kopi-C with First REIT's CEO: Harnessing healthcare opportunities

kopi-C is a regular column by SGX Research in collaboration with Beansprout that features C-level executives of leading companies listed on SGX. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.

One of the strengths of the healthcare industry is that it is incredibly resilient, says Victor Tan, Executive Director and Chief Executive Officer of First REIT Management Limited, the manager of First REIT, Singapore’s first healthcare real estate investment trust that specialises in assets in Asia.

When he first joined the company back in 2008 as a senior finance manager, two years after it was listed on the Singapore Exchange in 2006, its share price plunged during the Global Financial Crisis that started in the United States and spread across the world. 

More recently, the Covid-19 pandemic posed severe challenges as some of its assets’ tenants struggled and asked the firm for 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,” Tan explains. 

“We had to go to the market and convince our unit holders that this was the best course of action for us to take. With my board and team, and with the help of some other professionals such as financial advisors and a public relations consultancy, we managed to get a resounding mandate from our unit holders to do it. I am very grateful that they supported us.”

Despite these difficult periods, First REIT has steadily grown over the years, with its portfolio expanding from just four assets in Indonesia to 32 in Indonesia, Singapore and Japan. These properties are valued at about $1.15 billion collectively. 

“The healthcare industry is very resilient because people need healthcare whether times are good or bad. The demand for healthcare is also rising. In this part of the world, 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.”

“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, there are only two that focus mainly on healthcare. This means that there’s plenty of room for First REIT to invest in healthcare assets, and not just in the region.”

A four-pillar strategy for growth

To seize the initiative, the company launched its ‘2.0 Growth Strategy’ back in late 2021. It 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.

As part of the plan, it has diversified its portfolio by investing in assets in developed countries. Tan shares: “Before we came up with this strategy, over 95 per cent 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 per cent in developed markets by the 2027 financial year, so we are halfway there.” The firm is also considering Australia, and has commissioned an in-depth 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 is able to divest these or its more mature healthcare assets, it can put the money into healthcare assets in developed markets.

First REIT is also 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 per cent annual coupon rate. In another first, Credit Guarantee and Investment Facility, a trust fund of the Asian Development Bank, provided a guarantee for the bond. 

Tan notes: “This particular bond not only opens up a new channel of financing, but enhances our presence in the regional capital markets. It is also in line with our newly established Social Finance Framework, which ties our financing to achieving specific social benefit outcomes and United Nations Sustainability Development Goals.”

The framework plays a role in the fourth and final pillar of First REIT’s 2.0 growth strategy too: to pivot to embrace and make the most of megatrends. With growing scrutiny of businesses’ environmental, social and governance 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 moves forward, Tan acknowledges some headwinds. “A high interest rate environment is not conducive for us. It affects our distribution yield because our funding cost has gone up. It will also be more challenging for us to acquire accretive assets. The very strong Singapore dollar is also a problem since 97 per cent of our assets are overseas.”

The firm has taken steps to manage these risks, which includes fixing or hedging its interest rates. About 86 per cent of its debt is on fixed or hedged interest rates. “We are also 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 Chief Financial Officer, Asset and Investment Head and Legal and Compliance Officer have all been with the company for more than 10 years, with an average of about 12 to 13 years.”

“If you look at the firm as a whole, 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.”

About 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 that are primarily used for healthcare and / or healthcare-related purposes. Managed by First REIT Management Limited, First REIT has a portfolio of 32 properties with 11 hospitals, two integrated hospital & malls, one integrated hospital & hotel and one hotel & country club, located in Indonesia, three nursing homes in Singapore and 14 nursing homes in Japan. 

The company’s website is https://www.first-reit.com/