What is the news?
The Manager of First REIT (FIRT) hosted a briefing in Dec 2018 to provide updates on 1) the REIT’s new co-Sponsor, OUE Lippo Healthcare Limited (OUELH), 2) receivables collection and 3) portfolio rebalancing strategy. In Oct 2018, OUELH and OUE Ltd acquired 40% and 60% respectively of the Manager of FIRT, Bowsprit Capital Corporation Limited (Bowsprit). OUELH and PT Lippo Karawaci (LPKR) each hold approximately 10.6% of FIRT. In Nov 2018, LPKR announced its intention to divest its remaining stake in FIRT.
How do we view this?
Remain Neutral; new target price of $0.88 (previously $1.30)
We have: 1) lowered our revenue assumptions on the belief that the Indonesia leases would progressively be renewed with a lower quantum (if transferring leases to Siloam) and/or on IDR-denominated terms; and 2) raised our discount rate to factor credit risk associated with LPKR, referencing the spread between the latest mid-yields of LPKR’s two outstanding (USD) bonds above the 10-year U.S. government bonds (figure 1).