On 5 February 2025, Parkway Life REIT (“PLife”) announced their full year result for FY2024. PLife has made new investments into the France nursing home market during this quarter, which is a new portfolio different from their existing ones. In the presentation, management has continued to mention about building a 3rd pillar to support PLife, so it remains to be seen if the France nursing homes are able to meet their expectations. Do note that DPU has decreased this half of the year with the enlarged unit base. Investors will need to monitor over the next few periods if the new acquisitions are able to contribute positively to the portfolio.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Website: General Announcement::2H And FY2024 Business Update
Photo source: https://fifthperson.com/2021-parkway-life-reit-agm/
Financial Highlights
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | -2.1% | +3.5% |
| Rating | Unfavorable | Favorable |
With effect from February 2025, I will be using the half year on half year DPU changes as references for PLife. This is due to REITs are usually not as affected by seasonal changes.
DPU for the second half of FY2024 have decreased by 2.1% to SGD0.0738 per unit from SGD0.0754 per unit in the first half of FY2024. The decrease was mainly due to an increase in number of units, as noted that the amount available for distribution has increased. This metric is Unfavorable. Similar to previous periods, the gross revenue and net property income has decreased mainly due to depreciation of the Japanese Yen.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 99.7% | 99.7% |
| Rating | Favorable | Favorable |
Occupancy rate as of 31 December 2024 remains unchanged at 99.7% and this metric remains Favorable. The Singapore, Japan and newly acquired France assets continues to be committed at 100%, which are the major components of their assets. PLife’s sole Malaysian medical center stood at 31%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 34.8% | 37.5% |
| Rating | Favorable | Favorable |
Gearing ratio decreased to 34.8% as of 31 December 2024. The decrease was due to the equity fund raising that was recently completed, as noted by the more than proportionate increase in total assets as compared to the increase borrowings. This metric remains Favorable.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 9.8x | 10.2x |
| Rating | Favorable | Favorable |
The interest coverage decreased slightly to 9.8 times as of 31 December 2024. This metric remains Favorable and is attributable to their reported low cost of debt of 1.48% as their loans and borrowings are mainly Japanese Yen denominated. Take note that the Bank of Japan on 24 January 2025 have increased the interest rate to 0.50%, the highest in 17 years. While PLife has mentioned that 87% of their interest rate is hedged, this is something investors should take note of if interest rates increase significantly over the next few months.
Website: Bank of Japan raises interest rates to highest in 17 years, yen jumps
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.4 years | 3.0 years |
| Rating | Favorable | Favorable |
Based on the announcement on 5 February 2025, the weighted average debt maturity profile was not directly included by management as of 31 December 2024.
I have performed a computation based on the debt profile provided by management. For the purpose of my computation, I have applied a halfway mark for each calendar year. For illustration, debt that is due to expire in 2025 has been averaged to due in 0.5 years, debt that is due to expire in 2026 has been averaged to due in 1.5 years.
The weighted average term to maturity of their debt lengthened slightly to 3.4 years as of 31 December 2024. This metric remains Favorable as there is sufficient time for the REIT to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.61 | 1.73 |
| Rating | Unfavorable | Unfavorable |
The Price to Book (“P/B”) ratio increased to 1.61. This is computed using the closing share price of SGD3.87 on 14 February 2025 and the net asset value per share of SGD2.41 as of 31 December 2024. The P/B ratio is Unfavorable.
It was worth noting however that the share price continued to rise despite being grossly overvalued. We will cover more in the “Key Things to Note” section.
As of 14 February 2025, the Market Capitalization is approximately SGD2,525 million.
Website: Yahoo Finance: Parkway Life Real Estate Investment Trust (C2PU.SI)
Dividend
| Year | Yield | Total |
|---|---|---|
| 2025 | 0.61% | SGD 0.024 |
| 2024 | 5.17% | SGD 0.200 |
| 2023 | 3.78% | SGD 0.146 |
| 2022 | 2.75% | SGD 0.106 |
| 2021 | 3.64% | SGD 0.141 |
| 2020 | 3.50% | SGD 0.136 |
Do note that the dividend paid out in the calendar year 2024 is higher due to an advance distribution was provided with the equity fund raising in 2024. Excluding the advance distribution, dividend in the calendar year 2024 will amount to SGD0.150 per unit. This is a more conservative estimate to be used when projecting for the calendar year 2025.
With the closing share price of SGD3.87 on 14 February 2025, this translates to a dividend yield of 3.87%. For my benchmark, a reasonable yield would be around 5.25%. PLife yield sounds similar to growth equity stocks from other industries. The dividend yield is Unfavorable.
Website: Reasonable Dividend Yield 2025Q1 – 5.25%
Nonetheless, there is an interesting rationale for the dividend yield to be compressed and will be covered more in the “Key Things to Note” section.
Possible Expansion Targets
Third Pillar
There are currently 2 pillars supporting PLife REIT. They are:
- The Hospitals in Singapore
- The Nursing Homes in Japan
Although PLife has recently ventured into the France nursing home market, PLife continues to mention they will be looking to venture into a new market and develop a new stream of revenue. Based on the announcement of 5 February 2025, management is still keen to build a 3rd Key Market which can contribute enhanced growth for PLife in the mid to long term.
While the timing of this is uncertain, in my opinion it is certainly welcoming. This will allow for them to diversify their revenue and not rely on a single tenant for a large proportion of their revenue.
Based on their financial results, they are in a good position to do so. PLife is still trading at a high P/B ratio, and it will not be difficult for them to find a yield accretive target. It was worth noting as well that it will work in management’s favor to issue rights to capitalize on the high P/B ratio should they choose to continue to do so.
One thing they can consider is to expand into the senior living market in China. Granted however that there may be risks venturing into a new geographical location especially with the property market crisis. There is a need to determine the risks and rewards of the opportunities there.
Website: The Opportunities Available In Senior Living Market
Key Things to Note
Expensive getting more expensive
There is no denying that PLife is a relatively more expensive REIT compared to others that are available in the market. A dividend yield of 3.87% and P/B ratio of 1.61 exposes investors to higher risks. Given the straightforward business of REITs, their fair value usually should trade around their net asset value.
The key thing to note however, unlike most other REITs, PLife have income visibility. With their 20 years lease, this contributes a substantial portion of their income and serves as a bulwark for PLife as they explore new initiatives. Not to mention that this lease agreement also takes into consideration the Consumer Price Index (“CPI”) and is designed to increase overall rent payable based on the CPI. This is an effective hedge against inflation, which has been breaking historic highs recently.
Based on its dividend records, we can also see that they have steadily increase dividend payout over the years. Its stability and transparency are the reason for its high premium.
Nonetheless, it is still expensive, and something that investors should take note off and decide if they are comfortable with it before investing. If the market decides to crash, PLife’s can easily lose a significant portion of its market value.
Tenant concentration
Parkway Hospitals Singapore Pte. Ltd. is their top tenant contributing 59.2% of gross revenue. This indicates a heavy concentration of revenue and puts the REIT at the mercy of their customer.
While they have renewed the lease for 20 years, they are still dependent on the financial position of their customers. Cashflows have been tightening for all businesses and rental expense is one of the significant overheads that tenants will wish to cut down on. This might adversely affect the DPU of the REIT moving forward.
It is worth nothing however that the top tenant is a wholly owned subsidiary of Parkway Pantai Limited, who is a wholly owned subsidiary of Kuala Lumpur-based IHH Healthcare, Asia’s largest private healthcare group. IHH Healthcare is also in a good financial position, based on their latest financial highlights.
Website: IHH Healthcare Financial Highlights
The largest shareholders of IHH Healthcare are Mitsui of Japan (one of the largest sogo shosha in Japan) and then followed by the Malaysian government’s sovereign wealth fund Khazanah Nasional. This leads me to not expect the tenants to run into cash flow problems in the short term.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | -2.1% | Unfavorable |
| Occupancy | 99.7% | Favorable |
| Gearing Ratio | 34.8% | Favorable |
| Interest Coverage | 9.8x | Favorable |
| Debt Maturity Profile | 3.4 years | Favorable |
| Price to Book Ratio | 1.61 | Unfavorable |
| Overall | Neutral |
The overall metric has shifted towards Neutral. Do note that this is the first time since coverage that DPU has saw a decrease, though within reason of the enlarged unit base. Investors will need to monitor if DPU continues to be adversely affected moving forward.
Background
PLife is one of Asia’s largest listed healthcare Real Estate Investment Trusts (“REIT”). It invests in income-producing real estate and real estate-related assets used primarily for healthcare and healthcare-related purposes.
It owns the largest portfolio of strategically located private hospitals in Singapore comprising Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital. In addition, it has assets located in Japan, including one pharmaceutical product distributing and manufacturing facility in Chiba Prefecture as well as high quality nursing home and care facility properties in various prefectures of Japan. It also owns strata-titled units/lots at Kuala Lumpur in Malaysia.
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Website: Parkway Life REIT (SGX: C2PU): 2024 Third Quarter Business Update
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