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Why First REIT’s FY2025 'Decline' Is A Strategic Rebirth · Investor Exchange

• 0:02
  Time for another Investor Exchange Podcast. Here are your hosts,
• 0:06
  Matt and Sally. Welcome back to the Deep Dive.
• 0:10
  You know, there is a specific moment I think every investor dreads. Oh, yeah.
• 0:14
  You open your portfolio app, maybe you're checking it over your morning coffee,
• 0:17
  and the screen is just red.
• 0:20
  The market is volatile. Your growth stocks are getting hammered.
• 0:23
  And your media instinct is flight. You think, I just want safety.
• 0:27
  Give me something boring. Give me something people literally cannot live without.
• 0:31
  The classic flight to quality. Yeah. When the economy gets shaky or inflation
• 0:36
  spikes, you stop buying luxury handbags. You might skip the vacation,
• 0:40
  but you definitely don't stop going to the doctor.
• 0:42
  And that is the logic that leads so many people to health care real estate.
• 0:46
  It's supposed to be the ultimate defensive play.
• 0:48
  Hospitals, nursing homes, these aren't trends. They're necessities.
• 0:52
  Right. So naturally, you look at a player like First REIT. They're the pioneers here.
• 0:57
  Singapore's first health care REIT. They've got this massive portfolio of 31
• 1:01
  properties across Indonesia, Singapore and Japan.
• 1:03
  It is a significant footprint. And on paper, it ticks all those safety boxes.
• 1:08
  You have hospitals like Salome in Indonesia.
• 1:11
  You have nursing homes in Japan. It feels like a fortress against economic downturns.
• 1:16
  But here's the problem, and it's why we are doing this deep dive today.
• 1:20
  We've got the latest financial documents in front of us. The full year results
• 1:24
  for the year ended December 31st, 2025.
• 1:28
  Yep, released on February 5th, 2026. And when you look at the headline numbers,
• 1:32
  well, the Fortress looks like it's taking some serious damage.
• 1:36
  It's definitely not the sea of green investors we're hoping for.
• 1:39
  The headline numbers suggest a business in retreat.
• 1:42
  So that is our mission. We need to figure out if this is a case of a business
• 1:46
  that is actually deteriorating like, are the hospitals empty? Yeah.
• 1:50
  Or if something else is masking the true performance.
• 1:53
  Because if I'm buying safety, I don't want to see my income drop.
• 1:56
  And that is the crux of it.
• 1:58
  In real estate investment trusts or REITs, the headline number often hides the real story.
• 2:03
  We need to peel back the layers to see if the engine is actually broken or if
• 2:07
  it's just facing some headwinds.
• 2:09
  Let's start with the number that actually pays the bills for the listener.
• 2:12
  The distribution per unit, or DPU. If I hold this stock, this is my dividend.
• 2:17
  This is the cash that hits my account. The main event.
• 2:19
  For FY 2025, first REIT declared a DPU of 2.17 Singapore cents. Right, 2.17 cents.
• 2:26
  Now, to put that in perspective, in FY 2024, that payout was 2.36 cents. That is an 8.1% drop.
• 2:34
  I don't care how defensive the asset class is. If my paycheck gets cut by 8%,
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  I'm not feeling very safe. I'm feeling a little poorer.
• 2:41
  It's a completely valid reaction. An 8% cut is substantial, especially for retirees
• 2:46
  or income investors who rely on that cash flow to pay their own bills.
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  When you see a drop like that, your first assumption is usually that something
• 2:53
  is wrong operationally.
• 2:55
  Did tenants leave? Did they stop paying rent? That was my first thought.
• 2:58
  So I went straight to the top line. The revenue, rental and other income came in at $100.5 million.
• 3:04
  That is down 1.6% from the previous year.
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  And net property income, which is basically what's left after you pay the building
• 3:11
  expenses, was $97.3 million, down 1.1 percent.
• 3:16
  So the business is bringing in less money than it did a year ago.
• 3:19
  It certainly looks like a contraction if you stop reading there.
• 3:21
  It looks like a slow bleed.
• 3:23
  But this is where we have to introduce the villain of this particular story.
• 3:27
  It's not the doctors, it's not the patients, and it's not the hospital operators.
• 3:31
  It's the invisible thief. The invisible thief. Foreign exchange. 4X.
• 3:36
  This is the single biggest factor distorting the picture for first REIT in 2025.
