On 18th May 2022, First REIT announced that they will divest Siloam Hospitals Surabaya for S$40.9 million.
Siloam Hospitals Surabaya was one of First REIT’s initial portfolio that was acquired at a purchase price of S$16.8 million on 11th December 2006. Based on the agreed property value of S$40.9 million, the sale translates to a capital gain of 143.2%.
The net proceeds may be used to repay debt, finance any capital expenditure and asset enhancement works and/or general corporate and working requirements, and to distribute as capital gains.
First REIT 2.0 Growth Strategy
The divestment of Siloam Hospitals was part of its First REIT 2.0 Growth Strategy shared during the business update for 1Q2022 whereby the manager will reshape its portfolio for capital efficient growth.
As part of its strategy, First REIT has acquired 12 nursing homes in Japan. This is their maiden entry to the Japan nursing home market.
Debt
The acquisition of the Japan nursing homes caused the REIT’s gearing ratio to increases from 33.6% to 35.7%, with an interest coverage ratio of 5.7 times.
Portfolio
Let us take a look at First REIT’s portfolio.
Based on the FY21 annual report, First REIT has 3 assets in Singapore, 16 in Indonesia and 12 in Japan. With the divestment of Siloam Hospitals Surabaya, First REIT will have 15 assets in Indonesia.
Current Dividend Yield
Based on the full year distribution of 2.61 cents in FY21, this translate to a current dividend yield of 8.7%.
Summary of First REIT Divest Siloam Hospitals Surabaya
Back in 2020, First REIT restructured the Master Lease Agreements of its Indonesian Hospital Assets.
The current portfolio restructuring was a good move. However, much more needs to be done. The current overall performance of its portfolio is not yet optimal as it was still too concentrated on the Indonesian market.
The portfolio of Parkway Life REIT is focused on Japan Nursing homes. Needless to explain, investors of Parkway Life REIT has enjoyed dividend growth year on year.
I am not an investor of First REIT and has no intention to buy into First REIT anytime soon.
Investors who are keen to buy First REIT should monitor the debt of its sponsor even though the current gearing of First REIT is consider acceptable at 35.7%. This is because if the sponsor gets into trouble, so does First REIT.
The second thing to monitor will be the further divestment of its other non-core assets such as Imperial Aryaduta Hotel & Country Club. I will also wait for further reduction of its Indonesian assets.