SINGAPORE-LISTED real estate investment trusts (S-Reits) with healthcare assets must diversify strategies to capture new growth pillars as the healthcare sector normalises and the world returns to a post-Covid &ldquo business as usual&rdquo situation, market watchers said.

 

The last two years have been good years for healthcare-related stocks in general. In the Singapore market, Parkway Life Reit : C2PU -0.74% (PLife Reit) has significantly outperformed most of its S-Reit peers.

 

While hospitality Reits dealt with the drying up of tourist dollars, retail Reits faced down empty malls and even office Reits worried about rental renewals as employees worked from home, Parkway Life enjoyed steady income over the pandemic period.

 

PLife Reit has generated total returns of 10.2 per cent in the year to Tuesday (Mar 7).

 

In comparison, the overall Reit market here, represented by the iEdge S-Reit Index, has generated total returns of 4 per cent over the same period, while the benchmark Straits Times Index has returned 0.1 per cent.

 

The edge that PLife Reit enjoyed may, however, be coming to an end.

 

Singapore on Feb 13 reverted its disease outbreak response system condition (Dorscon) level from yellow to green, which indicates that a disease is mild and poses minimal disruption to daily life. Most countries &ndash including China, which had until recently imposed strict restrictions amid a tough zero-Covid policy &ndash have also reopened their borders.

 

While expected to be a shot in the arm for sectors such as hospitality and retail, Dorscon Green could put the brakes on the healthcare sector&rsquo s trajectory.

 

New growth pillars

To its credit, PLife Reit has been building up its portfolio to grow its income.

 

One of Asia&rsquo s largest listed Reits by asset size, it acquired five nursing homes in the Hokkaido region and the Greater Tokyo region last year for a total of 5.4 billion yen (S$55.5 million).

 

&ldquo PLife Reit&rsquo s asset recycling activities in Japan nursing homes are still ongoing,&rdquo said DBS analysts Rachel Tan and Derek Tan, noting that these activities have been &ldquo sporadic&rdquo . The Reit in early 2021 divested its non-core industrial property, P-Life Matsudo &ndash the only pharmaceutical product distributing and manufacturing facility within its Japan portfolio.

 

&ldquo With the recent acquisitions, we believe its asset recycling exercise will continue to drive growth ahead, given its successful track record,&rdquo the analysts added. &ldquo But the timing remains uncertain.&rdquo

 

They see a &ldquo potential injection&rdquo of Mount Elizabeth Novena Hospital into PLife Reit&rsquo s portfolio, which already includes three other Singapore hospitals: Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital.

 

The three Singapore hospitals account for 65.3 per cent of its portfolio by asset value, with the Japan nursing homes making up 34.4 per cent. The Reit also owns some strata-titled units in a medical office building in Malaysia.

 

The Reit has right of first refusal over Mount Elizabeth Novena Hospital from its sponsor IHH Healthcare : Q0F +2.25%.

 

In addition to the ongoing recycling of its nursing homes properties in Japan and the acquisition pipeline from its sponsor, the manager of PLife Reit is looking to build a &ldquo third pillar&rdquo for the next phase of growth.

 

&ldquo The management continues to explore opportunities in developed countries with a mature healthcare market and believes that there could be potential options in Australia and Europe,&rdquo the DBS analysts said.

 

Value in Japan

Another healthcare Reit making a play for Japan is First Reit : AW9U 0%, which in September last year bought two nursing homes near the Tokyo and Nagoya city centres for a total purchase consideration of 2.6 billion yen.

 

This comes after the Reit in March 2022 marked its maiden entry into Japan with the acquisition of 12 nursing homes from its sponsor OUE Lippo Healthcare : 5WA +4% for 24.2 billion yen.

 

The manager of First Reit noted then that Japan is poised to become the first &ldquo super-aged&rdquo nation in the world, with more than a third of its population projected to be over the age of 65 by 2040.

 

First Reit, which has 72.1 per cent of its S$1.15 billion in assets under management (AUM) based in Indonesia, has not done as well as PLife Reit. It generated total returns of 2.5 per cent in the year to date &ndash lower than the S-Reit average.

 

According to SAC Capital analyst Peggy Mak, First Reit &ndash like many of its S-Reit peers &ndash has been weighed down by concerns over rising interest rates and the resultant impact on its cost of funds and asset valuations.

 

&ldquo But its risk profile has improved with the conclusion of new master leases for the Indonesian assets in late-2021 and the addition of the Japan assets in March 2022,&rdquo Mak said in a report.