• 3:41
  Okay, let's break this down. I think people gloss over currency risk until it
• 3:45
  hits their bank account.
• 3:47
  First REIT is listed in Singapore. I buy the stock in Singapore dollars.
• 3:51
  I want my dividends in Singapore dollars. Correct. But think about where the
• 3:54
  actual cash is being generated.
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  The hospitals are in Indonesia. The nursing homes are in Japan.
• 3:59
  A patient in Jakarta pays their hospital bill in rupiah. Right.
• 4:04
  A resident in a Japanese nursing home pays in yen.
• 4:07
  First REIT collects that rent in those local currencies. And 2025 was...
• 4:12
  Let's just say unkind to those currencies. That is putting it mildly.
• 4:16
  The Indonesian rupiah and the Japanese yen both weakened significantly against
• 4:20
  the Singapore dollar in 2025.
• 4:23
  So imagine you are the manager of First Reet.
• 4:26
  You collect a massive pile of rupiah from your tenants. It's actually a bigger
• 4:29
  pile of rupiah than you collected last year.
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  But when you go to the bank to convert that into Singapore dollars to pay your
• 4:36
  investors, you get back significantly less. It's like working a job in Tokyo
• 4:41
  and getting a raise in yen.
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  You feel great, you're buying more sushi in Tokyo.
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  But you're trying to pay a mortgage back in Singapore. When you send the money
• 4:49
  home, the exchange rate eats your raise and then some.
• 4:52
  That is the perfect analogy. And we have proof of this in the documents.
• 4:56
  This is the key insight that separates the headline readers from the deep divers.
• 5:01
  If you strip away the currency conversion and look at the business and local
• 5:04
  currency terms, the picture completely flips.
• 5:07
  I saw that in the presentation slides and it really surprised me.
• 5:10
  In Indonesia, the rental income actually rose by 5.1% in local currency. Exactly.
• 5:15
  5.1% growth. That is healthy. That is a business that is expanding. Right.
• 5:20
  And even the Singapore properties, which obviously don't have currency risk,
• 5:24
  grew by 2.0%. Japan was stable.
• 5:28
  So operationally, the tenants are paying more rent. The business is growing.
• 5:32
  A currency exchange is just masking it entirely.
• 5:35
  Completely. That distinction matters so much because currency cycles eventually
• 5:40
  turn. If the underlying business was shrinking, if hospitals were closing or
• 5:45
  demanding rent cuts, that's a structural problem.
• 5:48
  That's a sell immediately signal. For sure.
• 5:50
  But this feels more like a translation problem.
• 5:53
  Precisely. And that growth in Indonesia isn't accidental. It's built into the contracts.
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  First, REIT has structured their leases with base rent escalation clauses.
• 6:01
  It's often tied to inflation or the performance of the hospital.
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  Oh, OK. So as long as the hospitals are busy and generating revenue,
• 6:08
  the rent ticked up. They are insulated from the operational risk of the hospital,
• 6:12
  but they are fully exposed to the currency risk of the country.
• 6:15
  So the engine's running fine, but the fuel line has a leak called Forex.
• 6:19
  Now, there was another reason for the revenue drop that stood out to me.
• 6:22
  It wasn't just currency. There
• 6:23
  was a divestment. They sold the Imperial Ariaduda Hotel and Country Club.
• 6:28
  Yes. And this is interesting because it signals a shift in strategy.
• 6:31
  I honestly forgot they even owned a hotel.
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  It feels out of place for a health care REIT. Like, here's a hospital.
• 6:37
  Here's a nursing home. and,
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  Here's a country club. It was a legacy asset, a bit of an outlier from the early days.
• 6:43
  They sold it to align the portfolio purely with health care hospitals and nursing homes.
• 6:48
  It's about becoming a pure play. I see. But here is the short-term pain.
• 6:52
  Because they sold it during the year, they stopped collecting rent from it.
• 6:56
  Right. You sell the cow, you stop getting the milk. Exactly.
• 6:59
  So when you compare the total revenue of 2025 against 2024, 2025 looks lower,
• 7:05
  partly because you're missing those months of hotel income.
• 7:08
  But strategically, most analysts would argue this is a smart move. Why is that?
• 7:13
  You trade a non-core cyclical asset like a hotel, which can be volatile for
• 7:18
  cash, which you can then use to pay down debt or reinvest in actual hospitals.
