One of the problems faced by many countries around the world is ageing population.

As far as Singapore is concerned, I note the following from Singapore’s former Prime Minister Lee Hsien Loong’s speech on the book launch of ‘Singapore Ageing: Issues and Challenges Ahead‘ in April 2023:

“In 2010, about 1 in 10 Singaporeans were aged 65 and above. A decade later, in 2020, it has risen to about 1 in 6. By 2030, another 10 years later, it would be almost 1 in 4 Singaporeans over 65.”

You can read the full speech delivered by Mr Lee here.

What this means is that demand for healthcare facilities (particularly hospitals and nursing homes) is going to further increase over time.

From a retail investor point-of-view, this also means we can have a look at investing into companies that invests in these healthcare facilities.

As far as Singapore REITs that invests in healthcare properties are concerned, there are 2 of them – Parkway Life REIT (SGX: C2PU), as well as First REIT (SGX: AW9U).

Between the 2, which is a better buy? Let us find out in today’s post, where I will be putting the 2 healthcare REITs’ portfolio size and scope, financial performances, portfolio occupancy and debt profile, as well as distribution payout to unitholders side-by-side.

Let’s begin:

Introduction to Parkway Life REIT and First REIT

For those of you who would like to learn more about the respective REITs in terms of what they invest in (property types as well as countries they have businesses in), their financial performances and distribution payouts, as well as their portfolio occupancy and debt profile recorded over the last 5 years, you can watch the respective YouTube videos I have created below:

Parkway Life REIT:

First REIT:

Portfolio Size and Scope

Both Parkway Life REIT and First REIT have their financial year end every 31 December.

The following table is a comparison of their portfolio size and scope in terms of the number of properties each have in their portfolio, number of countries they have a business presence in, as well as total asset value as of 31 December 2023:

My Observations: As you can see from the above, Parkway Life REIT is twice the size of First REIT in terms of the number of properties it has in its portfolio, and its total asset value.

Hence, Parkway Life REIT is the ‘clear winner’ here.

Financial Performance

Next, let us take a look at the individual REIT’s financial performances over the last 5 years (from FY2019 to FY2023) – particularly, my focus is on their gross revenue and net property income:

Parkway Life REIT:

First REIT:

My Observations: For Parkway Life REIT, its gross revenue and net property income saw a slight dip in FY2021, due to the divestment of a non-core property in Japan in January 2021, along with the depreciation of the Japanese Yen. Apart from that, the remaining 4 years saw its gross revenue and net property income stable year-on-year (y-o-y) improvements.

In terms of the compound annual growth rate (CAGR) for its gross revenue and net property income over a 5-year period, it is at 5.1% and 5.2% respectively.

On the other hand, First REIT’s gross revenue and net property fell in 2 out of 5 years – in FY2020 (due to rental reliefs granted to tenants to help alleviate the strains caused by the Covid-19 pandemic), as well as in FY2023 (due to the weakening of the Indonesia Rupiah and Japanese Yen against the Singapore Dollar).

In terms of the CAGR for its gross revenue and net property income over a 5-year period, they are at negative percentages.

Once again, Parkway Life REIT is the ‘winner’ here in terms of financial performance.

Portfolio Occupancy Profile

I will be looking at 2 things on the healthcare REITs’ portfolio occupancy – their occupancy rate, as well as their portfolio WALE (Weighted Average Lease Expiry), and you can find them in the 2 tables below:

Parkway Life REIT:

First REIT:

My Observations: Both healthcare REITs have a very high portfolio occupancy rate, and portfolio WALE.

While First REIT has a slightly better portfolio occupancy rate (full occupancy vs. 99.7% for Parkway Life REIT), but in my opinion, Parkway Life REIT still edged out for having a longer portfolio WALE.

Debt Profile

In the current high interest rate environment (and it is poised to stay that way in the near-term), it becomes important for an investor to pay more attention in this area to make sure the REIT’s management manages to maintain the REIT’s debt profile at healthy levels.

So, between the 2 healthcare REITs, which has a healthier debt profile? Let us find out in the tables below, where I will be looking at the REIT’s aggregate leverage, and all-in cost of borrowing recorded over the last 5 years:

Parkway Life REIT:

First REIT:

My Observations: Looking at the 2 REITs’ aggregate leverage over the last 5 years, both are maintained at very healthy levels (at below 40.0%).

However, Parkway Life REIT benefits from a significantly lower all-in cost of borrowing due to the ultra-low interest rates in Japan, where the majority of its properties in its portfolio are located.

Hence, Parkway Life REIT, in my opinion, edged out as the ‘winner’ once again.

Distribution Payout to Unitholders

On distribution payouts, unitholders of First REIT receive payouts quarterly, whereas unitholders of Parkway Life REIT receive payouts only semi-annually.

How about in terms of growth? Which healthcare REIT has a better growth rate in terms of its distribution payout over the years? Let us find out in the table below:

My Observations: Parkway Life REIT’s distribution payout has seen a stable increase every single year over the last 5 years, while First REIT’s distribution payout has been irregular.

In terms of CAGR of their distribution payout, for Parkway Life REIT, it was at 2.3%, but for First REIT, it was at a negative rate (particularly, I note that its distribution payout for the latest FY2023 was much lower compared to FY2019 and FY2020).

Parkway Life REIT is a clear ‘winner’ here once again.

Closing Thoughts

From portfolio size and scope, to their 5-year results (in terms of financial performance, portfolio occupancy and debt profile, as well as distribution payout to unitholders), Parkway Life emerged the ‘winner’ in all categories.

Of course, this does not mean you should go and invest in the REIT right now – there are 2 things to consider: first, you need to make sure you are comfortable with the current distribution yield at just 4.0% (based on its unit price of $3.71 as at 16 July 2024, and a distribution payout of 14.77 cents/unit in FY2023); second, in my opinion, depending on how much the Bank of Japan will be hiking interest rates in the near-future, its all-in borrowing costs may go up, and to a certain extent, its distribution payout may be impacted.

With that, I have come to the end of my comparison of the 2 Singapore-listed healthcare REITs. Please note that all the opinions expressed in this post are purely mine, which I am sharing for educational purposes only. They are not buy or sell calls for any of the REITs. You are strongly encouraged to do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a unitholder of Parkway Life REIT and First REIT.

The post Singapore Healthcare REITs Face-Off: Parkway Life REIT vs. First REIT first appeared on The Singaporean Investor.