Parkway Life REIT (SGX: C2PU) is one of the largest listed healthcare real estate investment trusts in Asia by asset size. The REIT’s portfolio includes three private hospital properties in Singapore, 46 healthcare-related assets in Japan, and strata-titled units/lots in Gleneagles Intan Medical Centre in Malaysia.
The REIT recently caught my eye as its stock was trading close to a 52-week low; for context, its current stock price of S$2.61 is just 1.2% higher than the 52-week low of S$2.58. In this article, I want to share two reasons why I think Parkway Life REIT may be a good long-term investment.
Stable and growing earnings power
The first reason to like Parkway Life REIT is its stable and growing earnings power that comes from its ownership of healthcare properties that are leased to tenants under favourable terms.
In 2017, 60.4% of Parkway Life REIT’s total revenue came from its three Singapore hospitals. The hospitals operate under long-term master leases that are in effect until 2022, and that come with the option to extend till 2037. The master leases also have built-in rental escalation terms that are based on changes in the inflation rate in Singapore, as measured by the consumer price index (CPI). The REIT’s 46 properties in Japan accounted for 37.7% of its total revenue in 2017. These 46 properties are mainly nursing homes, and they have a weighted average lease-term of over 13 years. Moreover, these leases also come with down-side protection.
Having such long-term leases and favourable rental adjustment terms provides clear earnings visibility for Parkway Life REIT for the foreseeable future.
Track record of growth
One of the main reasons why REITs are popular investment vehicles in Singapore is because of their high dividend yields (technically, a REIT’s dividend is known as a distribution, but let’s not split hairs here!). REITs in Singapore are required to distribute 90% or more of their taxable income to their unitholders in order to not have to pay taxes. Thus, REIT investors enjoy their investment returns mainly in the form of the high income distributed by REITs.
And this brings me to Parkway Life REIT’s growth. Since its initial public offering in late 2007, the REIT’s DPU (distribution per unit) has grown at an annual rate of 6.9% between 2008 and 2017. In other words, Parkway Life REIT’s investors have been enjoying a growing stream of income over the years.
A Foolish conclusion
Parkway Life REIT has strong earnings power stemming from the favourable lease structures that its properties have (such as inflation-linked rental escalation terms). It also has a strong track record of growing its DPU. These two traits suggest that Parkway Life REIT may be a good long-term investment.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation for Parkway Life REIT.