OUE Lippo Healthcare to sell 12 Japan nursing homes to First REIT for around S$164M

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OUE Lippo Healthcare has entered a deal to divest 12 wholly owned nursing homes in Japan to First REIT for S$163.5 million in cash and units of the REIT, according to a filing to SGX Wednesday.

The consideration will be in S$131.5 million new First REIT units, issued at S$0.305 a unit, S$15.8 million in cash and S$16.2 million in intercompany balances which will be assumed by first REIT, OUE Lippo Healthcare said.

Once the deal is completed, OUE Lippo Healthcare’s stake in First REIT will rise to 33.2 percent from 15.3 percent, the filing said.

On a pro forma basis, if the deal had been completed on 1 January 2021, the new First REIT units would have generated similar net imcome and cash flows for OUE Lippo Healthcare as the nursing homes, the filing said.

“The proposed transaction is in line with the group’s asset-light strategy and will sharpen its focus on quality healthcare services delivery. With greater capital efficiency and flexibility, the group will be well-poised to embark on future mergers and acquisitions and growth initiatives to drive long-term and sustainable growth,” OUE Lippo Healthcare said in the statement.

“The company believes that its investment in First REIT remains an integral component of the company’s three-pronged business strategy, with First REIT serving as a capital recycling platform allowing the group to continue its growth strategy with an asset-light business model,” OUE LIppo Healthcare said.

The nursing homes are located in four prefectures in Japan: Hokkaido, Kyoto, Nagano, and Nara, and have a total capacity of around 1,451 units, OUE Lippo Healthcare said.

The deal will also help First REIT diversify its portfolio by geography and tenants, increasing the exposure outside Indonesia to 27.1 percent of asset value on a pro forma basis, from 3.6 percent previously, OUE Lippo Healthcare said.

In a filing from First REIT, Victor Tan, CEO of the REIT’s manager said: “Buying a portfolio of nursing homes in Japan will give us strategic entry into a nursing home market with strong growth potential as we capitalise on ageing demographic trends, while simultaneously diversifying our asset and geographical risk.”

First REIT pointed to the inadequate supply of nursing homes in Japan amid a surge in demand.

The REIT estimated that on a pro forma basis, distribution per unit (DPU) for the first half of 2021 would have increased to 1.31 Singapore cents, or by 0.8 percent, from 1.30 Singapore cents.

First REIT’s portfolio currently has 19 properties, located in Indonesia, Singapore and South Korea.

OUE Lippo Healthcare will convene an extraordinary general meeting (EGM) to obtain shareholder approval for the deal, the filing said.