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Thursday, August 05, 2021

Parkway Life REIT Review @ 5 August 2021

Basic Profile & Key Statistics


Parkway Life REIT (PLIFE) is a healthcare REIT that invests mainly in hospitals, medical centres and nursing homes. PLife owns 53 properties across Singapore, Japan and Malaysia.

Performance Highlight

Gross revenue and NPI decreased slightly due to the absence of income from P-Life Matsudo (divested on 29 Jan 2021) and depreciation of JPY. The increase in DPU is mainly due to the absence of one-off COVID-19 related relief measures retained.

PLIFE has completed the acquisition of 2 nursing homes in Japan on 9 July 2021, which should improve earnings in upcoming quarters.

Related Parties Shareholding

  • REIT sponsor's shareholding is high at 35.56%
  • REIT manager's shareholding is low at 0.31%
  • Directors of REIT manager's shareholding is moderate at 0.16%

Lease Profile

  • Occupancy is high at 99.7%
  • WALE is long at 5.15 years
  • Highest lease expiry within 5 years is high at 59.5% which falls in 2022. However, an agreement for a lease framework has been signed on 14 July. This propose transaction would require unitholders' approval at EGM.
  • Weighted Average Land Lease Expiry is sightly long at 74.21 years

Debt Profile

  • Gearing ratio is moderate at 37%
  • Cost of debt is low at 0.56%
  • Fixed rate debt % is high at 82%
  • All debts are unsecured debt
  • WADM is long at 3.3 years, Post refinancing, the WALE is long at 4.1 years
  • Highest debt maturity within 5 years is low at 24.5% which falls in 2022. Post refinancing, highest debt maturity within 5 years is low at 20%, which falls in 2025
  • Interest coverage ratio is high at 21.6 times

Diversification Profile

  • Top geographical contribution is moderate at 58.5% 
  • Top property contribution is high at 35.6% 
  • Top 5 properties contribution is moderate at 63% 
  • Top tenant contribution is high at 58.5% 
  • Top 10 tenants contribution is high at 84.7%

Key Financial Metrics

  • Property yield is slightly high at 5.7% 
  • Management fees over distribution is slightly high at 14.8% in which unitholders receive S$ 6.76 for every dollar paid 
  • Distribution on capital is high at 4.3%
  • Distribution margin is high at 70.7%

Trends

  • Uptrend - DPU, NAV per Unit, Interest Coverage Ratio
  • Moderate - Distribution Margin
  • Slight Downtrend - Property Yield, Distribution on Capital

Relative Valuation

  • P/NAV - Higher than +2SD for 1y, 3y and 5y
  • Dividend Yield - Lowe than -2SD for 1y and 5y; Lower than -1SD for 3y

Author's Opinion

 Favorable Less Favorable
High REIT Sponsor's ShareholdingLow REIT Sponsor's Shareholding
High OccupancyHigh Top Property Contribution
Long WALEHigh Top Tenant & Top 10 Tenants Contribution
Low Cost of Debt 
High Fixed Rate Debt % 
100% Unsecured Debt 
Long WADE 
Well Spread Debt Maturity 
High Interest Coverage Ratio 
High Distribution on Capital 
High Distribution Margin 
DPU Uptrend 
NAV per Unit Uptrend 
Interest Coverage Ratio Uptrend

PLIFE fundamentals and performance are resilient and it has the lowest dividend yield among SREITs due to its share price appreciation. On 14 July, PLIFE has announced the proposed entry into the new master lease agreements with Parkway Hospitals Singapore Pte. Ltd.

PLIFE would provide renewal Capex through external borrowing for renovation and upgrading of Singapore hospitals which would take around 3 years to complete. The lease term would be extended to the 2042 end and increase the WALE to 16.6 years.
The DPU is expected to increase by 32.4% at the end of year 4 while NAV is expected to increase by 27% at the beginning of year 4. 

This early renewal arrangement is indeed positive news. PLIFE will seek unitholders' approval for this proposed transaction at EGM which is to be held in due time.


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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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