First REIT Announces Major Indonesia Portfolio Divestment to Strengthen Financial Position and Drive Growth in Developed Markets

Key Highlights

• Proposed Divestments of Indonesian Assets valued at S\$471.5 million, at a 2.1% premium to valuation
• Significant reduction in aggregate leverage to 16.7% and pro forma annual interest cost savings of S\$18.8 million
• Put Option Agreements to potentially unlock a further S\$294.8 million, enabling further portfolio reconstitution
• Special Distribution of S\$9.7 million planned for unitholders
• Strategic pivot towards developed markets (Singapore, Japan, Australia) for future growth

Detailed Report

First REIT Management Limited, the manager of First Real Estate Investment Trust (First REIT), has announced a pivotal series of transactions as part of its ongoing strategic review. The transactions involve the proposed divestment of all its Indonesian assets for a total consideration of S\$471.5 million—representing a 2.1% premium over the average of two independent valuations.

Structure & Rationale of the Divestment

• The divestment will occur in two tranches, prioritising distribution per unit (DPU) stability and capital recycling from non-core, non-healthcare, and underperforming assets (including assets with rental arrears). This restructuring aims to eliminate IDR/SGD foreign currency volatility and income drag which have negatively impacted unitholder returns.
• The divestment comprises:
  • Proposed Hospital Divestments: Eight hospital properties will be sold to PT Siloam International Hospitals Tbk (Siloam) and/or subsidiaries for approximately S\$389.2 million (IDR 5.1 trillion), at a 2.8% premium to the average of two latest independent valuations. Assets include Siloam Sriwijaya, Siloam Hospitals Purwakarta, Siloam Hospitals Lippo Village, Siloam Hospitals Kebon Jeruk, Siloam Hospitals Bali, Siloam Hospitals Kupang, Siloam Hospitals Baubau, and Siloam Hospitals Manado.
  • Proposed Non-Core Divestments:
    • Two non-hospital assets, Lippo Plaza Baubau and Hotel Aryaduta Manado, will be divested to PT Lippo Karawaci Tbk for S\$53.3 million.
    • Conditional prepaid lease of commercial rights for Lippo Plaza Kupang to PT Bumi Sarana Sejahtera (subsidiary of PT Metropolis Propertindo Utama) for S\$29.1 million.
• Put Option Agreements: First REIT has secured Put Option Agreements with Siloam for the remaining six hospital assets in Indonesia. If exercised, these will unlock an additional S\$294.8 million (IDR 3.9 trillion), subject to unitholder approval and prevailing exchange rates.

Strategic and Financial Impact

• Following the initial divestment, aggregate leverage will be significantly reduced to 16.7%, with estimated annual interest savings of S\$18.8 million.
• The divestments will also result in full recovery of current MPU rental arrears, totaling S\$6.9 million.
• The Board intends to declare a Special Distribution of approximately S\$9.7 million to unitholders, to be paid in the two quarters immediately following the completion of the divestments.
• The net proceeds will be used to repay existing debt facilities (including the CGIF Bonds, Standby Letter of Credit, and S\$300 million facility), earmarked for the Special Distribution, and to fund capital expenditure, asset enhancement, and general corporate needs.

Strategic Portfolio Repositioning

First REIT’s management has articulated a clear strategic pivot: the divestments and put options will facilitate a focus on developed markets—especially Singapore, Japan, and Australia—where the REIT sees:

• More predictable macroeconomic and geopolitical conditions
• Lower equity risk premiums and cost of debt
• Greater currency stability
• Stronger legal and regulatory frameworks
• Tenants with higher credit quality
• Greater property liquidity and valuation transparency

The manager will look to redeploy capital into these regions, seeking accretive acquisitions and capital recycling opportunities to enhance long-term unitholder value.

Financial Effects & Shareholder Considerations

• Pro forma DPU Impact:
  • If the divestments were completed on 1 January 2025, FY2025 DPU would fall from 2.17 cents (8.68% yield) to 1.39 cents (inclusive of special distribution: 1.85 cents).
  • If completed on 30 June 2025, DPU would fall to 1.56 cents (inclusive of special distribution: 2.02 cents, 8.08% yield).

  This is a key point: while leverage and risk profile improve, there is a reduction in DPU in the short term, even after accounting for the special distribution. Investors should weigh the trade-off between balance sheet strength and near-term income.

• Approvals Required: The divestments are subject to unitholder approval via an ordinary resolution at an upcoming EGM (expected June 2026). Sponsors OUE Limited and OUE Healthcare Limited, and their associates, will abstain from voting.
• Divestment Fee Waiver: In a move to align with unitholder interests, the manager will completely waive its S\$2.4 million divestment fee for these transactions.
• Independent Financial Advisor (IFA): SAC Capital Private Limited has been appointed as IFA to opine on the fairness of the terms for minority unitholders.

Timetable and Next Steps

• Signing of definitive sale and purchase agreements: 1 April 2026
• Dispatch of circular and notice of EGM: May 2026
• Extraordinary General Meeting: June 2026
• Target completion of divestments: August 2026

Unitholders should monitor further SGXNet announcements for updates on the timetable.

Price Sensitive Issues & Key Risks for Investors

• Potential share price volatility: The divestments represent a material change in First REIT’s portfolio, reducing exposure to Indonesia and emerging markets, while sacrificing some short-term DPU. Market reaction will depend on investor appetite for balance sheet strength versus yield.
• Currency risk mitigation: The exit reduces IDR/SGD exposure which has historically affected returns.
• Execution risk: The Put Options for the remaining Indonesian hospitals are at First REIT’s discretion and subject to unitholder approval, so future proceeds are not guaranteed.
• Future growth: Success hinges on the manager’s ability to redeploy capital into developed market assets with attractive risk-adjusted returns.
• Special Distribution: While the S\$9.7 million special distribution is positive, it is a one-off, and underlying DPU will be lower post-transaction until new accretive acquisitions are secured.

Conclusion

The proposed Indonesian asset divestments represent a strategic turning point for First REIT. The transactions will strengthen the REIT’s balance sheet, mitigate currency and macroeconomic risks, and position the trust for growth in developed markets. However, unitholders should note the anticipated decline in near-term distributable income, and the need for successful capital redeployment to restore and grow DPU over time. The EGM and subsequent unitholder vote are critical—if not approved, there is no certainty a better offer will materialise.

Disclaimer

This article is for informational purposes only and does not constitute investment advice. Investors should consult the official circular, review all relevant risk factors, and consider seeking advice from a financial advisor before making any investment decisions. Past performance is not indicative of future results. The information herein is based on the First REIT press release and may be subject to change.

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