• 7:22
  It purifies the portfolio, makes it easier to understand.
• 7:27
  Speaking of the portfolio, let's talk about the buildings themselves.
• 7:30
  Because in commercial real estate, vacancy is the killer.
• 7:34
  It really is. If you own an office tower right now, you're probably sweating
• 7:38
  about tenants downsizing.
• 7:40
  How does 1st REIT look on occupancy? This is where the defensive thesis really
• 7:44
  shines. You literally cannot get better than this.
• 7:47
  The committed occupancy is 100%. Not a single empty room.
• 7:51
  Not one. And that's the nature of these master leases.
• 7:54
  They aren't leasing individual hospital beds to patients. They are leasing the
• 7:58
  entire building to a master operator, like Solomum Hospitals.
• 8:02
  The operator pays the rent regardless of whether the hospital is 50% full or
• 8:06
  90% full. That transfers the operational risk away from the REIT and onto the operator.
• 8:11
  If the hospital has a slow month, first REIT still gets paid. Exactly.
• 8:15
  And the other number that jumps off the page is the whale, the weighted average
• 8:19
  lease expiry. Right. It stands at 10 years. 10 years.
• 8:22
  I mean, in the retail mall space, if you get a tenant to sign for three years,
• 8:26
  you're celebrating. In office, maybe five.
• 8:29
  Ten years is an eternity in real estate. It means First Street has locked in
• 8:35
  its tenants for a full decade.
• 8:36
  That provides incredible visibility on cash flow.
• 8:40
  You know exactly who is paying the rent in 2030. It's comforting.
• 8:44
  A trendy coffee shop might go bust in six months. A hospital isn't going to
• 8:48
  pack up its MRI machines and move across the street because the rent went up slightly.
• 8:51
  Healthcare infrastructure is incredibly sticky.
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  The cost of moving is prohibitive. The licensing is complex.
• 8:58
  Once a hospital is established, it tends to stay there. That stability is what you are buying here.
• 9:03
  You are buying the infrastructure that keeps the society running.
• 9:07
  Okay, so we have a stable, full portfolio. We have operational growth masked by currency pain.
• 9:12
  But now I want to look at the balance sheet because, frankly,
• 9:14
  this is where I got a little nervous.
• 9:15
  I turned to the liability section and things look tighter.
• 9:19
  The liability side is definitely where the stress points are.
• 9:21
  Yeah. I was scanning the liabilities and two things hit me.
• 9:24
  First, the leverage. The aggregate leverage ratio climbed to 32.1%. It was 39.6% last year.
• 9:31
  It is creeping up. And in this high interest environment, investors watch that number like a hawk.
• 9:37
  In the REIT world, crossing 40% usually sets off a few alarm bells, doesn't it?
• 9:42
  It does. The regulatory limit in Singapore is technically higher up to 45 percent
• 9:47
  or even 50 percent, depending on interest coverage.
• 9:49
  But investors generally like to see a buffer. When you're at 42.1 percent,
• 9:54
  you don't have much headroom.
• 9:55
  Meaning if they find a great new hospital to buy tomorrow, they can't just go
• 10:00
  to the bank and borrow the money easily. They are maxing out the credit card. Exactly.
• 10:04
  They are tapped out on cheap debt. If they want to grow, they might have to
• 10:08
  ask investors for cash and equity fundraiser, which dilutes existing shareholders.
• 10:13
  But it's important to understand why the leverage went up. Did they go on a spending spree? No.
• 10:18
  Let me guess. The invisible thief again. You got it. Leverage is a simple ratio.
• 10:22
  Total debt divided by total assets.
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  We know the currency weakness hammered the value of their assets.
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  The portfolio valuation dropped from S1.12 billion dollars to S1.02 billion
• 10:33
  dollars. So the denominator shrank.
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  The buildings are worth less than Singapore dollars because the yen and rupiah
• 10:39
  crashed. So even if the debt amount stayed exactly the same,
• 10:42
  the leverage ratio goes up.
• 10:44
  It's a math problem caused by currency, not a spending problem.
• 10:47
  Okay, I can forgive the math problem, but I can't ignore the liquidity issue.
• 10:51
  I saw a line item that looked terrifying.
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  Net current liabilities of S213 million dollars.
• 10:58
  Ah, the wall of debt. Basically, this means they owe S213 million dollars more
• 11:04
  in the next 12 months than they have cash on hand.
