First REIT 1Q 2026 Business Update: Major Indonesia Divestment, FX Headwinds, and Strategic Shift

Key Highlights from the 1Q 2026 Business Update

• Major Portfolio Reshaping: Definitive agreements signed to divest 8 hospitals and 3 non-core assets in Indonesia for approximately S\$471.5 million, with a further put option to sell remaining Indonesian hospital assets for an additional estimated S\$294.8 million. This could see First REIT fully exit its Indonesian portfolio in 2026.
• Impact from Forex Volatility: Significant depreciation of the Indonesian Rupiah and Japanese Yen against the Singapore Dollar negatively impacted reported income and NAV.
• Distribution Per Unit (DPU) Decline: 1Q 2026 DPU fell to 0.50 Singapore cents, representing a 13.8% year-on-year decline, and a 3.8% drop from the previous quarter.
• Strategic Review and Portfolio Reconstitution: Ongoing strategic review targets sustainable value for unitholders, capital recycling, and a shift of focus towards developed markets to mitigate FX and operational risks.
• Capital Management: Gearing increased to 44.6% from 42.1% due to bank loan drawdowns and perpetual securities redemption, but interest coverage ratio improved to 4.4x.
• Special Distribution Proposed: The board proposes a special distribution from the divestment proceeds, subject to unitholder approval.
• Macroeconomic Cautions: Management flags ongoing FX and macroeconomic volatility in Indonesia and Japan as key risks for earnings and asset values.

Detailed Analysis for Investors

1. Portfolio Overview and Management

First REIT, Singapore’s pioneering healthcare REIT, manages 31 properties across Asia with an asset size of S\$1.02 billion and a 100% occupancy rate as of 31 March 2026. The REIT is sponsored and managed by OUE Limited and OUE Healthcare Limited, which together hold 45.72% of the units and 100% of the Manager. The weighted average lease expiry (WALE) stands at a robust 9.7 years, underpinned by long leases and stable tenancy across its diversified portfolio in Indonesia, Japan, and Singapore.

2. Major Divestment of Indonesian Assets – A Game Changer

On 1 April 2026, First REIT announced the proposed divestment of eight Indonesian hospital assets to its long-standing tenant, PT Siloam International Hospitals Tbk (“Siloam”), for ~S\$389.2 million (IDR 5.1 trillion). Additionally, three non-hospital assets will be sold to PT Lippo Karawaci Tbk and MPU for S\$82.4 million (IDR 1.1 trillion). A put option has also been secured, allowing First REIT to sell the remainder of its Indonesian hospital assets for a further S\$294.8 million (IDR 3.9 trillion), potentially by 31 October 2026.

Key Implications for Shareholders

• Full Exit from Indonesia: Upon completion of all divestments (including the put option), First REIT would have fully divested its Indonesian properties, fundamentally transforming the portfolio’s geographic risk profile.
• 2.1% Premium: The combined divestment consideration represents a 2.1% premium above the average of two independent valuations, enhancing value for unitholders.
• Clearing of Rental Arrears: Rental arrears of approximately S\$6.9 million from MPU will be fully settled upon deal completion.
• Transaction Certainty: The phased approach prioritizes the sale of non-core and hospital assets, providing stability and visibility to DPU during the transition.
• Special Distribution: Management has proposed a special distribution from the proceeds, which could meaningfully impact near-term unitholder returns. Timing and quantum depend on EGM approval and deal completion.

3. Financial and Operational Performance

• Rental and Other Income: S\$23.2 million in 1Q 2026, down 8.4% year-on-year, mainly due to FX headwinds (SGD/IDR and SGD/JPY depreciation).
• Net Property and Other Income: S\$22.5 million, down 8.3% year-on-year.
• Distributable Amount: S\$10.6 million, down 12.5% year-on-year.
• DPU: 0.50 Singapore cents, down from 0.58 cents a year ago and 0.52 cents last quarter.
• Gearing: Increased to 44.6% due to term loan drawdown and perpetual securities redemption. Weighted average term to maturity is 1.7 years. Interest coverage ratio improved to 4.4x.
• Net Asset Value (NAV) per Unit: Fell to 24.42 cents from 24.97 cents at end 2025, reflecting FX movements and asset revaluation.

Management has secured a 12-month extension on its S\$300 million term loan, now maturing May 2027, improving liquidity and refinancing visibility.

4. Strategic Review and Future Focus

• Strategic Review: Triggered by Siloam’s offer, the Board (with Citigroup as advisor) is considering all options, including JVs, further divestments, and redeployment in developed markets.
• Portfolio Reconstitution: Post-divestment, First REIT will prioritize acquisitions in developed markets (e.g., Japan, Singapore) to reduce FX volatility and enhance income visibility.
• Elimination of FX Drag: The shift away from Indonesia will remove the major source of income drag and volatility from IDR/SGD exchange rates, a persistent concern for investors.

5. Market and Macro Risks

Management warns of ongoing headwinds: Bank Indonesia’s aggressive intervention has yet to stem rupiah weakness, and the Japanese Yen continues to hit record lows against the Singapore Dollar. The Monetary Authority of Singapore has also tightened policy and raised inflation forecasts, strengthening the SGD and exacerbating FX-driven earnings pressure for the REIT’s regional assets. These trends are expected to persist, potentially impacting reported results and asset values until the portfolio is fully reconstituted.

6. Timeline and Next Steps

• Key Dates: Signing of Sale/Purchase Agreements (Apr 2026), dispatch of circular and EGM notice (May 2026), unitholder meeting (Jun 2026), completion of divestments (Aug 2026), and subsequent redeployment of capital.
• Unitholder Approval Needed: The divestments and special distribution are subject to EGM approval. Investors should monitor related SGXNet announcements for final dates and resolutions.

Investor Takeaways and Price-Sensitive Implications

1. Portfolio Transformation: The announced divestments, if approved and completed, will see First REIT exit its largest market (Indonesia) and reallocate capital to developed markets, fundamentally altering its risk and return profile.
2. Potential Upside from Special Distribution: The special distribution, if approved, could provide a significant one-off boost to returns, but may also imply a step-down in recurring income until new assets are acquired.
3. FX Volatility Reduced: The strategic move out of Indonesia and focus on developed markets could reduce future FX risk, potentially stabilizing DPU and NAV.
4. Short-Term Uncertainty: Until the transactions are completed and capital is redeployed, there may be transitional volatility in both earnings and unit price. Gearing is elevated and needs monitoring.

Given the scale of the Indonesian divestment, the proposed special distribution, and the shift in strategic direction, these announcements are highly price-sensitive and could materially influence First REIT’s unit price in the near term.

Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investors should conduct their own research and consult with professional advisors before making investment decisions. The information is based on First REIT’s 1Q 2026 Business Update and may be subject to change or clarification by the company. Past performance is not indicative of future results.

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