If you are trying to search for a market segment that has largely been spared the ravages of the global pandemic, look in the direction of healthcare Reits.
“(Healthcare Reits) have remained resilient, supported by the long-term prospects of the industry,” observes Yong Yean Chau, CEO and executive director of Parkway Trust Management and manager of Parkway Life Reit.
He attributes the steady growth of the Reit to increased spending in the healthcare sector, driven by a few factors: ageing populations, the rise of lifestyle diseases such as diabetes and hypertension, and growing disposable incomes that have led to a higher demand for higher quality healthcare and aged care services. These are also the long-term drivers for the industry.
“Our biggest achievement is having the support of a strong, cohesive and committed team that has helped drive the company’s strategy. With that, our portfolio of healthcare assets has performed well and we have more than doubled our assets under management, with Distribution Per Unit (DPU) having grown by 108 per cent since IPO. The stock has also enjoyed a total return of over 320 per cent since IPO,” shares Yong.
DPU is a measure of how much an investor gets for every share held in the Reit.
Parkway Life Reit has a total portfolio size of approximately $1.96 billion as at March 31 this year, and this includes Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital in Singapore, 49 other healthcare or healthcarerelated real estate assets in Japan, and strata-titled units in MOB Specialist Clinics in Malaysia.
Since its listing in 2007, it has grown into one of Asia’s largest healthcare Reits by asset size.
While traditionally offering relatively lower DPUs, healthcare Reits are typically viewed as “defensive, yield-generating investments that are poised to enjoy multi-year growth prospects, even amid the current uncertain economic climate”. Elaborating on Parkway Life Reit’s stable performance, he shares that its DPU has increased by 1.4 per cent yearon- year.
Yong, who joined the real estate industry in 1996, has weathered multiple crises in his time. “Back in 2008, despite the economic recession, Parkway Life Reit entered Japan with our first acquisition of a pharmaceutical product distributing and manufacturing facility.
“Since then, we have ridden unprecedented demographic shifts in the country and continue to do so. This has allowed us to more than double our portfolio.”
However, he recognises that every crisis is different. While the company has been able to navigate changes and volatilities by staying vigilant and nimble, there is no one-size-fits-all approach. In the current pandemic, the company’s ethos of working in collaboration with strategic partners for sustainable long-term relationships has been something to leverage on.
“The pernicious effects of Covid-19 remain, placing increasing pressure on all industries and sectors,” says Yong. “We have seen limited impact on our properties to date. However, the situation is evolving rapidly and we will continue to monitor for developments. It is imperative for us to stand in solidarity with our tenants.”
To this end, Parkway Life Reit has set aside a Covid-19 relief budget to provide targeted assistance for affected tenants.
Although the outlook of a nose-diving global economy has dampened business sentiments, he foresees a continued interest in healthcare assets.
“Looking at the example of China’s recovery after the worst of the pandemic, there are emerging growth opportunities…for real estate markets in sectors such as healthcare and real estate technology,” shares Yong, who also enthuses about regional opportunities.
“We see opportunities in our key markets, especially in the healthcare and eldercare sectors in Japan, which has the highest proportion of elderly in the world. With improving healthcare and lower incidences of morbidity in old age, the life expectancy there will increase to 87.92 by 2050, leading to increased demand for nursing home facilities.”
In Singapore, he believes that the private sector stands to play a key role in increasing the capacity, quality and sustainability of healthcare services. This, coupled with the expectation for medical tourism in Singapore to do well, further improves the sector’s long-term prospects.
Yong also notes a rise in global demand for healthcare.
“By 2050, one in six people in the world will be over the age of 65, up from one in 11 in 2019. With that in mind, we have been working towards establishing new growth drivers, beyond our established markets,” he says.
“We are constantly identifying new growth engines and avenues for targeted investments, as well as cultivating relationships with local consultants and players, to source for quality assets to enhance growth.”
Industry observers weigh in on the outlook of Singapore’s different real estate sectors following Covid-19
Healthcare and office sector: Status quo, Largely
The last decade has seen the average allotment of office space shrink from 120 sq ft per person to just 80 sq ft, but this is expected to increase, given the need for better social distancing. In this respect, Desmond Sim, head of research for South-east Asia at CBRE Singapore, also feels that developers will move from seeking Green Mark certification to WELL certifications, which take into consideration factors such as community health.
In the healthcare sector, Alan Cheong, executive director for Research and Consultancy at Savills Singapore, feels that the healthcare assets will benefit only after the lockdown measures have eased globally, and when travel restrictions are lifted. “The high market value services lie in medical tourism,” he says. “Even if the Government builds more hospitals for the locals, public hospitals as an asset do not benefit the private sector. Given the limited number of private hospitals here, you will need a flow of medical tourism for them to go back to the norm.”
Hospitality sector: Unchartered territory
“Hospitality was looking very, very bright at the start of the year, but currently it is submerged so deep I have no idea where to look!” says Cheong candidly. “Where the industry will go is a great unknown. In the US, people are now expecting no-frills hotels with contactless check-in. There is no clarity on the forces that will shape the new structure and outlook of the industry.”
Sim – who notes that smaller-scale business hotels in countries such as Japan and South Korea have been shutting down – feels, however, that the local hospitality industry might not necessarily be devastated. Occupancy rates are being propped up by the Government to a level of 60 to 70 per cent, as compared to almost zero in some other countries.
Further, he predicts that travellers from Singapore’s top five tourism markets – China, Indonesia, India, Malaysia and Australia – will be confident to return, just as many Singaporeans will be raring to travel out to the region once regulations ease. “It will be tough to achieve last years’ figures, north of $19 million, but there is a sense of confidence for tourism to come back,” he shares.