 

First Reit&rsquo s 14 Japan nursing homes accounted for 25.1 per cent of its AUM as at end December. Its three nursing homes in Singapore account for the remaining 2.8 per cent.

 

The Reit manager had earlier announced that it intends to pivot into developed markets, which it targets to account for more than half of its portfolio by 2027.

 

With the easing of cross-border travel restrictions, First Reit said in its latest results announcement that it will continue to carry out what it calls its &ldquo 2.0 Growth Strategy&rdquo to explore accretive opportunities arising from the increasing healthcare demand.

 

SINGAPORE &ndash Stark warnings from the US that more interest rate rises are on the way sent Wall Street tumbling overnight and sparked declines across the region on Wednesday.

 

Investors here were no exception as they rushed for the exit, sending the Straits Times Index (STI) down 0.6 per cent, or 18.41 points, to 3,226.86 in the process.

 

Only five of the 30 component stocks closed higher, while losers trumped gainers 334 to 199 across the broader market, with 1.5 billion shares worth $1 billion transacted.

 

The US yield curve became more inverted &ndash a recession indicator &ndash after Federal Reserve chairman Jerome Powell&rsquo s hawkish testimony on Tuesday.

 

He had told the Senate Banking Committee that the US central bank is prepared to react to signs of economic strength by raising interest rates higher than previously expected and potentially returning to a quicker pace of rate increases.

 

Higher interest rates generally bode well for lenders, but the risks of a recession are also rising.

 

Singapore&rsquo s banking trio had a mixed showing: UOB was marginally up 0.1 per cent to $29.47, DBS Bank slipped 0.4 per cent to $33.71, and OCBC Bank was 1 per cent lower at $12.55.

 

Real estate investment trusts (Reits) also suffer in a high-rate environment, so it was no surprise that only two of the 40 or so Reits and property trusts listed on the Singapore Exchange &ndash EC World Reit and Far East Hospitality Trust &ndash managed to chalk up gains. Most were down and only a few were unchanged.

 

EC World Reit units rose 1.5 per cent to 34.5 cents, a day after its manager announced that the sponsor had released more funds from escrow to meet some outstanding mandatory bank repayments.

 

Ground-handler and in-flight caterer Sats slid 1.6 per cent to $2.46, approaching its 52-week low of $2.355.

 

The declines on Wednesday can be sheeted home to the bloodshed on Wall Street overnight, when the key Dow Jones Industrial Average dropped nearly 600 points, or 1.7 per cent, in the wake of Mr Powell&rsquo s remarks.

 

The S& P 500 dropped 1.5 per cent while the technology-heavy Nasdaq was off 1.2 per cent.

 

Most regional markets responded in kind, with the Hang Seng in Hong Kong down 2.35 per cent, the Kospi in Seoul falling 1.28 per cent and Australian shares dropping 0.8 per cent.

 

PARKWAY Life Real Estate Investment Trust (PLife Reit) has agreed to acquire 2 nursing homes in Japan for 2.88 billion yen (S$29.4 million) to deepen its expansion in the country&rsquo s aged care market.

 

The healthcare-focused Reit is buying the properties from Japanese real estate developer Daiwa House. Together with 3 other acquisitions announced last week, this will bring its Japan portfolio to 57 properties valued at S$758.4 million.

 

The acquisition will be made at 11.1 per cent below valuation, and is expected to generate a net property income yield of 5.2 per cent. The transaction is expected to be completed by Q3 2022.

 

PLife Reit : C2PU +0.65% will be working with a new operator, Zen Wellness Co, which operates 11 nursing homes in the Kanto/Greater Tokyo region.

 

The nursing homes are freehold properties built in 2021 and located in residential areas of the Tokyo and Chiba prefectures. PLife Reit will take over the existing lease agreements, with an average long balance lease term of 29 years.

 

With the addition of the 2 nursing homes, the Reit&rsquo s weighted average lease expiry by gross revenue will increase from 17.05 years as at end-August to 17.21 years. Coupled with the 3 other nursing homes, the Reit&rsquo s leverage ratio will increase from 32.5 per cent as at end-June to 34.3 per cent.

 

The acquisition will be fully funded by yen-denominated debt.

 

&ldquo The 2 well-located properties will not only strengthen our portfolio but also initiate a new collaboration with Daiwa House, a reputable real estate developer in Japan,&rdquo said Yong Yean Chau, chief executive of the Reit manager. He added that there is a strong demand for quality care homes, driven by Japan&rsquo s ageing population.

