There are two actively traded healthcare related S-Reits, namely ParkwayLife Reit and First Reit. Both ParkwayLife Reit (37.1 per cent of its asset value) and First Reit (22.8 per cent of its assets under management) have significant exposure to Japan nursing homes and healthcare-related properties through recent acquisitions.
With Japan being the world’s second largest healthcare market and a third of its population aged 65 and above, which is highest globally, it is no wonder that nursing homes and facilities are a growing focus for the two healthcare S-Reits.
ParkwayLife Reit acquired five nursing homes in September 2022, with three in the Hokkaido region and two in the Greater Tokyo region. All properties acquired were 11.1 to 12.2 per cent below valuation and have an overall net property yield of 5.2 to 6.5 per cent. The Reit now has 57 nursing homes in Japan worth S$872.9 million as at Dec 31, 2021 across 17 prefectures and a tenant base across 30 nursing home operators.
The properties have a long-term lease structure with weighted average lease term to expiry (Wale) of 12.4 years. Approximately 95.7 per cent of ParkwayLife Reit’s revenue from its Japan portfolio is downside-protected.
As part of First Reit’s 2.0 Growth Strategy, the Reit marked its maiden entry into Japan in March 2022 with the acquisition of 12 freehold nursing homes from its sponsor OUE Lippo Healthcare. It continued to acquire two more freehold nursing homes from third parties in September 2022. First Reit now has 14 out of its 32 Asian healthcare assets in Japan nursing homes which are operated by five independent and experienced nursing home operators.
As a result of its expanded footprint, First Reit’s rental and other income for 9M 2022 increased 39.2 per cent year on year to S$80.9 million. Its distribution per unit also increased 1.5 per cent year on year to 1.98 cents.
Its entry into Japan also increased its proportion of assets under management (AUM) from developed markets to 25.6 per cent as at Sep 30, 2022. First Reit intends to focus growth in developed markets with a target to reach over 50 per cent of AUM in these markets by 2027. Its overall portfolio has a Wale of 12.7 years, a combined AUM of S$1.2 billion as at Sep 30.
Victor Tan, chief executive officer of First Reit’s manager notes that Japan is one of the Reit’s key growth markets and its continued expansion into Japan will position the Reit for long-term growth with stability.
Generally, 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 seen as a way for investors to gain exposure to the growing and resilient healthcare sector.
REIT Watch is a weekly column on The Business Times, read the original version
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Originally Posted December 12, 2022 – REIT Watch – Healthcare S-Reits capture Japan opportunities with expanding footprint
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