Replace - Annual General Meeting :: Voluntary

Questions

Responses

• 1) From the Annual Report I understand that the rental exposure to PT Lippo Karawaci Tbk Group as at 31 December 2021 is 89.5%. What are your plans to move away from such a large exposure to them? What are your current plans to seek more exposure to rentals from third parties?

• 2) With the latest yield accretive acquisition of Japan Nursing Home assets, why is the distribution per unit only increase very marginally? Is the acquisition a "done deal" that has to be executed for the asset/country diversification purposes?

• 3) I understand that the current portfolio weightage of properties located in Indonesia is 74.2% and you are looking to bring the exposure down to 50% within 3 to 5 years. How do you plan to do that? Are you intending to sell some of your Indonesian properties and use the funds to invest elsewhere? I hope the management does also look at this asset recycling option rather than focusing on enlarging the assets under management and financing that expansion through rights issue and private placements.

In FY 2021, 89.5% of First REIT's rental income is attributable to both PT Lippo Karawaci Tbk and its subsidiaries ("LPKR"), as well as PT Siloam International Hospitals Tbk and its subsidiaries ("Siloam"), in aggregate; rental income solely contributed by LPKR is approximately 54% in FY 2021. As at 31 December 2021, LPKR has a 55.4% stake in Siloam.

Indeed, one of the growth pillars within the First REIT 2.0 Growth Strategy is to diversify into mature and developed markets and we aim to increase our exposure in developed markets to greater than 50% of the Trust's portfolio in 3-5 years.

The acquisition of the 12 nursing homes in Japan was completed in March 2022, a first step towards diversifying into developed markets. Consequently, First REIT's geographical footprint in developed markets, being Singapore and Japan, has increased to 25.8% from 3.4% as at 31 December 2021 on a pro forma basis. First REIT's geographical risk profile has since improved, competitively positioning it against its peers.

At its core, First REIT's diversification strategy is two-pronged. On one hand, we are guided by seeking yield-accretive assets that can maximise returns to our unitholders in the long run, either through the sponsor's healthcare network, or third-party assets. On the other, another key pillar within the 2.0 Growth Strategy looks to reshape First REIT's portfolio for capital efficient growth, where we look to recycle assets and capital from non-core assets.

The Manager has pursued asset recycling through the divestment of Sarang Hospital, the South Korea rehabilitative hospital, back in August 2021. At present, we are looking to divest the Imperial Aryaduta Hotel & Country Club as well, a hospitality asset that the Manager has identified as being non-core to the Trust.

We will continue to harness this two-pronged strategy to pursue growth and value for unitholders.

Questions

Responses

• 4) Unlike before, you will now be receiving a sizeable portion of your rental income in Indonesian Rupiah, while your loan commitments will predominantly be in Singapore Dollars. Considering the historic weakness of the Indonesian Rupiah, what steps (i.e. hedging and otherwise) have the management taken to mitigate the foreign exchange risks.

• 5) Can you share when exactly will the annual rental increase of approximately 4% kicks in this year? Will it be reflected immediately in the coming quarter financial results?

Following the completion of First REIT's strategic initiatives to restructure, recapitalise and reposition the Trust for sustainable future growth, the rentals prescribed within the tripartite master lease agreements (the "Affected MLAs") of the affected Indonesian hospital properties (the "Affected Properties") have a built-in 4.5% rental escalation that has been calibrated against historical inflation rates over wide range of time periods and also takes into account the foreign exchange risk associated with receiving rentals in Indonesia Rupiah.

For the Affected MLAs, the annual rental increase of 4.5% of the affected property's base rent kicks in on the 1st of October of each year, since 1 October 2021.

Additionally, the increased exposure to Japan will help reduce the Trust's exposure to currency volatility from the Indonesia Rupiah, given that both currencies tend to be inversely correlated. Notwithstanding this, the Indonesia Rupiah currency has been relatively stable against the Singapore dollar over the last two years.

The Manager will continue to assess the need to employ additional hedging strategies from time to time.

• 6) As per Note 11 to the financial statements, the interest rate for the term loan maturing in 2022 is within the range of 2.23% to 2.38%. You seem to be intending to issue a bond at the interest rate of 3.2% to replace this maturing loan. You seem to be committing to a much higher interest rate. Couldn't you have tried negotiating instead for a term loan, which you might have obtained at a better rate than the 3.2%? I would be grateful if you could provide us more insight in relation to this re-financing decision.

• 7) First REIT refinanced S$100 million loan with a social bond with a borrowing rate of 3.25%. What was the previous borrowing rate of this S$100 million loan before refinancing? Is there any upper limit set on the total quantum of social bond that First REIT can issue subsequently by Credit Guarantee and Investment Facility? Any plans to issue social bond denominated in Japanese yen as the borrowing rate is lower than 3.25%?

The previous borrowing rate of the S$100 million syndicated loan facility was 2.23%-2.38% for FY2021.

In view of global events, the interest rate environment has changed substantially since May 2019 when the S$100 million loan facility was obtained. A re-financing of this maturing loan by way of a new bank facility will likely also incur higher interest cost compared to the maturing loan.

The issuance of the S$100 million credit-wrapped social bond (the "Social Bond") is backed by the Asian Development Bank's Credit Guarantee and Investment Facility ("CGIF"), bearing a strong AA-rating. This has allowed First REIT to strengthen its capital structure by diversifying its funding sources. Further, with the launch of its Social Financing Framework, First REIT has a new channel to raise new loans and bonds tied to social outcomes.

As at 31 December 2021 and following the completion of the acquisition of the Japan nursing homes, First REIT's weighted average cost of debt ("WACD") has reduced from 4.2% to 3.4% on a pro forma basis.