Parkway Life REIT (SGX: C2PU) is a healthcare real estate investment trust (REIT) with a portfolio of 50 properties in Singapore, Japan and Malaysia. In our city-state, the REIT owns three hospitals, namely, Gleneagles Hospital, Mount Elizabeth Hospital, and Parkway East Hospital.
In a two-part series, I want to discuss three aspects of Parkway Life REIT that investors should like. Let’s look at the first aspect in this article, with the remaining two factors to come in a future article.
Factor 1: Favourable leases
In 2017, Singapore contributed to 60.4% of Parkway Life REIT’s gross revenue, with Japan taking up 39.1% and Malaysia filling up the remaining 0.5%.
The REIT’s Singapore properties are master-leased to Parkway Hospitals Singapore Pte Ltd, a wholly-owned subsidiary of Parkway Pantai Limited, the largest private healthcare operator in Singapore. Parkway Pantai, in turn, is a subsidiary of IHH Healthcare Bhd (SGX: Q0F), the world’s second largest healthcare group by market capitalisation.
The master leases on Parkway Life REIT’s Singapore properties started in 2007, have long initial lease terms of 15 years (meaning that the leases are ending on 2022), and an option to extend the lease terms for another 15 years. The lease arrangement is on a triple-net basis, so Parkway Life REIT does not have to bear any property taxes, property insurance costs (with the exception of property damage insurance for Parkway East Hospital), and property operating expenses.
Rental escalation terms are also built into the master-leases, and the step-ups are based on Singapore’s consumer price index (CPI), which is a measure of inflation. The rental escalation terms also guarantee minimum annual rent increases of 1%.
As for the Japan properties (of which Parkway Life REIT has 46), they are all single-tenanted. The weighted average lease term to expiry is 12.64 years, as of 30 September 2018. Most of the REIT’s properties in Japan have an “up only” rental structure, meaning the rentals received by Parkway Life REIT can only go up.
This brings us to the end of the first part. Stay tuned for the second part of this series which will be published in the next few days. [Editor’s note: The second part of the series has been published and it can be found here.]
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of Parkway Life REIT. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.