• 11:07
  If this were my personal bank account, I'd be declaring bankruptcy.
• 11:10
  It looks scary, but it's a very specific accounting phenomenon.
• 11:14
  First REIT has a massive loan, the social term loan A, roughly S246 million dollars.
• 11:20
  It matures in May 2026. Which is just over a year away. Right.
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  And in accounting rules, once a loan is due within one year or close to it,
• 11:28
  it moves from long-term liabilities to current liabilities.
• 11:31
  It sits there like a ticking time bomb on the balance sheet.
• 11:34
  So do they have a quarter of a billion dollars in the bank to pay it off?
• 11:37
  No. And they aren't supposed to.
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  No REIT keeps that kind of cash sitting around. It would be a drag on returns.
• 11:43
  The plan isn't to pay it off with cash. The plan is to refinance it.
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  Rolling over the debt. Yep, the standard play.
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  They will take out a new loan to pay off the old one.
• 11:52
  The presentation slides are very explicit about this.
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  They state they are currently in discussions with lenders to extend and refinance this facility.
• 12:02
  Discussions is a polite corporate word. But we have to be real.
• 12:06
  What if those discussions go south?
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  What if the banks say no? Or what if the interest rates on the new loan are sky high?
• 12:14
  That is the single biggest risk factor for the next 12 months.
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  If credit markets freeze, first REIT is in a tight spot.
• 12:22
  However, the banks look at one key metric, the interest coverage ratio.
• 12:26
  For first REIT, that is 3.7 times. Meaning their income covers their interest
• 12:30
  payments almost four times over. Correct.
• 12:32
  That is a very healthy number. It tells the bank, we have plenty of cash flow
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  to service the debt. It makes them a good candidate for refinancing.
• 12:39
  It's like having a high credit score and a steady job when you apply for a mortgage.
• 12:43
  Plus, they aren't exactly alone in this, are they? We need to talk about who
• 12:45
  is standing behind them.
• 12:47
  They have some big brothers. The sponsors. This is crucial context.
• 12:51
  First REIT is sponsored by OUE Limited and OUE Healthcare.
• 12:55
  OUE owns 60% of the manager, and OUE Healthcare owns 40%. Having a sponsor like
• 13:01
  OUE is like having a wealthy parent.
• 13:04
  It changes the conversation with the bank entirely.
• 13:07
  When you walk into a negotiation backed by a major conglomerate like OUB,
• 13:11
  lenders have a lot more confidence.
• 13:14
  It implies that if things really hit the fan, the sponsor has the resources
• 13:18
  and the reputation to step in.
• 13:20
  They aren't going to let their flagship healthcare REIT fail easily.
• 13:23
  So we have the wall of debt, but we have a ladder to climb over it.
• 13:28
  Now, sticking with the future, there was a phrase in the press release that
• 13:31
  sounded incredibly vague, but my gut tells me it's important. Which one?
• 13:35
  Strategic review. Ah, yes. A strategic review initiated by the manager.
• 13:39
  Usually, companies don't announce a strategic review when things are going perfectly.
• 13:44
  If everything is great, you just keep going. What does this actually signal?
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  You are right to be suspicious.
• 13:50
  A formal strategic review is often code for, we know the share price is too
• 13:54
  low, we know the market isn't valuing us correctly, and we are willing to do
• 13:58
  something drastic to fix it.
• 14:00
  The document says the scope includes considering all options.
• 14:04
  That sounds wide. All options is the corporate catch-all.
• 14:08
  It could mean joint ventures partnering with someone to buy assets.
• 14:12
  It could mean bringing in a new strategic partner to inject capital.
• 14:16
  It could mean selling off more assets to pay down that debt we just talked about.
• 14:21
  Could it mean selling the whole company?
• 14:23
  It could. Privatization is absolutely on the table.
• 14:26
  If the public market keeps valuing the stock way below the value of properties.
• 14:32
  Mostly because of this currency noise, the sponsor might just say,
• 14:35
  fine, we'll buy it back and take it private.
• 14:37
  That adds a weird layer of intrigue to this investment. You're buying it for
• 14:40
  the dividend yield, but you're also holding a lottery ticket for whatever this
• 14:43
  strategic review comes up with. That's the mystery box element.
• 14:47
  Management is clearly not satisfied with the status quo. They see the unit price dropping.
