This is the part 2 on the follow up discussion on Real Estate Investment Trusts (REITs). In the first post, we look into Retail REITs which are basically REITs that hold onto shopping malls as their property. You can read the post here
Today, lets look into another type REIT which I personally like – Health Care REITs.
For Health Care REITs, these are REITs that hold properties which are rented to tenants who operate healthcare services, namely, Hospitals and Nursing Homes.
And why do i like it, because of the stability of tenant. How often do we see a hospital changing locations? Almost never. And what does that mean? Just imagine…
The building that Mount Elizabeth Hospital and Gleneagles Hospital are operating in, belongs to you! And every year, they will pay you rental!
My personal thought: Wow! How wrong can this investment go?
Well, that can happen if you are holding onto Parkway Life REIT. (In fact, you are holding much much more than just 2 hospitals!) For more info, see: http://www.plifereit.com/portfolio/
Before you get too excited, let me help you become even more excited with these benefits:
1) The leases is usually about 15 years (15 years of relatively certain rental income!)
2) Most of the main tenant will take care of the operating expenses, taxes and insurances.
3) The lease usually comprises of a base rent indexed to inflation (we can at very least safe guard against inflation) PLUS a certain percentage of the revenues of the tenant! (Wow! We will almost be certain to beat inflation!)
Now, what is the downside?
1) One possible downside is possibility limited organic growth. But remember that rental collected involves some percentage of revenue from hospital and nursing homes. Given the trend for medical demand in Asia, this may not be too much of a big concern if you are interested in income.
2) Credibility of Tenants. This is more of a due diligence that we need to make. The tenants should be credible hospitals/ nursing homes, otherwise, a 15 year lease can’t protect us. And in order to find another tenant in event the current tenant winds up, may not be as easy as the building is set up and located for health care services.
3) Foreign Exchange Risk. The REITs we have in Singapore are holding onto quite a number of overseas properties, so we need to understand that we are therefore subjected to Foreign Exchange Risk.
So here are the 2 REITs we have access to in SGX:
|First REIT||Hospitals (10) + Hotel (Indonesia – 1) + Nursing Home (Singapore – 3)|
|ParkwayLife Reit||Hospitals + Nursing Homes = 44|
In the net few postings, we will continue to explore into the amazing world of REITs, until then:
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Mind Kinesis Research Team