First Reit extends lease for Siloam Hospitals Lippo Cikarang for ‘revenue stability’

[SINGAPORE] First Real Estate Investment Trust (Reit) has extended the lease of Siloam Hospitals Lippo Cikarang (SHLC) on a short-term basis of six months, its manager announced on Monday (Oct 27) in a bourse filing.

The extension is made under the terms of a master lease agreement dated Nov 8, 2010 and a deed of assignment dated Oct 10, 2011 between Graha Pilar Sejahtera (GPS), an indirect wholly owned subsidiary of First Reit and East Jakarta Medika, a wholly owned subsidiary of Lippo Karawaci, its sponsor.

The lease extension prolongs SHLC’s tenancy beyond the current expiry date of Dec 30 this year, to Jun 30 next year, unless the property is divested earlier.

The pro-rated rent for the extension period is set at S$2.3 million, based on an annual rent of S$4.5 million.

East Jakarta Medika is also required to maintain a security deposit equivalent to three months’ rent for the extended period, amounting to S$1.1 million.

First Reit’s manager said it believes “it is prudent to continue to have in place a short-term lease in line with market terms” while its strategic review, announced in January, continues.

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“The renewed lease provides some revenue stability from SHLC while still allowing (us) strategic flexibility to divest SHLC should the opportunity arise,” it added.

Further updates will be provided to unitholders as material developments occur, said the manager.

In Indonesia, First Reit has 15 properties comprising 11 hospitals, two integrated hospitals and malls, one integrated hospital and hotel, and one hotel and country club.

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Its Indonesian healthcare properties are operated by Siloam, a private healthcare player listed on the Indonesia Stock Exchange. Siloam is majority-owned by a fund managed by CVC Capital Partners.

In First Reit’s 2023 annual report, the group noted that Siloam was its largest tenant. The healthcare provider and its subsidiaries contributed 38.7 per cent of First Reit’s rental income in FY2023, excluding FRS 116 rental straight-lining adjustments.

The lease extension follows an announcement in January that First Reit had received a preliminary, non-binding letter of intent from Siloam International Hospitals to acquire its portfolio of hospital assets in Indonesia.

However, First Reit’s manager noted that the SHLC extension remains subject to approvals from GPS’ lenders and the trustee of First Reit, Perpetual Asia.

Under the terms of the extension, if SHLC is sold, the lease will terminate upon completion of the divestment.

In such a case, the landlord will retain the right to pursue any prior claims against the tenant for lease defaults, but will not be liable for any inconvenience or compensation to the tenant arising from early termination.

First Reit’s manager also noted that, after considering KJPP Willson’s review of the proposed rental rate and the rationale for the lease extension, its audit and risk committee concluded that the extension is on normal commercial terms and does not prejudice the interests of First Reit or its minority unitholders.

Units of First Reit closed flat at S$0.285 on Monday, prior to the announcement.