First REIT is a publicly traded REIT in Singapore that owns hospitals in Indonesia. The Lippo group in Indonesia, which is owned by the Riady family, is sponsoring it.
Due to the COVID-19 outbreak in Indonesia and its consequences, Lippo Karawaci Tbk (a key tenant of First REIT) stated that “It will be modifying its leases with First REIT to avoid a “substantial detrimental impact” on the business.
The SGX questions the veracity of the property assessments of the first REIT. Among other things, the response stated that “At this time, the Board of Directors believes that no major modification to the carrying amounts of First REIT’s investment properties for 1H2020 is required.”
The master lease agreements with Lippo Karawaci will be drastically restructured, according to First REIT. The new contracts will result in a significant reduction in rental rates. The price of the stock has dropped by 20%.
The First REIT announced a hugely dilutive rights offering of 98 rights units for every 100 units (at $0.2 per unit).
They also revealed that the refinancing is being done to avoid a $196.6 million repayment obligation maturing on March 1, 2021, from defaulting.
Why did First REIT drop?
The manager of First Real Estate Investment Trust (First Reit) proposed a rights issue at an indicative issue price of 20 Singapore cents per unit on Monday, causing the trust’s units to plummet.
The stock was trading at 27.5 cents at lunchtime, down 32.1 percent or 13 cents from its previous closing. Earlier in the morning, it had dropped as much as 33.3 percent, or 13.5 cents, to 27 cents.
By noon, more than 29.4 million shares valued at S$9.4 million had changed hands, more than 12 times the average daily volume of 2.4 million units traded in this quarter.
Is First REIT good?
In 2020, the first REIT units had the worst performance. Investors will be watching Indonesia closely over the next 18 months, but the REIT’s manager is optimistic about the country’s recovery.
While most healthcare assets have grown in value as a result of the epidemic, the unit price of First Real Estate Investment Trust (REIT), which mostly owns hospital facilities in Indonesia, has remained at record lows.
Its shares were last traded at S$0.21 on March 3, down from S$0.89 a year ago. Rental income plummeted 30.9 percent to around S$79.6 million in the past financial year ended December 31, while distribution per unit was cut in half to S$4.15. Tenant rental relief and the broader deterioration in economic conditions during the pandemic took a toll on income, as it did for most other REITs.
However, First REIT’s poor performance is mostly attributable to its former parent, Lippo Karawaci, one of Indonesia’s major real estate corporations, which has 11 hospital master lease agreements (MLAs) with the company. In the fiscal year 2019, these leases accounted for over 72% of First REIT’s revenue.
Covid-19 and the depreciation of Indonesia’s currency, the Rupiah, had a negative impact on Lippo Karawaci. Last year, the company, whose CEO is third-generation John Riady, totally sold its investment in First REIT to obtain funds for its operations. He is also a member of the Lippo Group’s board of directors.
First REIT Management Limited, which is 60% owned by OUE Limited and 40% held by OUE Lippo Healthcare Limited, manages the REIT (OUELH). The REIT’s sponsor or principal stakeholder is OUELH, a unit of OUE. Itochu Corp. of Japan is another REIT shareholder and strategic partner.
Restructure of lease agreement
Late last year, First REIT and Lippo Karawaci agreed to renegotiate their lease arrangement, resulting in lower yearly rental income for the leases. According to a Fitch assessment published in January, Lippo Karawaci would pay roughly IDR550 billion ($39 million) starting in 2021, albeit at a 4.5 percent annual escalation rate rather than the previous 2.0 percent and with a longer tenor.
“We expect Lippo’s overall rent assistance payments to drop to roughly IDR800 billion in 2021-2022, down from around IDR1 trillion in 2019,” the report added. The updated arrangement also protects Lippo Karawaci from currency risk. Lippo Karawaci’s outlook has been upgraded from “negative” to “stable” as its cash flow improves as a result of decreased rental payments, asset sales, and property presales.
To meet its debt covenants, First REIT issued a rights offering to raise S$158.2 million. OUELH now indirectly holds around 15.4 percent of the entire number of First REIT units in issue, or about 246.9 million units, once the rights issue is completed.
