Financials
Condensed Interim Financial Statements - Six-Month Period And Full Year Ended 31 December 2022
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The results for FY 2022 includes contribution from the 12 and two Japan properties which were acquired in March and September 2022 respectively.
- Rental and other income, and net property and other income increased largely attributed to the contribution from Japan properties which were acquired in March and September 2022 and higher rental income from Indonesia and Singapore’s properties. The decrease in 2H 2022 rental and other income, net property and other income was mainly due to the full year 2021 straight-lining adjustments of S$22.7 million were recognised in 2H 2021.
- The DPU payment for the quarters are as follows.
- Rental and other income for FY 2022 increased by 8.7% to $111.3 million compared to FY 2021 mainly due to contribution from the 14 Japan properties which acquired in March and September 2022 and higher rental income from Indonesia and Singapore’s properties.
- Property operating expenses for FY 2022 increased by 27.5% compared to FY 2021 mainly due to property expenses of Japan properties which were acquired in March and September 2022.
- Manager’s management fees for FY 2022 increased by 3.9% to $9.5 million compared to FY 2021 was mainly due to higher total assets and net property income resulting from acquisition of subsidiaries with the 12 Japan properties in March 2022 and the acquisition of two Japan properties in September 2022. The Manager’s management fee was derived after deducting the asset management fee charged by the Japan asset management company.
- Asset management fee was charged by Japan asset management company for managing the Japan properties.
- Trustee fees for FY 2022 increased by 21.5% to $378,000 compared to FY 2021 was mainly due to higher total assets resulting from acquisition of subsidiaries in March 2022 and acquisition of two Japan properties in September 2022.
- Finance costs for FY 2022 increased by 14.1% to $19.4 million compared to FY 2021 mainly due to higher borrowings, assuming the TMK bonds with the completion of acquisition of subsidiaries in March 2022 and the additional loans obtained for the acquisition of two Japan properties in September 2022, coupled with higher interest rates.
- Other expense for FY 2022 decreased by 23.5% to $1.7 million mainly due to the absence of project expenses incurred in FY 2021 in relation to right issues.
- Net fair value losses of investment properties relate to revaluation losses on investment properties during the year and the recognition of FRS 116 rental straight-lining adjustments for the Indonesia hospital properties and Singapore properties.
- Losses on disposal of subsidiary for FY 2022 relate to divestment of Indonesia subsidiary, PT Tata Prima Indah which held Siloam Hospitals Surabaya in September 2022.
- Net fair value losses of derivative financial instruments for FY 2022 relates to the revaluation of interest rate swap and interest rate caps contracts, as well as currency hedging contracts.
- Income tax expense for FY 2022 increased by 44.7% to $18.4 million mainly due to the provision of deferred tax on undistributable profits of Japan subsidiaries and sales tax on divestment of Indonesia subsidiary which held Siloam Hospitals Surabaya.
Commentary on the competitive conditions of the industry
The healthcare sector offers immense opportunities, underpinned by factors such as the structural demographic megatrend of ageing population, and a demand for quality healthcare services in markets that lack capacity. To capture these opportunities, First REIT is diversifying into developed markets to comprise more than 50% of its portfolio by 2027 and reshaping its portfolio for capital efficient growth through the divestment of non-core, non-healthcare, or mature assets, in line with First REIT’s 2.0 Growth Strategy.
In developed markets such as Japan and Singapore, which already comprises 25.1% First REIT’s portfolio as at 31 December 2022, the percentage of population aged 65 years or older is higher than the world average. Between 2022 and 2030, this age group is expected to grow from 29.9% of the total population to 31.4% in Japan, and from 15.1% to 22.8% in Singapore1. In developing markets such as Indonesia, the average number of hospital beds of 1.0 per 1,000 people remains below the Asia Pacific average of 1.1 per 1,000 people for lower-middle and low income countries, 2.0 per 1,000 people for upper-middle income countries, and 3.4 per 1,000 people for high income countries2. With growing affluence in Indonesia, the demand for quality hospital services is expected to increase.
Nonetheless, global inflationary pressures, rising interest rates, exchange rate volatility, and geopolitical risks have resulted in a challenging real estate investment environment. To remain resilient, First REIT is strengthening its capital structure by diversifying funding sources and optimising its financial position, which is another key thrust of First REIT’s 2.0 Growth Strategy.
As at 31 December 2022, 59.8% of First REIT’s debt are on fixed rates after entering into interest rate swaps and interest rate caps amounting to S$175 million; 76.7% of First REIT’s debt are now social finance instruments and contribute to the achievement of United Nations Sustainable Development Goals (“UN SDG”)3. To manage exchange rate volatility, First REIT has hedged approximately 60% of its income denominated in the Indonesia Rupiah.
Amid the easing of cross-border travel restrictions due to a waning pandemic, First REIT will continue to seek accretive acquisitions in the burgeoning healthcare real estate market by tapping on a strong network from its sponsor group, comprising OUE Limited and OUE Lippo Healthcare Limited, in addition to evaluating opportunities from third parties. With strong sponsor support and First REIT 2.0 Growth Strategy in motion, First REIT remains committed to balancing growth and stability in its portfolio, delivering sustainable distributions to unitholders.
