Parkway Life REIT (SGX: C2PU) is one of Asia’s largest healthcare REITs by asset size. Its portfolio consists of 50 properties with a portfolio size of approximately S$1.86 billion as of 31 March 2019, spread across Singapore (4 properties), Japan (46 properties), and Malaysia (1 property).
There are only two listed healthcare REITs on SGX: First REIT (SGX: AQ9U) and Parkway. Healthcare is a recession-proof industry with consistent demand, which is why the assets within healthcare REITs (usually hospitals or nursing homes) see very high utilisation rates.
Here are four ways Parkway has shown itself to be a high-quality REIT.
1. Strong master lessee
Parkway has a master lease arrangement for its three Singapore hospitals with Parkway Hospitals Singapore Pte Ltd, which is a wholly-owned subsidiary of Parkway Pantai Limited. Parkway Pantai is the largest healthcare operator in Singapore and a key regional healthcare player. Thus, investors can rest assured that these hospitals are managed efficiently and professionally.
2. Very low cost of debt
Parkway has a very low cost of debt, at 0.91% (refinanced down from 0.97%), as the bulk of its debt is denominated in JPY (which charges very low rates). This is beneficial for the REIT as it is able to generate increased net property income and distributable income (up 2.2% and 3.5% year on year, respectively) which exceeds the cost of debt. This is also a testament to the high-quality assets within the portfolio (which act as collateral), which is why the bank is willing to lend at attractive rates.
3. Consistently higher DPU
The REIT has an enviable track record of uninterrupted increases in distribution per unit (DPU) since its IPO in 2007.
Source: Parkway Life REIT’s Q1 2019 Presentation Slides
Due to its high-quality portfolio of healthcare assets, positive rental reversions, and opportunistic acquisitions, Parkway has managed to grow its DPU continuously. For Q1 2019, the DPU of 3.28 Singapore cents represents an annualised DPU of 13.12 Singapore cents. At the last traded price of S$3.05, the trailing dividend yield was 4.3%.
4. “Up only” rent review provision
For the REIT’s Japanese assets, there is an “up only” rent review provision, such that rental rates can only either go up or remain flat, but they cannot be adjusted downwards. This protects the REIT from instances where rental reversions may be linked to the consumer price index, which may be negative in Japan’s case.
Out of the 46 properties, 37 have market revision with downside protection, while another 7 have revisions every 2 to 3 years subject to mutual lessor/lessee agreement.
The Foolish takeaway
The evidence above shows that Parkway is a solid REIT to invest in. With recession-resistant assets in an industry that sees consistent demand, investors should be able to sleep peacefully knowing that their money is in safe hands.
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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 the shares of Parkway Life REIT and First REIT. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.