One of the strengths of the healthcare industry is that it is incredibly resilient, says Victor Tan, executive director and CEO of First REIT Management, the manager of First REIT, Singapore’s pioneering healthcare real estate investment trust that specialises in assets in Asia.
The firm faced significant challenges due to the pandemic. Tenants of some of its assets — grappling with difficulties — sought rental rebates and more favourable lease agreements. “They felt that the leases were not sustainable for them and wanted us to restructure the master lease agreements,” recalls Tan.
He adds: “We had to go to the market and convince our unitholders that this was the best course of action for us to take. With my board and team, and with the help of other professionals such as financial advisors and a public relations consultancy, we got a resounding mandate from our unitholders. I am very grateful that they supported us.”
Upon joining the company as a senior finance manager in 2008, two years after the listing on the Singapore Exchange S68 in 2006, Tan witnessed a share price downturn amid the global financial crisis originating in the US and spreading globally.
Despite these difficult periods, First REIT has steadily grown, expanding its portfolio from just four assets in Indonesia to 32 in Indonesia, Singapore and Japan. These properties are valued at about $1.15 billion collectively.
Tan says: “The healthcare industry is very resilient because people need healthcare whether times are good or bad. The demand for healthcare is also rising. In Asia, many developed countries have ageing populations that will need more healthcare. Japan is already a super-aged society, and Singapore’s population is ageing quickly.
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“Even in developing countries that do not have ageing populations, their people are becoming more affluent, and they tend to spend more on their healthcare. This is why demand for healthcare services will continue to increase.”
Tan adds that First REIT is in a strong position to capitalise on these trends. “If you look at the current Singapore REIT sector, only two focus mainly on healthcare. This means there’s plenty of room for First REIT to invest in healthcare assets, not just in the region.”
Growth strategy
The company launched its 2.0 Growth Strategy in late 2021 to seize the initiative. The strategy consists of four pillars to capture the healthcare sector’s immense opportunities and to ensure the firm’s long-term, sustainable growth that will maximise returns for shareholders.
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As part of the plan, it has diversified its portfolio by investing in assets in developed countries. Tan says: “Before we came up with this strategy, over 95% of our assets under management were in Indonesia, a developing nation. This carried some geographical and tenant concentration risk, so we moved into Japan.
“Right now, over one-quarter of our assets under management are in Japan and Singapore. Our target for diversification is to have at least 50% in developed markets by the 2027 financial year, so we are halfway there.” The firm is considering Australia and has commissioned a study into the country’s healthcare market.
Under the strategy’s second pillar, it is divesting its non-core and mature assets to reshape its portfolio for more efficient growth. “Most of our assets are healthcare-related, but we also have one hotel and country club, another hotel and two malls.” If First REIT can divest these or its more mature healthcare assets, it can put the money into healthcare assets in developed markets.
First REIT is strengthening its capital structure by diversifying its funding sources. In 2022, it issued Singapore’s first healthcare social bond, with a $100 million aggregate principal amount and a 3.25% annual coupon rate. In another first, the Credit Guarantee and Investment Facility, a trust fund of the Asian Development Bank, guaranteed the bond.
Tan adds: “This particular bond not only opens up a new channel of financing but also enhances our presence in the regional capital markets. It also aligns with our newly established Social Finance Framework, which ties our financing to achieving specific social benefit outcomes and United Nations Sustainable Development Goals.”
The framework plays a role in the fourth and final pillar of First REIT’s 2.0 growth strategy: Pivoting to embrace and make the most of megatrends. With growing scrutiny of businesses’ environmental, social and governance (ESG) credentials, the framework aligns the company’s social mission, sustainability and funding strategies, putting it on a sounder footing for the future.
Strong and stable
As First REIT progresses, Tan acknowledges some challenges.“A high interest rate environment is not conducive for us. It affects our distribution yield because our funding cost has gone up. It will be more challenging for us to acquire accretive assets. The strong Singapore dollar is also a problem since 97% of our assets are overseas.”
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The firm has taken steps to manage these risks, which include fixing or hedging its interest rates. About 86% of its debt is on fixed or hedged interest rates. “We are monitoring the foreign exchange market very closely and will try to enter into some derivatives at the right time to hedge the currency.”
He is confident that First REIT will continue to grow and emerge even stronger, especially with its experienced management team. “My CFO, asset and investment head and legal and compliance officer have all been with the company for over 10 years, with an average of about 12 to 13 years.
“If you look at the firm, most of our colleagues have been with us for about seven years on average. We have built a very good and stable team that works well together. That is one of the things that I am most proud of, and it will continue to serve us well as we aim to achieve our vision and slogan: to be Asia’s premier healthcare trust.”
First REIT
First REIT is Singapore’s first healthcare real estate investment trust that aims to invest in a diversified portfolio of income-producing real estate and/or real estate-related assets in Asia primarily used for healthcare and/or healthcare-related purposes. Managed by First REIT Management, First REIT has a portfolio of 32 properties with 11 hospitals, two integrated hospitals and malls, one integrated hospital and hotel and one hotel and country club in Indonesia, three nursing homes in Singapore and 14 nursing homes in Japan. The company’s website is: www.first-reit.com.
About kopi-C: The Company Brew
kopi-C is a regular column by SGX Research in collaboration with Beansprout (growbeansprout.com), a MAS-licensed investment advisory platform that features C-level executives of leading companies listed on the Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations
