Parkway Life REIT, one of Asia's largest listed healthcare REITs, has been making waves in the market with its impressive performance. In this article, we will delve into the key aspects that make Parkway Life REIT stand out and examine its performance during FY20 and 1H21.
Discovering Parkway Life REIT
Parkway Life REIT, based in Singapore and listed on the Singapore stock exchange since 2007, focuses on investing in healthcare-related assets such as hospitals and nursing homes. The REIT currently boasts a portfolio of 55 properties across Singapore, Malaysia, and Japan.
Concentrated Assets and Favorable Features
Parkway Life REIT strategically concentrates its assets in Singapore and Japan, with 57.4% and 42.5% of total assets, respectively. The REIT has secured long-term master leases with Parkway Hospitals Singapore and adopted a triple net lease arrangement, relieving them of certain property costs. In Japan, the REIT benefits from a long master lease structure and a built-in "Up-only" rental review. These favorable features facilitate organic growth while minimizing expenses.
High Occupancy Rates in Key Markets
Parkway Life REIT boasts an impressive 100% occupancy rate for its assets in Japan and Singapore, which collectively account for 99.9% of its portfolio. This achievement is even more remarkable when considering the built-in rental escalation that ensures rental income growth through positive rental reversion. While its Malaysian asset has a lower occupancy rate of 31%, it represents only a small fraction of the REIT's overall performance.
Consistent Financial Performance and Distribution
Parkway Life REIT has demonstrated year-on-year increases in its financial performance. Its revenue grew from SGD 112.8 million in FY18 to SGD 120.9 million in FY20, primarily driven by the built-in rental reversion in its Japan and Singapore assets. The REIT has also maintained a stable and positive distribution per unit over the years, which is a favorable point for investors. However, due to its defensive nature, Parkway Life REIT may trade at a slight premium compared to its peers, resulting in a dividend yield of approximately 2.8%.
Healthy Gearing Level for Future Initiatives
As of December 2020, Parkway Life REIT had total borrowings of SGD 796 million, resulting in a gearing level of 38.5%. This level is below the permissible limit, giving the REIT ample debt headroom for further acquisitions and asset enhancement initiatives.
1H21 Performance
In the first half of 2021, Parkway Life REIT divested a non-core asset and acquired two nursing homes in Japan at a favorable valuation. While the REIT reported a slight decline in financial performance during this period, primarily due to the divestment of P-Life Matsudo and the depreciation of the Japanese Yen, its distribution per unit increased compared to the same period in the previous year.
Summary
Based on our analysis, Parkway Life REIT remains a defensive REIT with a promising operational and financial outlook. However, investors should weigh the premium associated with investing in Parkway Life REIT against its relatively lower distribution yield compared to other REITs. It's essential to consider your investment goals and preferences before making any decisions.
What are your thoughts on Parkway Life REIT's performance in FY20 and 1H21? Feel free to share your insights and engage with our community on Facebook and Instagram.
Note: This article is for informational purposes only and should not be considered financial advice. Please conduct thorough research and consult with a professional financial advisor before making any investment decisions.
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