Both Healthcare REITs reported an improved financial performance during the recently concluded 4QCY11 results period, driven by both organic and inorganic growth. In addition, First REIT (FREIT) and Parkway Life REIT (PLREIT) also expanded their geographical footprint by penetrating into new markets recently. We expect further acquisitions to come as both REITs seek to leverage on the robust fundamentals in the regional healthcare scene. As the macroeconomic environment remains uncertain and volatile, we opine that Healthcare REITs would provide a safe shelter for investors. This is underpinned by their long-term defensive lease structures with substantial downside revenue protection and strong sponsor support. Maintain OVERWEIGHT on Healthcare REITs. Under our coverage, we have a BUY rating on FREIT with a fair value estimate of S$0.89.
Improved performance driven by organic and inorganic growth
First REIT (FREIT) and Parkway Life REIT (PLREIT) both exhibited similar growth characteristics during the recently concluded 4QCY11 results period. Their improved financial performance was underpinned by organic and inorganic growth as a result of contributions from recent acquisitions. Due to the triple net lease structure inherent in most of the master leases of Healthcare REITs, FREIT and PLREIT were able to command high net property income margins of 98.9% and 91.5%, respectively as at FY11.
Expanding their regional footprint
PLREIT recently stepped up its acquisition drive, purchasing three nursing homes in Japan (JPY3.0b, or ~S$50m); and marked its maiden foray into Malaysia with the acquisition of strata titled units (RM16.0m, or ~S$6.45m) within Gleneagles Medical Centre, Kuala Lumpur. FREIT’s last acquisition came in Aug last year, with the purchase of Sarang Hospital in South Korea. This too represented a venture into a new geographical market. These events suggest that both Healthcare REITs are seeking to expand their footprint in the regional healthcare scene, which is a sound move, in our opinion. This would raise their profiles and diversify their operations. Moreover, healthcare fundamentals in the region remain resilient, bolstered by rising income levels, growing demand for quality healthcare services and changing demographics towards a greying population.
Maintain OVERWEIGHT
We reiterate our OVERWEIGHT rating on Healthcare REITs. With the still uncertain and volatile macroeconomic environment, we opine that Healthcare REITs would provide a safe shelter for investors. This is underpinned by their long-term defensive lease structures with substantial downside revenue protection, thus providing strong income visibility. PLREIT has also benefited from the high inflationary pressures in Singapore last year with its CPI + 1% rent revision formula (positive rental reversion of 5.3% for its Singapore hospitals commencing Aug 2011). Moreover both REITs are backed by strong sponsors. Under our coverage, we have a BUY rating on FREIT with a fair value estimate of S$0.89.
First REIT (FREIT) and Parkway Life REIT (PLREIT) both exhibited similar growth characteristics during the recently concluded 4QCY11 results period. Their improved financial performance was underpinned by organic and inorganic growth as a result of contributions from recent acquisitions. Due to the triple net lease structure inherent in most of the master leases of Healthcare REITs, FREIT and PLREIT were able to command high net property income margins of 98.9% and 91.5%, respectively as at FY11.
Expanding their regional footprint
PLREIT recently stepped up its acquisition drive, purchasing three nursing homes in Japan (JPY3.0b, or ~S$50m); and marked its maiden foray into Malaysia with the acquisition of strata titled units (RM16.0m, or ~S$6.45m) within Gleneagles Medical Centre, Kuala Lumpur. FREIT’s last acquisition came in Aug last year, with the purchase of Sarang Hospital in South Korea. This too represented a venture into a new geographical market. These events suggest that both Healthcare REITs are seeking to expand their footprint in the regional healthcare scene, which is a sound move, in our opinion. This would raise their profiles and diversify their operations. Moreover, healthcare fundamentals in the region remain resilient, bolstered by rising income levels, growing demand for quality healthcare services and changing demographics towards a greying population.
Maintain OVERWEIGHT
We reiterate our OVERWEIGHT rating on Healthcare REITs. With the still uncertain and volatile macroeconomic environment, we opine that Healthcare REITs would provide a safe shelter for investors. This is underpinned by their long-term defensive lease structures with substantial downside revenue protection, thus providing strong income visibility. PLREIT has also benefited from the high inflationary pressures in Singapore last year with its CPI + 1% rent revision formula (positive rental reversion of 5.3% for its Singapore hospitals commencing Aug 2011). Moreover both REITs are backed by strong sponsors. Under our coverage, we have a BUY rating on FREIT with a fair value estimate of S$0.89.
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