Underlying rental income from Indonesia and Japan was up 5.5% and flat at IDR567.3 billion and JPY1.1 billion respectively, in local currency terms.
Distributable income fell 6.1% y-o-y to $34.8 million and, together with a larger unit base, translated to a 7.3% y-o-y decline in distribution per unit (DPU) to 1.65 cents.
This constituted 74% of Lim’s initial full-year forecast and marked a second consecutive quarter of DPU decline, missing her expectations. First REIT’s 3QFY2025 ended Sept 30 DPU of 0.52 cents is due to be paid out on Dec 18.
Coming relief
See also: First REIT DPU down 7.3% y-o-y to 1.65 cents for 9MFY2025
In terms of capital management, First REIT’s gearing inched up another 0.2 percentage points (ppt) from 41.2% as at June 30 to 41.4% as at Sept 30, reflecting an increase in borrowings and lower asset values on IDR and JPY depreciation.
All-in cost of debt, however, improved 20 basis points (bps) over the quarter to 4.6%, with 49.5% of debt on fixed rates or hedged.
Lim expects further interest cost savings after First REIT refinances a $246.7 million term loan that is coming due in May 2026.
See also: First REIT divests hospitality asset for $25.9 million
“However, the impact of this on DPU will be heavily dependent on future FX movements and any changes to the REIT’s current hedging strategies, which are, in turn, dependent on the outcome of the strategic review, in our view,” says Lim.
Under its 2.0 Growth Strategy, First REIT seeks to diversify across tenants and geographies, which would improve its risk profile.
At the start of this year, First REIT announced that it had received a preliminary non-binding letter of intent (LOI) from PT Siloam International Hospitals Tbk (Siloam) to acquire its portfolio of hospital assets in Indonesia. The REIT manager is currently in the midst of a strategic review to assess the LOI and explore its strategic options.
Slight cut to TP
Lim has updated her forecasting model to account for “persistent” FX headwinds faced by First REIT, as well as the divestment of Imperial Aryaduta Hotel & Country Club (IAHCC) — announced in October — which will unlock net proceeds of $25.5 million.
The divestment consideration of IDR333.2 billion translates to an approximate 0.65% premium to the average of two independent valuations of IDR25.7 billion as at June 30.
After accounting for related fees and expenses of some $0.4 million, First REIT is expected to record a net loss of $0.2 million, and net proceeds from the divestment of $25.5 million may be used to repay debt, redeem perpetual securities and/or fund general corporate and working requirements, notes Lim.
See also: First REIT outlines blueprint for strategic resilience in dynamic healthcare sector
Separately, Lim also notes that First REIT has renewed its master lease agreement at Siloam Hospitals Lippo Cikarang for a term commencing on Dec 31 and expiring on June 30, 2026, for a pro-rated rent of $2.3 million.
“The renewed lease provides revenue stability from the asset while allowing the REIT the flexibility to explore asset divestment as part of its ongoing strategic review,” she adds.
Lim has slashed her FY2025 and FY2026 DPU forecasts by 4.5% and 6.3% respectively. Her new FY2025 DPU projection implies a further 8%, or 0.04 cents, q-o-q decline in 4QFY2025 DPU, which she thinks “is prudent given continued SGD strength”.
As a result, her fair value estimate nudges down from 27 cents to 26.5 cents.
Units in First REIT closed flat at 28 cents on Nov 4. It is up 2 cents, or 7.7%, year to date.
