Healthcare-related assets remain one of the most resilient commercial real estate sectors, according to the latest Healthcare Real Estate Outlook by JLL.
The report identified five trends that will drive the healthcare industry in 2024: a focus on organisational fitness; rising costs alongside a tight talent pool; consolidation shakeups and vertical integration; disruptors that accelerate consumer-focused care; and the rise of artificial intelligence (AI).
The resilience of the segment can be seen from the price performance of Singapore’s two listed healthcare S-Reits as well – $First Reit(AW9U.SI)$ and $ParkwayLife Reit(C2PU.SI)$. In the month till Feb 22, both healthcare S-Reits outperformed the broader iEdge S-Reit Index, which declined 0.7% in total return terms. PLife Reit was the best performing S-Reit in the month-to-date period with 8% gains, while First Reit gained 2%.
REIT Watch - Geographic breakdown by AUM
1.First Reit
First Reit is among the four S-Reits which received net fund inflows from both institutional (S$69,000) and retail (S$11,000) investors in the year till Feb 22.
Both S-Reits also have notable exposure to the Japan and Singapore markets.
According to First Reit’s 2.0 Growth Strategy, rolled out in FY2021, it aims to have more than 50% of assets under management (AUM) from developed markets by FY2027.
The proportion of First Reit’s AUM in developed markets has grown from 3.4% in Singapore in FY2021, to a combined 25.5% in Singapore and Japan in FY2023. This includes three and 14 nursing homes in Singapore and Japan, respectively.
The CEO of First Reit, Victor Tan, believes that the demand for healthcare is rising. In an interview with SGX’s kopi-C column, he noted that 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.
First Reit also announced its FY2023 results last week. It declared a distribution per unit (DPU) of 0.62 Singapore cent for the quarter ended Dec 31, 2023, unchanged from the DPU in the preceding three quarters. However, DPU for the full year was 6.1% lower year on year due to higher financing costs, foreign exchange effects, and an increased unit base.
While there is pressure from higher interest rates, First Reit maintained a gearing of 38.7% and an interest coverage ratio of 4.1 times. To further manage interest rate impact, it has increased the proportion of debt on fixed rates or hedged to 87.2% from 59.6% a year ago.
2.PLife Reit
PLife Reit has a portfolio of 63 healthcare properties of which a majority are in Singapore (67.6% by asset value) and Japan (32.3%). By asset count, most of the Reit’s properties are located in Japan. Following the acquisition of two nursing homes in Osaka last year, PLife Reit’s total Japan portfolio footprint has grown to 59 properties aggregating to S$717.2 million in value.
While PLife Reit plans to strengthen its existing markets by leveraging its strong network in Japan, it also has plans to build a third market which can contribute enhanced growth to the Reit in the mid to long term.
PLife Reit announced a DPU of 14.77 Singapore cents for the full year 2023, a 2.7% increase year on year. This was largely due to contributions from new acquisitions and higher rent from Singapore hospitals. PLife Reit has close to 90% of its interest rate exposure hedged by end Q1FY2024. The Reit also has a healthy gearing of 35.6% and high interest coverage ratio of 11.3 times.
https://www.sgx.com/research-education/market-updates/20240226-reit-watch-healthcare-s-reits-outperform-february
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