INVESTORS should consider buying healthcare Singapore-listed real estate investment trusts (S-Reits) to strengthen their portfolios, an OCBC Investment Research report has suggested.
This is because the healthcare sector offers investors defensiveness against the uncertainty brought about by a second Trump presidency, said OCBC equity research analysts Ada Lim and Donavan Tan in the December report.
The property baron’s win in the race to the White House clouded the outlook for S-Reits due to an expected slower pace of rate cuts, said OCBC.
“Given a more risk-off sentiment, at least in the near-term, we prefer quality names backed by strong sponsors which are in healthy financial positions, with room for capital recycling amid a higher-for-longer interest rate environment, and which have at least some Singapore asset exposure,” the bank said.
Rate cuts are generally believed to be good for most Reits. They lower borrowing costs, thus making expanding of their portfolios and refinancing debt less expensive.
It described healthcare as a relatively resilient sector, “less impacted by economic swings”.
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The sector also makes for “good portfolio diversifiers” that can provide long-term cash flow visibility, said the analysts.
“We believe demand for healthcare assets is defensive and will grow in the long run, supported by several secular trends such as an ageing population,” they wrote. “Additionally, long lease tenors in this sub-sector provide strong cash flow visibility.”
OCBC defined healthcare properties as real estate designed or built to house healthcare-related facilities, such as hospitals, nursing homes and life sciences facilities.
In the healthcare S-Reit space, OCBC named Parkway Life Reit as its preferred pick, assigning it a “buy” rating, a potential total returns projection of 28 per cent, and a fair value of S$4.49, above its latest closing price of S$3.64.
“We like Parkway Life Reit’s lease structures because they provide a steady stream of rental income and thus downside protection during market downturns,” they said.
Moreover, they added that it has “growth potential” as a result of annual or periodic rental escalations in Japan and Singapore.
Parkway Life Reit’s portfolio includes assets across Singapore, Malaysia, Japan and, most recently, Europe – into which it made a maiden foray by acquiring 11 nursing homes across France in October 2024. In Singapore, its portfolio includes private hospitals like Gleneagles and Mount Elizabeth.
Given that capital expenditure renewal works for its Mount Elizabeth Hospital in Singapore are set to enhance its quality and competitiveness, a “significant” 24.4 per cent increase in rental income from its Singapore assets in FY2026 can be expected, said the OCBC analysts.
Noting Parkway Life Reit’s track record of “uninterrupted” distribution per unit (DPU) growth since its listing in 2007, they believe that it has room for further DPU advancement if its Singapore hospitals achieve the variable performance-based rent after FY2026, and if the Reit continues making inroads into Europe with further acquisitions.
Lim and Tan also assigned First Reit a “buy” rating with a potential total-returns projection of 19 per cent and a fair value of S$0.28, above its latest closing price at the time of S$0.26.
They remarked that First Reit, which has assets across Singapore, Indonesia and Japan, offers an “attractive” forward 12-month dividend yield of 9.4 per cent.
Moreover, the Reit’s growth strategy – which includes plans to raise its exposure to developed markets to more than half its assets under management by FY2027 – is expected to further “de-risk” its portfolio, Lim and Tan noted.
However, they added that elevated interest rates have made it difficult for it to execute this strategy because of “funding challenges and a lack of transactions in the market”.
Names listed alongside Parkway Life Reit as OCBC’s most preferred S-Reit picks included Frasers Logistics and Commercial Trust, CapitaLand Ascott Trust, CapitaLand Ascendas Reit, and CapitaLand Integrated Commercial Trust.
On Friday (Jan 3), Parkway Life Reit closed up 0.5 per cent at S$3.78; First Reit closed flat at S$0.26.
