The Best Healthcare REIT in Singapore

In Singapore, there are 31 real estate investment trusts (REIT) and property trusts. Of these, there are a couple REITs that focus on the healthcare industry. Said another way, these are REITs that own and operate properties such as hospitals and nursing homes.

To pick the best healthcare REIT, we might want to start with key factors that influence the healthcare industry. Today, I would like to share two such factors.

Favorable trends

Several trends favor the healthcare industry, namely an aging population in Asia, the increasing importance of private healthcare, and the growth in medical tourism.

Expanding on the demographic trends, Parkway Life REIT (SGX: C2PU) shared the following slide in a 2007 presentation which shows the rising demand for healthcare which comes with an aging population:

2015-03-05 Parkway REIT Slide

Source: Parkway Life REIT’s presentation

Furthermore, insight about the medical tourism trend in Singapore was also provided in the REIT’s 2013 annual report:

“According to statistics from the Ministry of Health and the Singapore Tourism Board, 35,959 medical tourists visited the city-state in 2011 and spent almost S$1 billion, an increase over 2010 and 2009. The majority of medical tourists opted for treatment at private hospitals.”

Both trends provide the underlying revenue support for the hospital operators which rent hospital space from Parkway Life REIT. You can read more about the REIT here and here.

Tenant risk

A healthcare REIT’s ability to keep up it rental growth depends – in part – on the hospital operator’s earnings ability.

First Real Estate Investment Trust  (SGX: AW9U) makes majority of its revenue from Indonesia:

First REIT - 1

Source: First REIT’s earnings report

Although its tenants pay rent in Singapore dollars for both its Singapore and Indonesia properties, thereby reducing foreign exchange risks, the earnings for the hospital operators who rent the properties may still be subject to foreign exchange fluctuations from the Indonesian rupiah.

The REIT’s sponsor is Indonesia’s largest listed property company, PT Lippo Karawaci Tbk. Learn more about First REIT here and here.

Foolish summary

The best REIT in Singapore may be judged by the earnings power of the properties that it owns, the trends which favor it, and the price we pay for its units. There can always be more factors to consider – like the ability of its management to fund future purchases or enhancements.

If we can find the best combination, we may have found our next investment candidate.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Parkway Life REIT.