Diversification Plans
“Our gearing will be decreased as a result of the recapitalisation, and we will have debt headroom in excess of S$300 million. This positions First REIT to seize yield-accretive acquisition opportunities outside of Indonesia and drive diversification efforts, either through our sponsor, OUE Lippo Healthcare Limited’s Pan-Asian healthcare network, which spans countries like Japan, China, and Myanmar, or from third parties,” Victor Yan, the REIT’s manager, said at the REIT’s full-year financial statement presentation in January.
However, according to a January 29 Moody’s credit outlook, Lippo Karawaci’s liquidity at the holding company level is insufficient “Because of the maturity of its IDR970 billion short-term loan facilities, the IDR will be “poor” over the next 18 months. Nonetheless, Lippo Karawaci has a history of rolling over its short-term loan lines, according to the report. “In addition, the corporation has increased its liquidity.
buffer of available-for-sale financial assets, including its Lippo Malls Indonesia Retail Trust investment. With its next big loan maturity only in 2025, we expect Lippo Karawaci’s near-term refinancing risk to be manageable,” it said.
Regardless of Lippo Karawaci’s financial situation, Tan of First REIT is optimistic about the REIT’s prospects, particularly after unitholders approved its recapitalization and restructuring proposal.
“Both in Indonesia and globally, the healthcare sector has a bright future. Furthermore, we remain optimistic about First REIT’s future because we have a strong and recognized hospital operator in PT Siloam International Hospitals Tbk, Indonesia’s most progressive and inventive healthcare provider. We expect it to continue to outperform its Indonesian competitors, resulting in long-term growth for our hospitals. First REIT’s cash flows and valuations will be more predictable as a result of the proposed MLAs restructuring,” Tan stated.
Can you lose all your money in REITs?
- REITs (real estate investment trusts) are common financial entities that pay dividends to their shareholders.
- One disadvantage of non-traded REITs (those that aren’t traded on a stock exchange) is that investors may find it difficult to investigate them.
- Investors find it difficult to sell non-traded REITs because they have low liquidity.
- When interest rates rise, investment capital often flows into bonds, putting publically traded REITs at danger of losing value.
Who owns First REIT?
First REIT is Singapore’s first healthcare real estate investment trust, having been listed on the Singapore Exchange Securities Trading Limited on December 11, 2006. Its Asian investment strategy consists of a wide portfolio of yield-enhancing healthcare and healthcare-related real estate assets.
The Trust has effectively created a high-quality and diverse asset portfolio of 19 properties, 16 of which are in Indonesia and three in Singapore, over the years. As of 31 December 2020, the properties are worth a total of S$939.7 million*. The stable income-producing portfolio includes hospitals, nursing homes, rehabilitation centers, and other healthcare-related properties.
First REIT Management Limited, which is 60% owned by OUE Limited and 40% held by OUE Lippo Healthcare Limited, manages the REIT (“OUELH”). PT Lippo Karawaci Tbk (“Lippo Karawaci”), Indonesia’s largest broad-based listed property business, has granted First REIT the right-of-first-refusal (“ROFR”) to the pipeline of hospitals in Indonesia. First REIT also has another ROFR from OUELH, as well as potential to tap into the company’s expanding healthcare network in Asia.
What was the first REIT?
After President Dwight D. Eisenhower signed Public Law 86-779, also known as the Cigar Excise Tax Extension of 1960, REITs were established in the United States. The law was passed to allow all investors to purchase and sell liquid securities in order to invest in large-scale, diversified portfolios of income-producing real estate in the same manner they do in other asset classes. American Realty Trust was the first REIT, created in 1961 by Thomas J. Broyhill, cousin of Virginia U.S. Congressman Joel Broyhill, who advocated for its creation during Eisenhower’s presidency.
At least 39 countries around the world have developed REITs as of 2021. The FTSE EPRA/Nareit Global Real Estate Index Series, produced jointly by the index provider FTSE Group, Nareit, and the European Public Real Estate Association in October 2001, is a comprehensive index for the REIT and global listed property market (EPRA). The worldwide index comprises 490 stock exchange-listed real estate businesses from 39 countries as of January 29, 2021, with an equity market valuation of $1.7 trillion.
