Healthcare S-Reits are here to stay

HEALTHCARE real estate investment trusts (Reits) have been the best-performing Reit subsector in the year to date as at Feb 20, recording an average total return of 2.8 per cent.

This follows total returns of 6.9 per cent and 7.1 per cent for 2024 and 2023, respectively.

Singapore-listed Reits, or S-Reits, with healthcare assets have demonstrated resilience over the years despite a prolonged period of higher interest rates and inflation, driven by the defensiveness of healthcare assets.

According to FPA Financial analyst Calvin Mau, the expansion in gross domestic product per capita in South-east Asia – along with an ageing population and growing medical tourism – is expected to drive the growth of private healthcare expenditure in the region.

Listed private healthcare providers in South-east Asia may be well-positioned to benefit from this trend.

OCBC equity research analysts Ada Lim and Donavan Tan also noted that demand for defensive healthcare assets will grow in the long run, especially amid the uncertainty brought about by a second Donald Trump US presidency.

They highlighted that long lease tenors in healthcare S-Reits provide strong cash flow visibility.

There are two healthcare S-Reits which are active on the Singapore Exchange, Parkway Life Reit and First Reit. They have logged total returns of 4.2 per cent and 1.4 per cent, respectively, in the year to date.

Parkway Life Reit is one of Asia’s largest healthcare Reits by asset size, with 75 properties in Singapore, Malaysia, Japan and France worth S$2.46 billion as at Dec 31, 2024.

The hospitals in its portfolio include Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital.

In its latest full-year release, the trust recorded revenue of S$145.3 million, reflecting a 1.5 per cent year-on-year decline driven by the weaker yen.

Its FY2024 distribution per unit (DPU) grew 1 per cent year on year to S$0.1492, marking 17 years of consistent growth in recurring DPU.

The Reit’s acquisition of 11 nursing home properties in France marked its strategic expansion into Europe, its third key market. Its French portfolio will further diversify its holdings, while it remains committed to strengthening its core presence in Singapore.

Parkway Life Reit has been the best-performing S-Reit over the last five years (from 2020 to 2024), with a total return of 35.6 per cent. It recorded net institutional inflows of S$8.7 million in the year to date ended Feb 20, following four consecutive years of net institutional outflows.

First Reit, sponsored by OUE and OUE Healthcare, has 32 assets across Asia with a total value of S$1.12 billion.

Its portfolio consists of 15 properties in Indonesia, three nursing homes in Singapore, and 14 nursing homes in Japan.

First Reit reported a 5.9 per cent year-on-year decline in rental and other income to S$102.2 million for FY2024, due mainly to yen and rupiah weakness.

Despite this, the trust noted that its portfolio continued to demonstrate healthy underlying performance and operational strengths, with sustainable lease structures and 100 per cent occupancy rates being key drivers during the financial year.

As at Feb 20, First Reit was the third best-performing S-Reit year to date, with a total return of 4.2 per cent.

It was behind CapitaLand Ascott Trust which recorded 5.3 per cent, and Paragon Reit with 12.9 per cent.

After unveiling its new growth strategy at the end of 2021, First Reit made its maiden foray into Japan with the acquisition of 12 nursing homes.

Its Japan portfolio has since grown to more than 22 per cent of its assets under management.

Following a non-binding letter of intent (LOI) from Siloam International Hospitals to acquire First Reit’s Indonesian hospitals, the trust’s board initiated a strategic review to assess the LOI and explore all strategic options, with a view to delivering sustainable long-term value for unitholders. SGX RESEARCH

The writer is a research analyst at SGX.

For more research and information on Singapore’s Reit sector, visit sgx.com/research-education/sectors for the monthly S-Reits & Property Trusts Chartbook.