• 14:51
  They see the currency headwinds. And they are proactively looking for a way to unlock value.
• 14:57
  It suggests the next 12 months could be transformative. So let's try to synthesize
• 15:02
  all of this for the listener. We've covered a lot of ground.
• 15:04
  We have the falling DPU, the currency hammering the top line,
• 15:07
  the solid occupancy, and this looming debt refinancing.
• 15:11
  If you had to paint the bull case, the optimist's view, what is it?
• 15:16
  The bull case is that you are buying high-quality essential infrastructure at a discount.
• 15:21
  You have 100% occupancy and 10-year leases.
• 15:24
  The underlying business in Indonesia is growing. Rents are going up 5% a year.
• 15:29
  Okay. You are essentially getting paid to wait. Paid to wait for what?
• 15:33
  For the currency cycle to turn. The rupio won't fall forever.
• 15:35
  Economies are cyclical. When
• 15:37
  it stabilizes or strengthens, that invisible thief becomes a tailwind.
• 15:41
  Suddenly, your dividends get a boost without the company doing anything extra.
• 15:45
  Plus, you have the potential upside from the strategic review.
• 15:48
  If they unlock value, you win. And the bear case.
• 15:51
  Why should I stay away? The bear case is that the currency risk is structural.
• 15:55
  If the rupiah keeps sliding year after year, your DPU keeps sliding,
• 15:59
  no matter how full the hospitals are.
• 16:01
  You're fighting a macro tide you can't control.
• 16:04
  And the bear worries about that debt in 2026.
• 16:07
  If refinancing is expensive, interest costs go up and your dividend takes another hit.
• 16:13
  It feels like a battle between the stability of the physical assets, the hospitals.
• 16:19
  And the volatility of the financial layer, the currency in debt.
• 16:23
  That is the perfect summary.
• 16:24
  The real assets are rock solid. You can go touch the walls of the hospital. It's full of patients.
• 16:29
  But the financial structure wrapped around them, the foreign exchange,
• 16:32
  the loans, is where the volatility lives.
• 16:35
  So for the investor, it really comes down to patience and belief in the demographic
• 16:38
  story. It does. This isn't a get-rich-quick tech stock. It's a yield play.
• 16:42
  It's for the investor who believes in the long-term need for health care in
• 16:46
  aging populations, more medical services, and is willing to stomach the currency
• 16:51
  bumps to get that steady rental income.
• 16:53
  And trusting that management can navigate that 2026 debt wall without diluting everyone.
• 17:00
  That is the critical test. Navigating that refinancing is the report card for
• 17:05
  the management team this year. We will know a lot more in a few months.
• 17:08
  So here's a final provocative thought for you to chew on. We talked about that strategic review.
• 17:14
  If First REIT decides that the public markets just aren't appreciating their
• 17:18
  value you because of this currency noise.
• 17:20
  Could we see them disappear entirely? It's a distinct possibility.
• 17:24
  Think about it. If you're OUE, the sponsor, and you know these hospitals are
• 17:29
  cash cows, but the market is pricing them like distressed assets,
• 17:33
  why let the public hold them?
• 17:34
  Exactly. If the gap between price and value gets too wide, the most logical
• 17:39
  move is often to take the ball and go home.
• 17:42
  Privatization allows them to operate without the quarter-by-quarter scrutiny of the public market.
• 17:46
  Something to keep in mind. If you hold the stock, You might wake up one morning
• 17:50
  to a privatization offer.
• 17:52
  We'll have to wait and see what the strategic review produces.
• 17:54
  It is going to be a very interesting year for First Reet. Thank you so much
• 17:58
  for breaking down those numbers.
• 18:00
  It's amazing how much clearer things get when you stop panicking at the red
• 18:04
  arrows and actually read the footnotes.
• 18:06
  Always read the footnotes. That's where the real story is.
• 18:08
  And thank you to our listeners for joining us on this deep dive.
• 18:11
  We hope this helped clarify the picture on First Reet. Until next time.
• 18:15
  Before we go, we need to read our standard disclaimer. consumer. Please listen closely.
• 18:20
  This content is intended to serve strictly and only as an informational,
• 18:24
  independent, objective summary of recent events and should in no way be interpreted,
• 18:29
  construed or relied upon by any party as inside information or financial advice.
• 18:34
  See you on the next Deep Dive.