First REIT Announces Strategic Exit from Indonesia Assets: Full Details on Major Divestment and Shareholder Value Impact

Key Highlights from the Announcement

• Full divestment of all Indonesia assets, including hospitals and non-core properties, by August 2026.
• Aggregate divestment consideration of S\$471.5 million, representing a 2.1% premium over the latest independent valuations.
• Special Distribution of S\$9.7 million to shareholders, reflecting the premium over appraised values.
• Substantial deleveraging: Pro-forma gearing drops from 42.1% to 16.7% post-divestment.
• Recovery of S\$6.9 million in rental arrears from MPU as part of the transaction.
• Put Option for remaining six Indonesian hospitals, enabling full exit and further cash unlocking of S\$294.8 million upon exercise.
• Clear timeline: EGM in June 2026, completion by August 2026, and special distributions expected over two quarters following the deal.
• Transition to a developed markets-focused portfolio to reduce IDR/SGD forex volatility and boost DPU predictability.

Background and Strategic Rationale

In January 2025, First REIT initiated a strategic review after receiving a letter of intent from long-term tenant PT Siloam International Hospitals Tbk (Siloam) for the acquisition of its Indonesian hospital portfolio. Assisted by Citigroup Global Markets, the review explored all strategic options, including divestment, in pursuit of long-term value for unitholders.

The Board has now decided to fully divest its Indonesian properties, citing the following reasons:

• Challenging macroeconomic outlook in Indonesia, including ratings outlook downgrades by Moody’s and Fitch to “Negative”, concerns over policy uncertainty, and the risk of MSCI market reclassification from Emerging to Frontier market status.
• Weakening of the Indonesian Rupiah (IDR) against the Singapore dollar (SGD), resulting in a 28% depreciation over five years—significantly eroding distribution per unit (DPU) and net asset value (NAV).
• Increasing capital expenditure needs for ageing hospital assets (average age: 20.5 years) and the upcoming shift of leases from SGD to IDR, which would further increase currency risk.
• Rental arrears recovery and the desire to eliminate IDR/SGD income drag that has pressured returns.

Details of the Divestment Transaction

Assets to be Sold

• Eight hospital properties will be sold to Siloam for IDR 5.1 trillion (~S\$389.2 million).
• Three non-core properties (Lippo Plaza Baubau, Hotel Aryaduta Manado, and Lippo Plaza Kupang) will be divested to PT Lippo Karawaci Tbk and PT Bumi Sarana Sejahtera for a total of S\$82.4 million (IDR 1.1 trillion).
• Put Option: Siloam grants First REIT the right (but not the obligation) to sell the remaining six Indonesian hospitals for IDR 3.9 trillion (~S\$294.8 million) by 31 October 2026.

The total divestment consideration of S\$471.5 million is 2.1% above the average of two independent property valuations. All rental arrears of S\$6.9 million owed by MPU will be fully settled upon transaction completion.

Shareholder Value and Distribution Impact

• Special Distribution: S\$9.7 million will be paid out to unitholders, equivalent to the premium over appraised values. This will be distributed across two financial quarters after completion.
• Pro-forma FY2025 DPU: Estimated at 2.02 cents (assuming divestment effective 30 June 2025), with a DPU yield of 8.08% (compared to 8.68% previously).
• Substantial Deleveraging: Aggregate leverage drops from 42.1% to 16.7%, materially reducing financial risk and interest costs (annual savings of S\$18.8 million).

These changes aim to provide greater DPU stability and predictability for FY2026, even amid geopolitical and market volatility.

Execution Timeline and Shareholder Approvals

• April 2026: Signing of sale agreements and Put Option.
• May 2026: Dispatch of circular and notice of EGM.
• June 2026: Extraordinary General Meeting (EGM) for unitholder approval.
• August 2026: Completion of divestments and commencement of special distributions.
• Put Option expiry: 31 October 2026 (with option for extension to 31 December 2026).

Shareholder approval is required for the divestments. Notably, sponsors OUE Limited and OUE Healthcare Limited (and their associates) will abstain from voting. The transaction is subject to the opinion of an Independent Financial Adviser (IFA), to be detailed in the forthcoming circular.

Implications for Share Price and Investment Thesis

• Potential share price catalyst due to the premium to valuation, special distribution, and significant deleveraging.
• Future focus on developed markets (Singapore, Japan) expected to reduce earnings volatility, currency risk, and improve portfolio quality and governance.
• Risk reduction with full exit from challenging Indonesian market amid macroeconomic and policy uncertainty.
• Flexibility for redeployment of capital and pursuit of new growth opportunities in stable, developed economies.

The divestment is positioned as a transformational move for First REIT, fundamentally changing its risk-return profile and strengthening its balance sheet. The elimination of IDR exposure, payment of rental arrears, and special distribution are all material and price-sensitive developments that investors should monitor closely.

Appendix: Detailed Asset Valuations

The full exit from Indonesia will be completed upon exercise of the Put Option on the remaining six hospitals, unlocking an additional S\$294.8 million (subject to final valuation and FX rates at the time).

Contact for Further Enquiries

First REIT: [email protected] | Tel: (65) 6435 0168
Teneo: [email protected] | Tel: (65) 6977 6808

Disclaimer

This article is for informational purposes only and does not constitute investment advice or an offer to buy or sell any securities. Please refer to the official First REIT documentation and consult your financial adviser before making any investment decisions. Past performance is not indicative of future results. Shareholders are encouraged to review all materials, including the IFA’s opinion, prior to voting at the EGM.

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