5 Things To Know About First REIT (SGX:AW9U), The Company Behind Pacific Healthcare Nursing Homes In Singapore

Good health is the best wealth, especially in our golden years when we are more vulnerable to sickness and diseases. Fortunately, medical advancements and better healthcare treatment have allowed us to live longer with a better quality of life. In fact, the number of residents in Singapore aged 90 and above has doubled from 10,000 in 2010 to 22,000 now.

It is due to this fast-ageing population and an inescapable trend that investors like healthcare-related companies. Moreover, the healthcare industry in general is considered to be more resilient in nature regardless of market cycles due to its defensive earnings. One such healthcare company listed on the Singapore Exchange is First REIT (SGX: AW9U).

Listed since 2006, First REIT is Singapore’s first healthcare real estate investment trust. Its portfolio of 31 properties in three countries—Indonesia, Singapore, and Japan—covers the full scale of healthcare real estate that includes hospitals, nursing homes, and other healthcare-related facilities. This includes two Pacific Healthcare Nursing Homes and the Lentor Residence in Singapore.

Going forward, First REIT plans to achieve its vision of becoming Asia’s premier healthcare trust with its 2.0 Growth Strategy. It also intends to position itself to seize more opportunities in the healthcare real estate market by keeping its focus on diversifying into developed markets, reshaping its portfolio for capital-efficient growth, strengthening its capital structure to remain resilient, and pivoting to ride the structural demographic megatrends of the ageing population in Japan and Singapore.

If you are keen on the healthcare real estate market, here are 5 things about First REIT, including its 2.0 Growth Strategy.

#1 As one of the two healthcare REITs listed on SGX, what are the idiosyncrasies of being a healthcare REIT?

Healthcare REITs own, operate, manage, acquire, and develop healthcare and healthcare-related assets. These assets span a wide spectrum such as hospitals, nursing homes, assisted living and senior living communities, and other ancillary healthcare facilities such as medical offices, specialised pharmaceutical storage, outpatient facilities, life science innovation and research properties.

Most healthcare REITs lease their facilities to tenants such as healthcare systems, primarily under a triple net lease structure that covers maintenance, taxes and insurance. This prevents the REIT from facing inflation-related escalating expenses and ensures a predictable stream of rental income.

In addition, healthcare REITs will have to consider the demographics, social trends and government support in its target markets. For example, Japan’s rapidly greying population and government support in promoting nursing homes underpinned our decision to enter the Japan market.

Location of properties is also an important consideration. For example, hospitals should be centrally located in a community with a large population, whereas nursing homes should reside in a serene environment with ease of accessibility.

Read Also: 5 Things to Know About IHH Healthcare (SGX: IHH), The Healthcare Group Behind Gleneagles, Mount Elizabeth, Parkway, And Other Hospitals

#2 Having a “moat” or a competitive advantage is something many investors look for in companies they invest in. Can you share how First REIT has a strong advantage?

First REIT has emerged stronger and refreshed after a series of strategic initiatives to restructure our MLAs and strengthen our capital structure. With strong sponsor support and our 2.0 Growth Strategy in motion, First REIT is balancing growth and stability in our portfolio, delivering sustainable distributions to unitholders.

By investing in First REIT now, investors are investing into:

• An increasingly diversified portfolio offering long-term growth and stability
• Stable long-term growth from healthcare assets in Indonesia
• Growing stable income from nursing homes in Japan and Singapore

First REIT has a payout policy of 100% of distributable income since listing and continues to pay out quarterly distributions.

It also has a strong healthcare and real estate network from a sponsor, whose interests are highly aligned with unitholders.

Read Also: 5 Things To Know About Daiwa House Logistics Trust (SGX Code: DHLU), A Japan Based Logistics REIT

#3 Can you tell us what First REIT’s 2.0 growth strategy is, in a nutshell?

First REIT’s 2.0 Growth Strategy consists of 4 strategic pillars, with the aim of balancing portfolio growth and stability to create long-term sustainable value and distributions to all our unitholders:

(i) Reduce concentration risk by increasing portfolio allocation in developed markets to more than 50% over the next three to five years.

(ii) Reshape portfolio for capital efficient growth through recycling of non-core, non-healthcare or mature assets.

(iii) Strengthen capital structure through diversification of funding sources to remain resilient

(iv) Pivot to ride on relevant megatrends such as Environmental, Social and Governance (ESG) and ageing population demographics to boost growth.

Read Also: 5 Things to Know About Sabana REIT (SGX: M1GU), Industrial Property Player With A Refreshed Strategy

#4 Can you explain what is the social framework that First REIT launched?

In line with 2.0 Growth Strategy to strengthen capital structure and pivot to ride megatrends, First REIT initiated a Social Finance Framework (SFF) in March 2022 which forms the foundation for a new mode of financing tied to attaining sustainable social goals.

This framework provides a platform for the issuance of loans and bonds granted upon the attainment of social benefit outcomes that are aligned with the Social Bond Principles (2021) and Social Loan Principles (2021), as well as fulfilment of United Nations Sustainable Development Goal of ‘Good Health and Well-being’.

SFF provides guidance on use of proceeds, process for project evaluation and selection, management of proceeds, reporting and external review. In alignment with the SFF, First REIT successfully issued in April 2022 a S$100 million 3.25% guaranteed bonds due 2027. The bonds are rated AA by Standard & Poor’s and guaranteed by Credit Guarantee and Investment Facility, a trust fund of the Asian Development Bank.

#5 What are some key risks facing First REIT, and how do you plan to manage these risks?

Businesses globally including the healthcare industry, are facing challenges from rising interest rates and exchange rate volatility amid global geopolitical uncertainties. First REIT will conduct regular reviews to ensure optimal mix of fixed and floating rate borrowings, while actively looking at the possibility of hedging with financial derivatives to tackle escalating exchange rate volatility.

Post expansion into Japan, the inclusion of lower cost yen borrowings reduced cost of debt to 3.7% in 1H 2022 from 4.2% in FY 2021.

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