 

CGS-CIMB on Wednesday (Sept 14) raised its target price on healthcare-focused Parkway Life Reit : C2PU -0.84% by S$0.01 to S$5.06 after the Reit announced the acquisition of 3 nursing homes in Hokkaido on Tuesday.

 

Post-purchase, Parkway Life Reit&rsquo s Japan portfolio would be expanded to S$725.3 million, which makes up around 32 per cent of its total assets under management (AUM), noted analyst Lock Mun Yee.

 

Given that the properties still have a balance lease term of 19 years, Lock believes that this will also extend the Reit&rsquo s portfolio weighted average lease expiry from 17.01 years to 17.05 years, thus improving its income resiliency.

 

She expects the deal to be accretive to the reit&rsquo s distribution per unit (DPU) and raised her FY22 to FY24 DPU estimates by 0.3 and 0.5 per cent respectively.

 

However, with an estimated total return of less than 10 per cent in the near term, CGS-CIMB upheld its &ldquo hold&rdquo rating.

 

&ldquo With its robust balance sheet, Parkway Life Reit is well placed to continue tapping more inorganic growth opportunities, in our view. We like PReit for its stability, backed by its defensive income structure with in-built escalation features,&rdquo said Lock.

 

THE trustee of Parkway Life Reit : C2PU -0.21% (PLife Reit) has entered an agreement to acquire 3 nursing homes in Hokkaido for a sum of 2.56 billion yen (S$26.1 million), in a move to further expand the healthcare Reit&rsquo s Japan portfolio.

 

The 3 properties &ndash Blue Terrace Kagura, Blue Rise Nopporo and Blue Terrace Taisetsu &ndash are being sold by Blue Melon Capital Kabushiki Kaisha and its wholly-owned subsidiary, K2 Healthcare Sapporo Godo Kaisha. 

 

These facilities are operated by Blue Care Kabushiki Kaisha, a wholly-owned subsidiary of Living Platform, one of PLife Reit&rsquo s existing nursing home operators in Japan.

 

The acquisition will be made at 12.2 per cent below valuation and is expected to generate an average net property yield of 6.5 per cent, PLife Reit announced in a Tuesday (Sept 13) bourse filing. 

 

The deal is expected to be completed by Q3 this year and will bring the Reit&rsquo s Japan portfolio to 55 properties, totalling S$725.33 million in value. It will be fully funded by Japanese yen debts, which the Reit described as a &ldquo natural hedge&rdquo .

 

PLife Reit will take over the existing lease agreements of the properties, which have 19 years left on their leases. This will improve PLife Reit&rsquo s weighted average lease expiry, by gross revenue, from 17.01 years to 17.05 years.

 

Yong Yean Chau, chief executive of PLife Reit&rsquo s manager, said: &ldquo Against the backdrop of a Covid-19 impacted economy, Japan&rsquo s aged care market remains stable and resilient. The acquisition not only strengthens our presence in Japan, but also enhances our collaboration with our existing partner, Living Platform group.&rdquo

SINGAPORE lists 2 actively traded Healthcare related S-Reits &ndash ParkwayLife Reit : C2PU -0.2%and First Reit. : AW9U -1.69% Healthcare Reits invest in income-producing real estate primarily used for healthcare related purposes including but not limited to hospitals, medical offices, outpatient facilities and nursing facilities. As such, these Reits may be regarded as an option for investors to gain exposure to the growing and resilient healthcare sector.

 

ParkwayLife Reit is one of the largest listed healthcare Reits in Asia with a portfolio of 56 properties at S$2.29 billion in size. It has 64.6 per cent of its portfolio in hospitals and medical centres, and 35.4 per cent in nursing homes, across Singapore (64.3 per cent), Japan (35.4 per cent), and Malaysia (0.3 per cent).

 

ParkwayLife Reit reported 2.3 per cent year-on-year higher gross revenue for Q1 2022, arising from the3 properties it acquired last year and higher rent received from Singapore hospitals. The Reit noted that its distribution per unit (DPU) has grown steadily at a rate of 122.8 per cent since its listing.

 

In its Singapore portfolio (hospitals include Mouth Elizabeth Hospital, Parkway East Hospital, and Gleneagles Hospital), its master lessee Parkway Hospitals Singapore, is a wholly owned subsidiary of IHH Health which is one of the world&rsquo s largest healthcare networks with 80 hospitals in 10 countries. Its latest renewal term of 20.4 years runs from Aug 23, 2022 to Dec 31, 2042, with an option to renew for a further 10 years. It has a triple net lease arrangement which means that the Reit does not bear property taxes, property insurance, property operating expenses and is unaffected by inflated-related escalating expenses.

