First REIT AW9U has reported distribution per unit (DPU) of 0.62 cents for 1QFY2023 ended March, 6.1% lower y-o-y.
This is despite an 8.3% y-o-y increase in distributable amount to $12.72 million for the quarter, as net property and other income grew 2.7% y-o-y to $25.8 million over the same period.
DPU in 1QFY2023 was lower mainly due to higher financing costs and depreciation of foreign currencies against the Singapore dollar, says the manager of First REIT in an April 25 press release.
The number of total issued and issuable units also grew 0.8% y-o-y to 2.068 billion.
Rental and other income increased 4.9% to $26.8 million, largely attributed to the contribution from Japan nursing homes which were acquired in March 2022 and September 2022 as well as higher rental income from Indonesia and Singapore properties, adds the manager.
This was offset by the absence of rental income from Siloam Hospitals Surabaya, which was divested in September 2022, and the depreciation of foreign currencies against the Singapore dollar.
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First REIT has 14 hospitals in Indonesia, of which 13 have a minimum rental escalation of 4.5% in local currency terms annually.
Under the master lease agreements with PT Metropolis Propertindo Utama and subsidiaries (MPU), rent is payable quarterly in advance, says the manager. As at April 25, rental arrears in the sum of approximately $2.6 million are outstanding from MPU. “The manager has engaged closely with MPU on the repayment of the rental arrears and has received a payment plan from MPU. Based on the payment plan, the outstanding rental arrears will be fully paid no later than end of this year.”
First REIT also has three nursing homes in Singapore, and all are subject to a minimum 2.0% increase in rent annually.
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In Japan, First REIT has 14 nursing homes. The manager notes that last year’s 1QFY2022 results included a one-month maiden contribution from 12 Japan nursing homes, which were acquired on March 1, 2022.
In March this year, the manager completed the acquisition of FRM Japan Management Co., Ltd (FRMJM) to support First REIT’s existing portfolio and future growth in the Japan market. FRMJM is an asset management company licensed by the Tokyo Metropolitan Government.
Debt
As at March 31, First REIT’s gearing stands at 39.0%, up slightly from 38.5% at the end of the previous quarter; while total debt stands at $464.6 million. 62.8% of its debt is currently fixed or hedged.
Weighted average debt to maturity is 3.1 years as at March 31, down from 3.4 years at Dec 31, 2022.
First REIT has no refinancing requirements until May 2025, when it has a $107.1 million TMK bond due.
First REIT’s total assets were down slightly to $1,190.2 million from $1,198.6 million due to the depreciation of Japanese yen and Indonesian rupiah, says the manager.
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Outlook
In line with the First REIT 2.0 Growth Strategy, First REIT remains focused on diversifying into developed markets such as Japan, and divesting non-core, non-healthcare, or mature assets.
First REIT has identified the Imperial Aryaduta Hotel Country Club (IAHCC) in Indonesia to be a non-core asset, which is being marketed for divestment.
In December 2022, First REIT renewed the lease with IAHCC for a one-year term ending Dec 31, 2023. The short-term lease provides revenue stability while still allowing strategic flexibility, says the manager.
In April, due to increased risks to global growth, the Monetary Authority of Singapore had decided to maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate policy band.
In Indonesia, Bank Indonesia also left its benchmark rate unchanged following a series of rate hikes between August 2022 to January 2023.
In Japan, the new central bank governor Kazuo Ueda articulated that it was appropriate to maintain an ultra-loose monetary policy for now.
To this end, First REIT actively monitors its currency risk and when appropriate, utilises financial derivatives such as non-deliverable forwards and call spreads, says its manager. “To manage interest rate risk, First REIT has fixed or hedged 62.8% of its debt as at March 31, 2023. It will continue to monitor any potential risk arising from interest rate volatility and put in place appropriate levels of interest rate hedges.”
Units in First REIT closed flat at 26 cents on April 24.
