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Is First Real Estate Investment Trust Or Parkway Life A Better Buy Now? Part 3

Parkway Life REIT (SGX: C2PU) and First Real Estate Investment Trust (SGX: AW9U) are real estate investment trusts (REIT) focussing on healthcare and healthcare-related real estate assets throughout Asia.

In general, healthcare-related REITs have stable earning power by owning assets such as hospitals and nursing homes. Such stability of income could appeal to conservative income investors, especially those who seek to generate sustainable dividend from their investments.

For those investors, they might want to know which of the two REITs is a better buy now. Clearly, there is no easy answer to this. After all, we don’t know what will happen in the future.

Nevertheless, we would like to put the duo to a test that is made up of three parts. In our previous articles, we looked at the REITs’ track record of growth in distribution per unit (DPU) in the last decade, as well as their debt profile. First REIT came ahead in distribution growth while Parkway Life REIT had a more favourable debt profile. In this article, we will focus on the last part of our comparison – valuation.

The showdown

We will focus mainly on two valuation metrics which are ‘price to book (PB) ratio’ and ‘distribution yield’.

Let’s begin with the PB ratio. Parkway Life REIT and First REIT have PB ratios of 1.5 and 1.0, respectively. The lower PB ratio for First REIT suggests that it has a lower valuation.

And now we will look at the distribution yield. Parkway Life REIT and First REIT have distribution yields 4.8% and 8.3%, respectively. The higher a REIT’s yield, the lower is its valuation. Thus, we can see that First REIT has a lower valuation based on its distribution yield.

From the above, we can conclude that First REIT has a lower valuation for now, given its lower PB ratio and higher distribution yield.

Conclusion

In summary, First REIT came out ahead of this race due to its better track record of growth in distribution per unit (DPU) in the last decade and lower valuation.

Editor’s note: This article had previously mixed up the distribution yields for Parkway Life REIT and First REIT.

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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 Lawrence Nga doesn’t own shares in any companies mentioned. Motley Fool has recommendations for Parkway Life REIT and First Real Estate Investment Trust.