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First REIT: 1H 2025 Performance and Strategic Outlook · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome to The Deep Dive, your ultimate shortcut to being truly well-informed.
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  We know you're busy, so instead of you wading through stacks of financial reports,
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  research, all that paper yourself, we do the heavy lifting for you. Our mission?
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  Well, it's to pull out the most important bits of knowledge,
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  the real insights, and hopefully keep you hooked with may be a surprising factor to along the way.
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  Today, we're diving deep into the recent financials and the outlook for First
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  Real Estate Investment Trust, First REIT.
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  They're a pretty unique player in that healthcare real estate space.
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  We've got their interim financial statements, their presentation slides,
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  and the press release right here.
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  We're going to unpack it all, helping you understand what's really driving the numbers.
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  So first, just a quick overview. First, wheat.
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  Singapore's first healthcare REIT. They focus specifically on income-producing
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  properties, mostly healthcare, across Asia.
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  So think hospitals, nursing homes.
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  They've got 32 properties spread across Indonesia, Singapore, and Japan.
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  And what jumps out straight away, really, is this 100% occupancy rate.
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  Yeah, that's quite something.
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  And a weighted average lease expiry, the whale of 10.1 years.
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  That sounds, well, pretty rock solid on the surface, right? It's certainly signal stability, yeah.
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  Long leases, fully occupied. Okay, so let's unpack the headline numbers then.
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  First half of 2025 1h 2025 compared
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  to last year because you know for a health care REIT you'd expect stability
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  like we said pillar of stability almost seeing these initial numbers it does
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  make you um scratch your head a bit it begs the question is something actually
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  shaky here or are we missing a key piece of the puzzle so looking at the figures
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  in Singapore dollars STD.
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  We saw declines pretty much across the board. Rental and other income,
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  net property income, the distributable amount, all down. Around 3% to 5% drops.
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  For example, rental income dipped 2.9% to $65 million.
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  But the one that hits home for unit holders usually is the distribution per
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  unit, the DPU. For one age 2025, that saw a 5.8% reduction.
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  Fell to 1.13 Singapore cents from 1.20 cents last year. That's a noticeable drop.
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  Yeah, and even quarter on quarter Q2 was down a bit from Q1.
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  Plus, there was a slight increase in the total issued units,
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  about 0.8 percent. Tiny.
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  But it contributes to that DPU dilution, too. So my first thought is, why?
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  Why these downward trends in what should be a resilient sector?
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  That's absolutely the crucial question to start with. It really gets to the
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  core of understanding these results.
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  And what's fascinating here, right, is that the primary reason for these drops,
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  when you look at them in sing-dollar terms, it isn't really about the performance
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  of the actual properties.
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  It's almost entirely down to currency fluctuations, specifically the big depreciation
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  of the Indonesian rupiah and the Japanese yen against the Singapore dollar.
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  Think of it like this, maybe. If you earned your salary in yen,
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  but all your bills were in Singapore dollars and the yen suddenly tanked.
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  Your buying power just shrinks, even if the yen salary didn't change. Exactly.
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  Even if your yen salary didn't change.
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  First REIT is facing that. on a much larger scale, converting those foreign earnings back home.
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  Okay. So it's like there are hospitals in Indonesia, there are nursing homes
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  in Japan, they're earning good rent in rupiah or yen.
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  But when first REIT brings that money back to Singapore, converts it to SGD,
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  they lose a chunk just on the exchange rate.
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  Not because the assets aren't performing. Is that fair? That's a perfect analogy.
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  It's a direct currency translation effect, purely that.
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  And this is where the picture gets really interesting. Because if you strip
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  out that currency impact, if you look at what happened in local currency terms,
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  the underlying operational strength.
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  It becomes very clear. Okay, tell me more. Well, for instance,
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  their properties in Indonesia, they actually saw a pretty healthy 5.5% increase
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  in rental income in rupiah term. 5.5% increase, okay. Yeah.
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  And in Singapore, their properties recorded a solid 2.0% increase in rental income. Right.
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  And in Japan, rental income in yen terms remained stable.
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  So the assets themselves locally are doing fine, generating more rent or holding steady. Exactly.
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  Robust performance in their local markets. The dip you see reported in SGD is,
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  well, largely an accounting and conversion thing. That's a really powerful distinction.
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  Strong local operations sort of masked by these currency headwinds.
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  But beyond that big currency story, were there other things going on financially,
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  maybe positive shifts, negative shifts, costs, accounting things that shake
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  the overall picture? Oh, certainly.
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  There were definitely other factors at play. I mean, beyond the currency,
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  their cost management looks pretty effective, too. property operating expenses
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  actually decreased by a notable 9.3% down to S1.5 million dollars.
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  Oh, interesting. Why was that?