What is the first REIT in Singapore?
Concerning the First REIT First REIT is Singapore’s first healthcare real estate investment trust, having been listed on the Singapore Exchange Securities Trading Limited on December 11, 2006. Its Asian investment strategy consists of a wide portfolio of yield-enhancing healthcare and healthcare-related real estate assets.
Why are REITs a bad investment?
Real estate investment trusts (REITs) are not for everyone. This is the section for you if you’re wondering why REITs are a bad investment for you.
The major disadvantage of REITs is that they don’t provide much in the way of capital appreciation. This is because REITs must return 90 percent of their taxable income to investors, limiting their capacity to reinvest in properties to increase their value or acquire new holdings.
Another disadvantage is that REITs have very expensive management and transaction costs due to their structure.
REITs have also become increasingly connected with the larger stock market over time. As a result, one of the previous advantages has faded in value as your portfolio becomes more vulnerable to market fluctuations.
What does Dave Ramsey say about REITs?
Do you want to know more details? Here’s a rundown of some typical investment possibilities, as well as Dave’s thoughts on them—both positive and negative.
Mutual Funds
Mutual funds allow you to invest in a variety of businesses at simultaneously, ranging from the largest and most stable to the newest and fastest-growing. They have teams of managers who, depending on the fund type, select companies for the fund to invest in.
So, why does Dave propose this as the only investing option? Dave prefers mutual funds because they allow him to diversify his investment across a number of companies, avoiding the risks associated with single equities like Dogecoin. Mutual funds are an excellent alternative for long-term investing since they are actively managed by professionals who strive to identify stocks that will outperform the stock market.
Exchange-Traded Funds
ETFs are collections of single stocks that are designed to be traded on stock exchanges. ETFs do not employ teams of managers to select firms for investment, which keeps their fees cheap.
Because ETFs allow you to swap investments quickly and easily, many people try to play the market by buying cheap and selling high, but this is extremely difficult to do. Dave favors a buy-and-hold strategy, which entails holding on to investments over time and maintaining a long-term perspective rather than selling on the spur of the moment when the market falls.
Single Stocks
Your investment in a single stock is contingent on the performance of that firm.
Dave advises against buying single stocks since it’s like putting all your eggs in one basket, which is a large risk to take with money you’re dependent on for your future. If that company goes bankrupt, your savings will be lost as well. No, thank you!
Certificates of Deposit (CDs)
A certificate of deposit (CD) is a form of savings account that allows you to store money for a predetermined period of time at a fixed interest rate. Withdrawing money from a CD before its maturity date incurs a penalty from the bank.
CDs, like money market and savings accounts, have low interest rates that do not keep pace with inflation, which is why Dave advises against them. While CDs are helpful for putting money down for a short-term purpose, they aren’t suitable for long-term financial goals of more than five years.
Bonds
Bonds are a type of debt instrument that allows firms or governments to borrow money from you. Your investment earns a predetermined rate of interest, and the company or government repays the debt when the bond matures (aka the date when they have to pay it back to you). Bonds, like stocks and mutual funds, rise and fall in value, although they have a reputation for being “safe” investments due to less market volatility.
However, when comparing investments over time, the bond market underperforms the stock market. Earning a set interest rate will protect you in poor years, but it will also prevent you from profiting in good years. The value of your bond decreases when interest rates rise.
Fixed Annuities
Fixed annuities are complicated plans issued by insurance firms that are designed to provide a guaranteed income in retirement for a specific period of years.
Dave doesn’t advocate annuities since they can be costly and come with penalties if you need to access your money during a set period of time. You might be wondering what a designated surrender period is. That’s the amount of time an investor must wait before being able to withdraw funds without incurring a penalty.
Variable Annuities (VAs)
VAs are insurance products that can provide a steady stream of income and a death payment (money paid to the beneficiary when the owner of the annuity passes away).
While VAs provide an additional tax-deferred retirement savings option for those who have already maxed out their 401(k) and IRA accounts, you lose a much of the growth potential that comes with mutual fund investing in the stock market. Furthermore, fees can be costly, and VAs impose surrender charges (a penalty price you must pay if you withdraw funds within the surrender period).
Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that own or finance real estate. REITs, like mutual funds, sell shares to investors who want to share in the profits generated by the company’s real estate holdings.
Dave enjoys real estate investing, but he prefers to invest in cash-flowing properties rather than REITs.
Cash Value or Whole Life Insurance
Whole life insurance, often known as cash value insurance, is more expensive than term life insurance but lasts your entire life. It’s a form of life insurance product that’s frequently promoted as a means to save money. That’s because insurance is also attempting to function as an investing account. When you get whole life insurance, a portion of your “investment” goes into a savings account within the policy.
Sure, it may appear to be a nice idea at first, but it is not. The kicker is that when the insured person dies, the beneficiary receives only the face value of the insurance and loses any money that was saved under it (yes, it’s pretty stupid).
Dave only advises term life insurance (life insurance that protects you for a specific length of time, such as 15–20 years) with coverage equivalent to 10–12 times your annual income. If something occurs to you, your salary will be compensated for your family. Don’t know how much insurance you’ll need? You can use our term life calculator to crunch the numbers.
Separate Account Managers (SAMs)
SAMs are third-party investment professionals who purchase and sell stocks or mutual funds on your behalf.
Simply say, “No thanks, Sam,” to this option. Dave chooses to put his money into mutual funds that have their own teams of competent fund managers with a track record of outperforming the market.
Weak Growth
REITs that are publicly listed are required to pay out 90% of their profits in dividends to shareholders right away. This leaves little money to expand the portfolio by purchasing additional properties, which is what drives appreciation.
Private REITs are a good option if you enjoy the idea of REITs but want to get more than just dividends.
No Control Over Returns or Performance
Investors in direct real estate have a lot of control over their profits. They can identify properties with high cash flow, actively promote vacant rentals to renters, properly screen all applications, and use other property management best practices.
Investors in REITs, on the other hand, can only sell their shares if they are unhappy with the company’s performance. Some private REITs won’t even be able to do that, at least for the first several years.
Yield Taxed as Regular Income
Dividends are taxed at the (higher) regular income tax rate, despite the fact that profits on investments held longer than a year are taxed at the lower capital gains tax rate.
And because REITs provide a large portion of their returns in the form of dividends, investors may face a greater tax bill than they would with more appreciation-oriented assets.
Potential for High Risk and Fees
Just because an investment is regulated by the SEC does not mean it is low-risk. Before investing, do your homework and think about all aspects of the real estate market, including property valuations, interest rates, debt, geography, and changing tax regulations.
Fees should also be factored into the due diligence process. High management and transaction fees are charged by some REITs, resulting in smaller returns to shareholders. Those fees are frequently buried in the fine print of investment offerings, so be prepared to dig through the fine print to find out what they pay themselves for property management, acquisition fees, and so on.
Who owns OUE REIT?
Since January 27, 2014, OUE Commercial Real Estate Investment Trust (“OUE C-REIT”) has been listed on the Singapore Exchange Securities Trading Limited (“SGX-ST”) as a real estate investment trust (“REIT”).
With total assets of S$6.8 billion as of December 31, 2020, OUE C-REIT is one of the largest diversified Singapore REITs (“S-REITs”). OUE C-property REIT’s portfolio includes more than 2.0 million square feet of premier office and retail space, as well as 1,640 upper class hotel rooms, spread over seven locations in Singapore and Shanghai.
OUE C-REIT invests in income-producing real estate in financial and business centres that is primarily utilized for commercial purposes (including real estate predominantly used for office and/or retail purposes) and/or hospitality and/or hospitality-related purposes, as well as real estate-related assets.
OUE Commercial REIT Management Pte. Ltd. (the “Manager”), a wholly-owned subsidiary of OUE Limited (the “Sponsor”), manages OUE C-REIT. OUE Limited is a diverse real estate owner, developer, and operator with a portfolio of properties in Asia’s most desirable locales.
The aim of OUE C-REIT is to provide steady dividends and long-term increase in returns to OUE C-REIT unitholders (“Unitholders”).
