(Constituted in the Republic of Singapore pursuant to a trust deed dated 19 October 2006 (as amended))

RESTRUCTURING OF MASTER LEASES

1. APPROACH BY PT. LIPPO KARAWACI TBK

  1. All of the properties in First Real Estate Investment Trust ("First REIT") at the time of its initial public offering ("IPO") in December 2006 were leased to PT. Lippo Karawaci Tbk ("LPKR") under master lease agreements ("MLAs"). These properties include Siloam Hospitals Surabaya, Siloam Hospitals Kebon Jeruk (formerly known as Siloam Hospitals West Jakarta) and Siloam Hospitals Lippo Village (formerly known as Siloam Hospitals Lippo Karawaci) (the "IPO Hospital Properties"). The MLAs in respect of the IPO Hospital Properties (the "IPO MLAs") have an initial term of 15 years, subject to an option given to LPKR to renew the MLAs for another 15 years. The initial term of the IPO MLAs will expire in December 2021. First REIT Management
    Limited, in its capacity as manager of First REIT (the "Manager"), has been engaging with LPKR on the renewal of the IPO MLAs since 2019.
  2. On 1 June 2020, LPKR unilaterally announced its intention to restructure the MLAs for all of the hospitals which First REIT had leased to either LPKR or LPKR and certain subsidiaries of PT Siloam International Hospitals Tbk ("Siloam"), including the IPO MLAs (the "LPKR MLAs"). In response to this press release, the Manager issued an announcement on the same day stating that it had not been approached by LPKR in respect of the matters mentioned in the press release.
  3. On 31 August 2020, the Manager announced that it was anticipating to receive a proposal regarding the rental restructuring from LPKR. On 20 September 2020, the Manager announced that it had received a non-binding rental restructuring proposal from LPKR in respect of the LPKR MLAs and that the board of directors of the Manager (the "Board") had set up an independent board committee (the "Independent Committee") comprising all the independent directors of the Board, namely, Mr Chan Pengee Adrian, Mr Ferris Charles Bye, Mr Tan Chuan Lye and Mr Martin Lechner to carefully consider and evaluate the non-bindingproposal. On 30 September 2020, the Manager announced that it had appointed Merrill Lynch (Singapore) Pte. Ltd. as financial adviser to the Manager in connection with the restructuring discussions. The Independent Committee has been engaging with LPKR to understand the context of LPKR's request and negotiate the terms of a restructuring.
  4. Perpetual (Asia) Limited, in its capacity as trustee of First REIT (the "Trustee"), has on 28 November 2020 entered into a memorandum of understanding with LPKR (the "LPKR MOU") in respect of, among other things, a proposed restructuring of the LPKR MLAs (the "Proposed LPKR MLA Restructuring"), which is conditional upon, among other things, the approval of the independent unitholders of First REIT ("Unitholders").

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2. THE PROPOSED LPKR MLA RESTRUCTURING

2.1 Key Terms of the Restructured LPKR MLAs

It is proposed that the Proposed LPKR MLA Restructuring be effected by the entry into of supplemental MLAs between the relevant master lessors and the relevant master lessees, which will amend and restate the existing LPKR MLAs based on the key terms which are set out below.

2.1.1 Term of the Restructured LPKR MLAs

The following table sets out the hospitals which are the subject of the Proposed LPKR

MLA Restructuring (the "LPKR Hospitals"), their acquisition year, the expiry year of the initial term of the relevant MLAs as well as the master lessee(s) of the LPKR Hospitals. Any extension of the initial term of the MLAs requires LPKR's agreement.

No.

Property Name

Acquisition

MLA

Master Lessee(s)

Year

Expiry

Year

1.

Siloam Hospitals Surabaya

2006

2021

LPKR

(Year of IPO)

2.

Siloam Hospitals Kebon

2006

2021

LPKR

Jeruk

3.

Siloam Hospitals Lippo

2006

2021

LPKR

Village

4.

Mochtar Riady

2010

2025

LPKR

Comprehensive Cancer

Centre

5.

Siloam Hospitals Makassar

2012

2027

LPKR

6.

Siloam Hospitals Manado

2012

2027

LPKR

and Hotel Aryaduta Manado

7.

Siloam Hospitals TB

2013

2028

LPKR

Simatupang

8.

Siloam Hospitals Bali

2013

2028

LPKR

9.

Siloam Hospitals Labuan

2016

2031

LPKR and a wholly-

Bajo

owned subsidiary of

Siloam

10.

Siloam Hospitals Buton

2017

2032

LPKR and a wholly-

owned subsidiary of

Siloam

11.

