CVC-Backed Hospital Chain Makes Offer for First REIT’s $599M in Indonesian Assets

A Singapore-listed healthcare REIT looks set to continue its shift toward Asia Pacific’s developed markets, with a potential deal on the way to sell 14 Indonesian hospitals  valued at S$820.5 million ($599.3 million) to its private equity-backed tenant.

OUE Ltd- sponsored First REIT, which acquired 14 Japanese nursing homes in 2022, announced on Tuesday that Siloam International Hospitals, its primary tenant and operator in Indonesia, has made a preliminary non-binding letter of intent to the REIT’s entire hospital portfolio in the country, which accounts for nearly half of its 32 assets.

With Luxembourg-based private equity firm CVC Capital Partners having invested over $1 billion to take control of Siloam in September last year, according to S&P, First REIT’s manager says it has tapped Citigroup Global Markets Singapore to assist in a Strategic Review of the Indonesian hospital chain’s proposal.

“Through the Strategic Review, the Board is committed to undertaking a rigorous process to consider all options relating to the business of First REIT, which may include but are not limited to, exploration of joint ventures, strategic partnerships, asset acquisitions and/or asset divestments, with a view to delivering sustainable long-term value for First REIT’s unitholders,” First REIT said in its statement to the SGX.

Going First World

Should First REIT follow through on the potential sale of its Indonesian hospitals, the company’s sole remaining asset in the country would be the Imperial Aryaduta Hotel and Country Club, which it has been attempting to sell since May 2021.

First REIT’s 2023 annual report shows its hospital assets in Indonesia were collectively valued at S$820.5 million ($599.3 million), with the trust deriving 40.1 percent of its rental income from Siloam – the sole tenant and operator of its hospital assets in the country – as of end-September 2024.

At the end of 2021, First REIT, which then had 16 of its 19 properties in Indonesia, announced its First REIT 2.0 growth strategy, aiming to have assets in developed markets account for more than 50 percent of its assets under management (AUM) by 2027, up from 25.5 percent as of December 2023.

With the trust already owning three assets in Singapore, in 2022, First REIT expanded into Japan by acquiring 14 nursing homes, making the country its second-largest market. Lim & Tan Securities equity analyst En Jie Chan told Mingtiandi that, should it succeed, the sale of First REIT’s Indonesian hospitals could expedite the trust’s portfolio rebalancing.

“The proceeds could be used to pare down debt and reduce gearing, providing firepower for the entry into developed markets. We think possible locations include Australia and the acquisition of additional Japan nursing homes,” Chan said. “That said, shareholders may have to contend with lower asset yields and consequently lower distribution yields if First REIT exits the Indonesia market and enters developed markets.”

First REIT’s distribution per unit (DPU) fell in the third quarter of 2024, a rare occurrence according to a DBS report, declining 3 percent to 0.58 Singapore cents on the back of depreciation of the Japanese yen and Indonesian rupiah against the Singapore Dollar.

In the same report, the Singaporean banking giant said asset divestments could serve as positive catalysts for the REIT.

CVC Gets Healthy

CVC’s potential Indonesian expansion comes after the firm announced in February last year that it had closed on $6.8 billion in commitments for its sixth Asia fund, CVC Capital Partners Asia VI. The private equity player acquired control of Siloam from a unit of Indonesia’s Lippo Group. Both Lippo Group and OUE are controlled by Indonesia’s Riady family.

While CVC did not provide a breakdown of the commitments, a source told London-based financial data platform Ion Analytics in February 2024 that 40 to 50 percent of the fund is earmarked for Southeast Asia.

In 2022, CVC announced that it had invested in Vietnam’s Phuong Chau Healthcare Group, which operates a chain of private hospitals in the country’s southern provinces. One year later, the private equity firm closed on its purchase of a majority stake in Guam-based hospital group The Medical City.