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  It was mainly due to lower expenses in both Japan and Indonesia.
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  So good control there. And even the manager's management fees decreased by 2.5%
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  to S4.2 million dollars.
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  That's kind of linked actually to the lower total asset and net property income
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  figures after you factor in the currency weakening.
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  I see a knock-on effect. And on the debt side, which is always important,
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  a positive sign, finance costs actually fell slightly by $7.4 million to $10.9 million.
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  And that's because? They attributed that to easing interest rate conditions.
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  So that's a direct saving.
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  Helps the bottom line. Okay. Any other big movers on the statements?
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  Yeah. A couple of noteworthy things. For instance, they reported net fair value
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  gains on their investment properties as $2.6 million for the first half. Gains. After. Exactly.
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  That's a huge turnaround from the S6.2 million dollar loss they booked in the first half of 2024.
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  Wow. What does that tell us? Well, for a REIT, that's crucial.
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  It speaks to the perceived market value, the long-term health of their core assets.
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  It's a strong counter-narrative to just focusing on the currency impact,
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  suggests revaluations are moving favorably again. OK, that's definitely positive.
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  But on the flip side, you have to balance that. They also incurred net foreign
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  exchange losses of S3.8 million dollars. Ah, the currency again.
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  But losses how? Yeah, and crucially, S1.7 million dollars of these were realized losses.
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  This isn't just paper translation. It's largely from actually moving funds,
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  remitting cash, mainly from Indonesia back to Singapore.
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  So like that analogy earlier, you earn money in rupiah, you convert it to SGD
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  to bring home, and if rupiah drops just then, you literally get fewer dollars in your hand.
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  Precisely. It's a real cash impact. And that directly hit the amount of cash
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  they had available for distribution. It shows currency isn't just a spreadsheet
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  number, it affects the cash. Got it.
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  Anything else on the expense side? Just briefly, income tax expenses also decreased
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  by 4.0% to S7.4 million dollars.
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  That was also partly due to the weaker JPY and IDR, plus lower deferred tax
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  provisions for their Japan subsidiary.
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  Okay. So if you synthesize all that, operations were strong locally,
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  cost control was good, finance costs eased, property value saw gains.
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  But those currency movements, especially the realized FX losses from remittances,
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  they really did distort the overall financial picture when you report it all
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  back in Singapore dollars.
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  That context is incredibly helpful. It really paints a much clearer picture,
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  that operational versus translation story.
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  OK, let's pivot then. Let's shift focus to their balance sheet. Capital management.
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  How healthy is the foundation? We saw the net asset value, the NEV per unit,
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  decline by about 6.5%, down to 26.75 Singapore cents from 28.60 cents at the end of last year.
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  And again, it seems like that weaker Indonesian rupiah hitting the property
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  valuations when converted played a big part there. That's right.
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  The asset value, when translated back to SGD, takes a hit from the weaker rupiah.
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  It affects the NAV calculation directly. Right.
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  Now, looking at their debt, their borrowings, total borrowings nudged up slightly
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  to S461.8 million dollars from S453.5 million dollars.
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  They mentioned that was mainly due to drawing down loans for working capital.
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  Seems straightforward.
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  Pretty standard. Yeah. But here's something that, you know, might make you pause initially.
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  A really significant jump in current liabilities. From S18.2 million dollars
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  up to S263.3 million dollars, that's a huge leap. What's driving such a dramatic change?
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  Yeah, that number definitely jumps out at you on the page. But the explanation is quite specific.
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  That seemingly large increase, it's almost entirely due to one thing.
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  The reclassification of a big loan. The S246.7 million dollar social term loan A.
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  Reclassification. From what to what? From non-current liabilities to current
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  liabilities. Simply because its official maturity date is May 2026.
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  And accounting rules say if a loan matures within the next 12 months from the
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  balance sheet date, you have to classify it as current.
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  Okay, so it's an accounting requirement because the clock is ticking towards May 2026. Exactly.
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  However, and this is the absolutely crucial detail here, the trust has an option.
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  An option. Yes, they have a prearranged option to extend this specific bank
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  loan for another two years beyond May 2026.
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  Ah, so even though it's technically current on the books now?
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  They don't actually have to refinance it right away. They can trigger that extension.
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  Which means effectively no immediate refinancing crunch until potentially May
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  2028 if they take the extension.
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  Well, the option is for two years, so likely pushes the need out to May 2028
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  if exercised. The key point is no requirement until May 2026 at the earliest,
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  and they have control over pushing it further.
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  Right. OK, that context completely changes the perception of that big liability jump.
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  It's not an immediate liquidity crisis. It's an accounting move with a safety
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  net built in. Precisely.
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  It's important context, and it reflects on their overall capital management,
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  which actually remains quite robust.