Siloam Hospitals Yogyakarta

2017

2032

LPKR and a wholly-

owned subsidiary of

Siloam

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Under the Proposed LPKR MLA Restructuring, the term of the restructured LPKR MLAs will take effect from 1 January 2021 and will be extended to (and including) 31 December 2035, subject to any extension required in respect of the underlying property title and with an option for a further 15-year renewal term with the mutual agreement of both the relevant master lessors and the relevant master lessees. The lease for the further term shall be on terms and conditions (including the rent payable for the further term) to be mutually agreed between the parties. The leases of hospitals with redevelopment potential, such as Siloam Hospitals Surabaya, may be terminated at any time by mutual written consent of the parties.

2.1.2 Revised Rental Formula

The current rental formula under each of the existing LPKR MLAs provides for rental to be calculated based on the sum of a base rent component and a variable rent component.

Base Rent under the Existing LPKR MLAs

The current base rent under each of the existing LPKR MLAs are set out in Appendix A of this Announcement. Under the existing LPKR MLAs, the amount of base rent payable is adjusted for movements in the exchange rate between Singapore Dollar and Indonesian Rupiah so that First REIT is not exposed to movements in the exchange rate between Singapore Dollar and Indonesian Rupiah.

The base rent component is subject to increase based on the following formula:

No.

Property Name

Base Rent Escalation Formula under Existing

LPKR MLAs

1.

Siloam Hospitals

Increase on each anniversary date from (and

Surabaya

including) the firstanniversary date of the

commencement date under the MLA, at a rate

2.

Siloam Hospitals Kebon

equal to twice the total percentage variation of the

Jeruk

Consumer Price Index of Singapore calculated on a

month-to-month basis aggregated for the preceding

3.

Siloam Hospitals Lippo

Village

calendar year (as published by the Singapore

Department of Statistics), subject to a floor of 0.0%

4.

Mochtar Riady

and a cap of 2.0%.

Comprehensive Cancer

Centre

5.

Siloam Hospitals

Increase on each anniversary date from (and

Makassar

including) the thirdanniversary date of the

commencement date under the MLA, at a rate

6.

Siloam Hospitals Manado

equal to twice the total percentage variation of the

and Hotel Aryaduta

Consumer Price Index of Singapore calculated on a

Manado

month-to-month basis aggregated for the preceding

calendar year (as published by the Singapore

7.

Siloam Hospitals TB

Simatupang

Department of Statistics), subject to a floor of 0.0%

and a cap of 2.0%.

8.

Siloam Hospitals Bali

3

No.

Property Name

Base Rent Escalation Formula under Existing

LPKR MLAs

9.

Siloam Hospitals Labuan

Increase on each anniversary date from (and

Bajo

including) the fifthanniversary date of the

commencement date under the MLA, at a rate

10.

Siloam Hospitals Buton

equal to twice the total percentage variation of the

Consumer Price Index of Singapore calculated on a

11.

Siloam Hospitals

Yogyakarta

month-to-month basis aggregated for the preceding

calendar year (as published by the Singapore

Department of Statistics), subject to a floor of 0.0%

and a cap of 2.0%.

In addition, for each five-year period of the lease

term commencing from (and including) the fifth

anniversary date of the commencement date under

the MLA (i.e. from the 6th year to the 10th year and

from the 11th year to the 15th year), the increase

shall be subject to a further overall cap of 5.0% for

each such five-year period.

Variable Rent under the Existing LPKR MLAs

As for the variable rent under the existing LPKR MLAs, generally this is payable only if the gross operating revenue ("GOR") of the relevant LPKR Hospital grows by at least 5% compared to the preceding year at the rate of:

  1. (in the case of Siloam Hospitals Surabaya, Siloam Hospitals Kebon Jeruk, Siloam Hospitals Lippo Village and Mochtar Riady Comprehensive Cancer Centre) 0.75% of the GOR of the relevant year, with the rate being increased to 1.25% where the GOR increase is at least 15% but less than 30% and the rate being increased to 2.00% where the GOR increase is at least 30%; or
  2. (in the case of the other LPKR Hospitals) 0.75% of the increase in GOR for the relevant year compared to the preceding year, with the rate being increased to 1.25% where the GOR increase is at least 15% but less than 30% and the rate being increased to 2.00% where the GOR increase is at least 30%.

Over the past three years, the existing variable rent structure has contributed not more than 4.2% to the total rent received for each year under the LPKR MLAs.

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First Real Estate Investment Trust published this content on 29 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 November 2020 12:30:00 UTC