIT's reach in Indonesia, a market we perceive to be highly attractive on the back of strong underlying demographics and the government's aim of improving healthcare access to the public. Given that the acquisition of Siloam Hospitals Manado & Hotel Aryaduta Manado is to be funded by a mix of committed debt and cash from private placement exercise, we expect First REIT's aggregate leverage to remain below 30% (lower than the regulatory limit of 35%), which should provide comfortable headroom to support its future acquisitions.