 

In its Japan portfolio, it owns 52 nursing home properties with a weighted average lease term to expiry of 11.79 years and a diversified tenant base across 28 nursing home operators. Based on its existing lease arrangements, about 95.2 per cent of its Japan portfolio is downside-protected.

 

First Reit has a portfolio of 31 properties comprising 16 in Indonesia, 3 in Singapore and 12 in Japan with a combined size exceeding S$1.2 billion. Its Reit manager is 60 per cent owned by OUE Limited and 40 per cent owned by OUE Lippo Healthcare (OUELH). As such, the Reit has rights-of-first refusal to a pipeline of properties from PT Lippo Karawaci Tbk and OUELH.

 

First Reit in its Q1 2022 business update reported 34.9 per cent year-on-year growth in net property and other income and 1.5 per cent growth in DPU paid (0.66 Singapore cents for Q1 2022). Following its maiden entry into Japan with the acquisition of 12 nursing homes, First Reit noted that it has successfully taken the first step of its First Reit 2.0 Growth Strategy to expand into developed markets and diversify geographical risk.

 

First Reit&rsquo s Indonesia hospital operator, PT Siloam International Hospitals Tbk reported stable quarter-on-quarter performance for Q1 2022 despite the impact of the Omicron variant. First Reit&rsquo s nursing homes in Japan and Singapore also noted high occupancy rates and the Reit remains confident of the resilient healthcare market in its operating markets.

PARKWAY Life Reit reported a 2.1 per cent increase in its distribution per unit (DPU) to a record 14.08 Singapore cents for the financial year ended Dec 31, 2021 despite a small dip in gross revenue.

 

For the fourth-quarter of FY2021, its DPU was unchanged at 3.57 Singapore cents, the manager of the real estate investment trust (Reit) said in an interim financial statement on Monday (Jan 24).

 

Distributable income to unitholders stayed at S$21.6 million in Q4 but for FY2021, it rose to S$85.2 million.

 

Yong Yean Chau, chief executive of the manager, said the uninterrupted growth in distributions to unitholders was " underpinned by greater certainty from the business continuity and sustained rental income stream accrued from the renewal of master lease agreements for our Singapore hospitals" .

 

This was despite a 0.2 per cent year-on-year dip in gross revenue to S$120.7 million in FY2021, largely attributed to the divestment of its P-Life Matsudo property in Japan and the depreciation of the Japanese yen, the manager said.

 

It added that this was partially offset by revenue contribution from the Japan property acquisitions in December 2020, 2021 and July 2021 as well as higher rent from the Singapore properties.

 

Gross revenue in Q4 however inched up 0.1 per cent due to contribution from several nursing home properties and higher rent from the Singapore properties.

 

Net proceeds from the divestment have been used to repay short term borrowings in Q2.

 

The group has current loans and borrowings of about S$94.7 million as at Dec 31. Committed long-term facility of 7.7 billion yen (S$91.6 million) has been put in place to extend the current loans and borrowings by March 2022, the reit manager said.

 

" Notwithstanding the net current liabilities position, based on the Group' s existing financial resources, the group believes that it will be able to refinance its borrowings and meet its current obligations as and when they fall due," it said.

 

For 2022, the manager noted that the global economy is still facing uncertainty, stemming from Omicron, as well as a rise in inflation that could " endanger the recovery" in emerging and developing economies.

 

" As uncertainties surrounding global economies continue to pose challenges for most businesses, Parkway Life Reit remains prudent as it proactively manages its portfolio and strategically navigates for growth opportunities," said the manager.

 

" The healthcare industry will remain critically essential in a rapidly ageing population with greater demand for better quality healthcare and aged care services. Parkway Life Reit' s assets place it in a good position to benefit from the resilient growth of the healthcare industry in the Asia-Pacific region," it added.

 

Parkway Life Real Estate Investment Trust (Parkway Life Reit) ParkwayLife Reit: C2PU +0.6% is buying a nursing home in Japan' s Greater Tokyo Region for 3.2 billion yen (S$38.4 million), the manager announced on Friday (Dec 10).

 

The 150-bed property in Kisarazu city in Chiba was built in 2017 and will be leased for 20 years to a subsidiary of nursing home operator Habitation Group, at an annual gross rental of about 197.2 million yen.

