As Singapore ages, a sector not fully represented on the Mainboard is eldercare. Instinctively, the two main Singapore proxies to an ageing Asia are ParkwayLife REIT (PLife REIT) and First REIT, the only healthcare REITs to be listed here.
PLife REIT owns three hospitals in Singapore, Mount Elizabeth Hospital, Gleneagles and Parkway East. It also holds a portfolio of 57 nursing homes in Japan which contribute around 40% to revenue and 33% to net property income (NPI). First REIT, on the other hand, owns 14 Indonesian hospitals, 14 nursing homes in Japan and three in Singapore. A more direct play would be Econ Healthcare (Asia), which owns a chain of nursing homes mostly in Singapore but also Malaysia and China. LHN, which is better known for its portfolio of co-living properties, has plans to move into the senior living market too, says executive chairman Kelvin Lim in an interview with The Edge Singapore.
Elsewhere, US-listed ETFs provide some exposure to an ageing population. These include Long-term Care ETF, Global X Longevity Thematic ETF, and Vanguard Dividend Appreciation Index ETF. Assisted living REITs in the US include Brookdale Assisted Senior Living, Ventas, Healthpeak Properties, Omega Healthcare Investors, and LTC Properties.
The differences between PLife REIT and First REIT are stark. Despite PLife REIT’s lower yield, its master lease structure has benefitted unitholders greatly. Hospitals and nursing homes, which are assets owned by PLife REIT, have operators that operate and manage them. For the hospitals, the operator and master lessee is IHH Healthcare, a company listed on Bursa and the Singapore Exchange.
The long and short of PLife REIT’s new master lease structure is DPU and NAV upside over the longer term. Already in FY2022, PLife REIT reported a 2.1% rise in DPU to 14.38 cents, before the main part of the new lease structure kicked in.
In 2021, PLife REIT’s manager renewed the master lease with IHH for 20.4 years. The master lease comprises an initial rent of $97.2 million for FY2023. However, the master lease agreement comes with renewal capex works of $150 million which will take three years to complete. Hence, there is a tiered rental rebate of $60.9 million from FY2023 to FY2025 to IHH.
Hence, PLife REIT’s manager has an indicative rent of $74.6 million for FY2023 (initial rent of $97.2 million, subject to rent rebate of $22.6 million), $76.9 million in FY2024 (initial rent of $97.2 million, subject to rent rebate of $22.6 million) and $79.2 million for FY2025 (initial rent of $97.2 million, subject to rent rebate of $20.3 million), before jumping to $99.2 million in FY2026.
PLife REIT’s annual rent review formula in FY2026 is based on the higher of the ([1+(CPI+1%)]x initial rent of $97.2 million) or “base rent + variable rent”. Where the CPI is negative for any given year, the CPI shall be deemed zero. As part of the new master lease, PLife REIT has a right of first refusal to Mount Elizabeth Novena Hospital.
In FY2021, First REIT restructured its master lease amid significant challenges that materialised for itself and its operator and master lessees, both of which are related to the Lippo Group. First REIT’s sponsors are OUE and OUE Lippo Healthcare. The restructuring of the master leases caused a significant decline in rental income and valuations and led to First REIT being recapitalised via a rights issue which raised $158.2 million.
The restructured master lease comprises either a higher base rent escalation of 4.5% or a performance-based rent escalation of 8.0% of the hospital’s gross operating revenue in the preceding financial year, whichever is higher. The rent will be computed on an asset-by-asset basis. This means some assets may be on the more conservative measure, and some on the higher rent. The rent is paid in Indonesian rupiah. Up to 2021, rents were paid in Singapore dollars.
PLife REIT’s yield is around 3.5%, which is lower than the popular T-bills issued by the Monetary Authority of Singapore. Many banks are offering fixed deposits at higher rates. However, there is a chance that PLife REIT’s NPI is lifted this year based on Year 1 of its new master lease rents.
First REIT’s yield is around 10%. While it owns Japanese nursing homes and Indonesian hospitals almost in equal numbers, the Japanese and Singapore nursing homes only comprise around 25% of First REIT’s AUM.
