First REIT Announces Transformational Indonesia Asset Divestments and Strategic Refocus

Key Points

• First REIT to divest entire Indonesian hospital portfolio and non-core assets for up to S\$471.5 million, including a potential further S\$294.8 million via put options.
• Proposed divestments represent “major transactions” and “interested person transactions” under SGX and MAS regulations, requiring approval by independent unitholders.
• Net proceeds will be used to pay down debt, fund a special distribution, and reposition First REIT’s portfolio towards developed markets.
• Divestment provides a rare opportunity to eliminate IDR/SGD FX exposure, strengthen balance sheet, and enhance future growth prospects.
• Manager to waive S\$2.4 million divestment fee and commit S\$9.7 million for special distribution to unitholders.

Comprehensive Sale of Indonesian Assets

First REIT Management Limited, as manager of First Real Estate Investment Trust (“First REIT”), has announced a sweeping proposal to divest its entire Indonesian hospital portfolio and certain non-core assets. Conditional sale and purchase agreements have been signed with PT Siloam International Hospitals Tbk (“Siloam”) and subsidiaries, as well as PT Lippo Karawaci Tbk (“LK”), for a total consideration of up to S\$389.2 million (hospital properties) and S\$53.3 million (non-core properties), subject to adjustments. Additionally, prepaid commercial rights to Lippo Plaza Kupang will be leased out for S\$29.1 million. Potential put option divestments for a further S\$294.8 million have also been structured, giving First REIT the right, but not the obligation, to sell six more properties to Siloam at pre-agreed values.

Details of the Proposed Transactions

1. Hospital Divestments (Siloam)

• Divestment of eight hospital properties across Indonesia for an aggregate agreed value of IDR5.1 trillion (approx. S\$389.2 million).
• Properties include Siloam Sriwijaya (Palembang), Siloam Hospitals Purwakarta, Siloam Hospitals Lippo Village, Siloam Hospitals Kebon Jeruk, Siloam Hospitals Bali (Denpasar), Siloam Hospitals Kupang, Siloam Hospitals Baubau, and Siloam Hospitals Manado.
• Valuations based on independent discounted cash flow appraisals, with agreed prices at an average 2.8% premium to independent valuations.
• Some properties are subject to Build-Operate-Transfer (BOT) agreements with government expiry dates between 2041-2044.

2. Non-Core Divestments (LK and MPU)

• Sale of Lippo Plaza Baubau and Hotel Aryaduta Manado to LK subsidiaries for S\$12.0 million and S\$41.3 million, respectively.
• Prepaid lease of Lippo Plaza Kupang commercial rights to PT Bumi Sarana Sejahtera, a subsidiary of PT Metropolis Propertindo Utama, for S\$29.1 million.
• Some assets have rental arrears, which will be settled as part of completion adjustments.
• Divestments at slight discounts (up to -1.7%) to independent valuations, with a combined estimated net loss of S\$2.2 million for non-core sales.

3. Potential Put Option Divestments

• Put options granted for six additional hospitals: Siloam Hospitals Labuan Bajo, Siloam Hospitals TB Simatupang, Siloam Hospitals Makassar, Mochtar Riady Comprehensive Cancer Centre, Siloam Hospitals Lippo Cikarang, and Siloam Hospitals Yogyakarta (31.7% stake).
• Aggregate agreed value: IDR3.88 trillion (approx. S\$294.8 million).
• Put options may be exercised by First REIT before 31 October 2026 (or 31 December 2026 by mutual agreement), with exercise rights conditional on completion of the main divestments.
• If exercised, all put option properties must be divested simultaneously and will require separate unitholder approval.

Strategic Rationale and Impact

• Elimination of IDR/SGD FX volatility: Income from Indonesian assets is in IDR, exposing the trust to currency depreciation. The divestment will reduce FX risk and earnings volatility, supporting more stable distributions.
• Transaction certainty: Siloam and LK, as existing master lessees and operators, are the natural buyers, providing high certainty of completion in a challenging Indonesian macroeconomic environment. Recent negative ratings actions by Moody’s and Fitch, and MSCI’s warning of a downgrade, underscore heightened risk.
• Phased approach for DPU stability: Immediate divestment of non-core/riskier assets (including those with rental arrears or BOT expiry) maximizes value, while put options give flexibility for further asset sales and portfolio reconstitution.
• Substantial deleveraging: Proceeds will be used to repay S\$362.7 million in debt (CGIF Bonds, Standby Letter of Credit, 300M Facility), reducing pro forma leverage from 42.1% to 16.7% and saving S\$18.8 million in annual interest costs.
• Refocus on developed markets: Freed from Indonesian risk, First REIT will focus on Singapore, Japan, and Australia, where macroeconomic, regulatory, and FX conditions are more stable and property liquidity is higher.
• Special Distribution and Fee Waiver: Manager will waive S\$2.4 million in divestment fees and commit S\$9.7 million for a special distribution to unitholders, to be paid over two quarters post-completion.

Financial Effects

• Net proceeds from main divestments: S\$464.2 million after transaction costs.
• Estimated net gain on hospital divestments: S\$2.6 million; net loss on non-core divestments and lease: S\$2.2 million combined.
• Post-divestment NAV per unit: Drops from 24.97 cents to 23.43 cents (pro forma).
• DPU (FY2025 pro forma): Falls from 2.17 cents to 1.39 cents (without special distribution), or 1.85 cents with special distribution.
• Aggregate leverage: Reduced from 42.1% to 16.7% (pro forma).

Regulatory and Shareholder Considerations

• Major Transaction/Interested Person Transaction: The divestments exceed 50% of NAV, net profits, and market capitalization thresholds. Independent unitholder approval is required at an Extraordinary General Meeting (EGM).
• Abstentions: Siloam, LK, OUE, OUE Healthcare, and their associates (controlling unitholders) will abstain from voting on the resolutions.
• Audit and Risk Committee Statement: Confirms terms are in line with market values and not prejudicial to minority unitholders.
• Independent Financial Adviser: SAC Capital has been appointed to advise on the fairness of the transactions.

Timeline and Next Steps

• Shareholder circular and EGM: Details and notice of meeting to be dispatched in due course. Completion is targeted for August 2026.
• Special distribution: Expected to be paid across the next two quarters after completion.
• Subsequent EGM: Will be convened only if put options are exercised.
• Inspection of documents: Transaction documents and valuation reports are available for inspection by appointment at the manager’s office.

Implications for Investors

This is a transformative and potentially price-sensitive development for First REIT. The divestment will fundamentally change the risk profile, leverage, and income stability of the trust, while unlocking capital for future growth in more stable, developed markets. The elimination of FX risk and significant deleveraging are likely to be viewed positively by many investors, though the reduction in NAV and DPU may weigh on near-term valuation. The outcome of the EGM and market reaction to the new strategic direction will be closely watched.

Disclaimer

This article is for informational purposes only and does not constitute investment advice or a solicitation to buy or sell any securities. Investors should refer to official First REIT documents and consult their financial advisers before making investment decisions. The information herein is based on publicly available data as of the date of writing and may be subject to change.

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