 

The acquisition will be funded by yen-denominated debt, raising the gearing of Parkway Life Reit from 34.9 per cent to 36 per cent, the manager disclosed.

 

The deal is projected to be accretive for the Reit' s distribution per unit (DPU), with an estimated net property yield of 5.9 per cent, and will increase the weighted average lease expiry by gross revenue for Parkway Life Reit' s portfolio from 17.42 years to 17.47 years.

 

The price tag, which was reached on a " willing-buyer, willing-seller" basis, marks a 7 per cent discount against an independent valuation of the property of 3.44 billion yen.

 

The Reit manager added that the transaction is not expected to have any material impact on the Reit' s consolidated net tangible assets or DPUs for the period to Dec 31, 2021.

The purchase has been made through a silent partnership agreement, similar to Parkway Life Reit' s previous acquisitions in Japan, and is expected to be completed by year' s end. The Reit' s Japanese portfolio would then comprise 52 properties, valued at about S$804 million.

 

Said Yong Yean Chau, chief executive of the manager, said: " The acquisition delivers immediate yield growth and enhances the resiliency of our portfolio with a long stable lease."

 

He added that the Reit plans to build on its long-term working relationship with Habitation Group and to optimise its growth strategy in Japan, which he dubbed " our valued core market" .

 

On Nov 5, Parkway Trust Management non-executive director Joerg Ayrle acquired 29,000 units of Parkway Life Reit ParkwayLife Reit: C2PU -0.82% (PLife Reit) at S$4.70 per unit for a consideration of S$136,000.

 

This was Ayrle' s first acquisition of units in PLife Reit since his appointment to the board on Apr 23, 2021.

 

He was also appointed the group chief financial officer of IHH Healthcare on Feb 1, 2021.

 

With a wealth of international experience from the United States, Germany, Singapore, China and Thailand, he is responsible for providing financial leadership and strategic guidance for IHH Healthcare.

 

IHH Healthcare maintained a 35.60 per cent deemed interest in PLife Reit as of a substantial shareholder filing on Apr 5, 2021.

 

Prior to joining IHH Healthcare, Ayrle was the group chief financial officer of Thai Union Group and steered the company' s financial transformation journey, winning multiple awards including Best CFO Asia by Corporate Treasurer in 2016.

 

Prior to this role, he had a successful career with tech giants Osram and Siemens.

 

As of Sep 30, PLife Reit, which primarily invests in healthcare and healthcare-related real estate and real estate-related assets, maintained a total portfolio size of 55 properties.

PARKWAY Life Reit&rsquo s ParkwayLife Reit: C2PU +0.43% distribution per unit (DPU) rose 0.8 per cent to 3.56 Singapore cents for the third quarter ended Sep 30, the manager of the real estate investment trust (Reit) said in a results release on Wednesday (Nov 3) night.

 

Distributable income rose 0.8 per cent to S$21.6 million, compared to S$21.4 million in the year-ago quarter.

 

This was despite net property income falling 2.9 per cent to S$27.3 million, from S$28.1 million before. The Reit said the fall was due to the provision of a one-off allowance for doubtful debts.

 

Gross revenue rose 1.2 per cent to S$30.5 million, from S$30.2 million before, due mainly to higher rent from Singapore properties and revenue contribution from Japan acquisitions completed in December 2020 and July 2021.

 

This was partly offset by the lost of income from the divestment of a non-core property in Japan, and the depreciation of the yen.

 

The latest results take the year-to-date DPU to S$0.1051, up 2.9 per cent from the year-ago period.

 

But year-to-date gross revenue is still down 0.3 per cent at S$90.1 million, compared to S$90.3 million before.

 

Parkway Life Reit highlighted that it has renewed the master leases for its Singapore hospitals, after unitholders gave their approval at an extraordinary general meeting in September,and the agreements were executed on Oct 13.

 

" Secured with clear rent structure, the Singapore hospitals will continue to deliver a steady stream of quality rental income over a long lease term till December 2042," said the Reit.

 

The group' s overall portfolio weighted average lease to expiry, by gross rent, has been extended to 17.42 years, from 5.36 years before.

 

In October, the group also executed a 3-year committed loan facility to term out a remaining Singapore-dollar loan due in 2022. With this, and a Japanese yen loan due in 2022 that will be termed out in Q4 2021, the Reit will have no long-term debt refinancing needs till June 2023.