First Real Estate Investment Trust (SGX: AW9U) and Parkway Life REIT (SGX: C2PU) are two healthcare-focused real estate investment trusts that are listed on Singapore’s stock market. Let’s have a quick comparison between the two to see which would come out on top. The business First REIT has 17 properties in total in its portfolio and they are located in Indonesia (13), Singapore (three), and South Korea (one). Meanwhile, Parkway Life REIT has 47 properties, of which 43 are located in Japan, three in Singapore, and just one in Malaysia. By just looking at the location of the properties, investors…
Let’s have a quick comparison between the two to see which would come out on top.
First REIT has 17 properties in total in its portfolio and they are located in Indonesia (13), Singapore (three), and South Korea (one).
Meanwhile, Parkway Life REIT has 47 properties, of which 43 are located in Japan, three in Singapore, and just one in Malaysia.
By just looking at the location of the properties, investors should realise one important difference between the two REITs: First REIT has more exposure to an emerging market (Indonesia) and this usually means it could carry more risks. Parkway Life REIT, on the other hand, has its properties located in more developed countries.
The key numbers
Let’s now use three financial metrics to get a better idea of how healthy the REITS are and what they have to offer to investors. We will use the price to book (P/B) ratio, the gearing ratio, and the distribution yield here.
On the basis of the P/B ratio, it looks like First REIT offers investors a wider margin of safety. At its current price of S$1.185, First REIT has a P/B ratio of 1.2 thanks to its net-asset value (NAV) of S$1.02 per unit as at end-September 2015. With Parkway Life REIT, it has a P/B ratio of 1.3 with its NAV of S$1.70 per unit at the end of September 2015 and current unit price of S$2.28.
Moving onto the gearing ratio, First REIT had a 32% gearing ratio as of 30 September 2015. A recent investor presentation (with figures as of 30 June 2015) showed that 55% of First REIT’s debt are on fixed interest rates, while another 40% is being hedged. This implies that 95% of First REITs debt had essentially fixed interest rates.
In comparison, Parkway Life REIT had a gearing ratio of 36% as of 30 September 2015 with ‘only’ 78% of its borrowings carrying fixed interest rates. Looking at the gearing ratio and debt profile, First REIT once again beats Parkway Life REIT.
Lastly, First REIT has paid out distributions of S$0.0621 per unit in the first three-quarters of 2015. Annualising the payout would result in a distribution of S$0.083 per unit, which implies a distribution yield of 7% at First REIT’s current price.
As for Parkway life REIT, it has paid out distributions of S$0.0992 per unit year to date. If we annualise that number, we’d obtain S$0.132 per unit in distributions for the whole of 2015. At Parkway Life REIT’s latest price of S$2.28, we have a lower distribution yield of 5.8%.
A Fool’s take
As we’ve seen earlier, First REIT carries a different risk profile to Parkway Life REIT, as a result of the former’s much larger exposure to Indonesia, an emerging market.
First REIT is also a clear winner over Parkway Life REIT as the former has a lower P/B ratio, lower gearing ratio and healthier debt profile, and a higher distribution yield.
While a comparison of the business profile and three metrics for the two REITs are useful, what you’ve seen should only be taken as a useful starting point for further research. They should not be seen as the final word on the investing merits of the two REITs.
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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 Esjay does not own shares in any companies mentioned.