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  Their gearing ratio, for instance, is at 41.2%. Yes, it's up slightly from 39.6%
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  at the end of 2024, but still reasonable. And the ICR?
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  The interest coverage ratio, or ICR, held strong at 3.7 times.
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  That indicates they can comfortably cover their interest payments from their earnings.
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  Their all-in cost of debt is currently 4.8%. And they've been quite proactive
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  in managing risk here. How so?
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  Well, 56.2% of their total debt is currently on fixed rates or has been hedged
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  against interest rate movements. So more than half is protected from rate hikes.
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  Exactly. It demonstrates a strategic approach. They're trying to mitigate both
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  interest rate and currency volatility, especially thinking about those cash
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  flows coming in from Indonesia and Japan.
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  Hedging strategies, you mean, like forward contracts. Precisely.
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  The reports mention they're using strategies like forward contracts to protect
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  those income streams from currency swings.
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  Given the environment we've been discussing, that foresight is absolutely critical.
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  That definitely sounds reassuring, especially with those persistent currency headwinds.
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  Okay, before we look ahead, there was one other small note in the reports about tenant arrears.
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  Can you just quickly touch on that? The outstanding rental from PT Metropolis,
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  Propertindo, Utama, PT and MPU.
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  Is that significant? Right, PT and MPU. As of the end of June 2025,
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  there was about $7.0 million outstanding in total from them. It breaks down roughly.
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  S3.3 million dollars related to mall properties they operate and S3.7 million
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  dollars related to the hospital portion.
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  Okay, S7 million dollars isn't insignificant. No, but there's important context again.
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  For the hospital portion, that S3.7 million dollars, there's a security deposit
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  held from Salome Hospitals Group, the main operator worth S4.0 million dollars.
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  Ah, so the hospital part is fully covered by the deposit. Effectively, yes.
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  That deposit covers those specific arrears. And furthermore...
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  First REIT received about $6.9 million in payment from PTNPU in July 2025.
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  Just after the reporting period.
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  Okay, so progress is being made. Yes, it shows they're actively engaged with
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  PTNPU to sort out the outstanding amounts.
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  So while it's something to monitor, there are mechanisms in place to mitigate
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  the risk, and they seem to be making headway. Good to know.
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  Okay, so we've dug through the numbers, the currency impact, the balance sheet.
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  What does this all mean looking forward? What's the outlook for First REIT,
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  especially with this fascinating mix of strong local operations but challenging
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  external currency pressures?
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  Well, the reports themselves paint a picture of, frankly, heightened uncertainty
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  and volatility in the global landscape.
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  That's the backdrop. We're seeing uneven growth patterns across different regions,
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  shifts in trade policies, geopolitical tensions are definitely up.
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  It's a complex environment. And specifically for Asia. The IMF,
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  the International Monetary Fund,
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  they project Asia's overall regional growth to actually slow down a bit in 2025
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  to 3.9 percent down from 4.6 percent estimated for 2024. Why the slogan?
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  They cite things like lower demand from outside the region, sort of a muted
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  technology cycle and weaker private consumption within Asia itself.
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  These are broad headwinds that any business operating across the region like
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  First REIT will have to navigate. And I'm guessing the currency volatility that
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  hit their reported numbers so hard, that's not expected to just disappear,
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  is it? You are absolutely right.
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  Currency volatility is expected to remain a really persistent theme,
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  especially across Asia.
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  Look at the Indonesian rupiah. It faced significant depreciation enough that
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  Bank Indonesia had to intervene in the market back in June 2025.
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  That shows the pressure. And the Japanese yen, similarly, has continued to weaken.
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  That's largely driven by the big gap between U.S.
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  Interest rates and Japan's very low rates.
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  The Bank of Japan seems pretty cautious about hiking rates much further so that gap might persist.
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  So those external currency factors are likely to keep influencing First REIT's
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  SGD-reported financials.
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  Regardless of how well the actual hospitals are doing locally.
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  It seems very likely, yes. That's a key risk they'll continue to manage.
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  And just on a strategic note, the reports mention that First REIT's strategic
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  review is still ongoing.
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  What's the aim of that? The stated goal is to deliver long-term sustainable
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  value for their unit holders.
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  So it's essentially their internal process for figuring out the best path forward
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  in this complex environment.
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  They say updates will come as material developments occur. That review is really
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  their core response to navigating these challenges and trying to build future value.
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  Okay, so let's try and bring it all together for you, the listener.
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  First tweet is showing this really intriguing split almost.
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  On one hand, you have strong operational performance within its local markets.
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  Indonesia, Singapore, Japan.
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  The properties seem to be generating robust rental income and local money.
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  They're managing costs well. But on the other hand, their overall financial
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  results, especially when you translate everything back into Singapore dollars,
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  are being significantly hit by this precipice.
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  Music.