Parkway Life REIT (SGX: C2PU) and First Real Estate Investment Trust (SGX: AW9U) are real estate investment trusts (REITs) focused on healthcare and healthcare-related real estate assets throughout Asia.
In general, healthcare REITs have stable earning power by owning assets like hospitals and nursing homes. Such stability of income would appeal to conservative income investors, especially those who seek to generate sustainable dividends from their investments. But which is a better buy now? Let’s explore that further here.
DPU track record
We will first compare the distribution per unit (DPU) track record of both REITs in the last decade, to see which REIT did better in terms of growing its DPU over that period. Let’s begin with Parkway Life REIT. From FY2008 to FY2018, Parkway Life REIT grew its DPU from 6.83 cents to 12.87 cents. In other words, its DPU was up by 88.4% during that period, giving investors a compounded annual growth rate (CAGR) of 6.5%.
And now for First REIT. In the same period, First REIT grew its DPU from 3.39 cents (adjusted for the right issues in 2010 of 5 shares for every existing 4 shares) to 8.60 cents. In other words, the DPU was up by 153.7% during that period, giving investors a CAGR of 9.8%. Here, we assume that investors subscribed to the additional rights issues in 2010.
Both REITs did well in growing their DPU over the decade but First REIT, however, came out ahead with its higher growth rate.
Winner: First REIT
The next aspect that we will focus on is valuation. Here, we will use two metrics which are price-to-book (PB) ratio and distribution yield (DY) to help us in our assessment.
Let’s begin with the PB ratio. Parkway Life REIT and First REIT have PB ratios of 1.7 and 0.9, respectively. The lower PB ratio for First REIT suggests that it has a lower valuation.
Meanwhile, Parkway Life REIT and First REIT have distribution yields of 4.2% and 8.5%, respectively. The higher a REIT’s yield is, the lower its valuation. Thus, we can see that First REIT has a lower valuation based on distribution yield. Clearly, we can conclude that First REIT has a lower valuation than that Parkway Life, given its low PB ratio and high distribution yield.
Winner: First REIT
In summary, both REITs have done extraordinarily well in the last decade to grow their DPUs by that much. Still, First REIT is probably the better buy now given its stronger DPU growth track record as well as lower valuation.
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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.