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 Singapore, the healthcare REIT owns three hospitals, namely, Gleneagles Hospital, Mount Elizabeth Hospital, and Parkway East Hospital.
Last week, the REIT announced its financial results for the second quarter ended 30 June 2019. Let’s look at five quick things to like about its latest earnings.
1. Higher gross revenue
For the second quarter, gross revenue grew 2.9% year-on-year, from S$28.1 million to S$28.9 million. The better performance was largely due to revenue contribution from the acquisitions in Japan in the first quarter of 2018, higher rent from the Singapore properties, and appreciation of the Japanese yen.
The rentals in Singapore include a built-in rental escalation, based on the consumer price index (CPI), a measure of inflation, and an addition of 1% (CPI + 1%). This feature guarantees a 1% growth in minimum rental yearly; in times of deflation, the CPI will be set at zero. This is a strong point that attracts me to the REIT.
2. Increase in net property income
With the higher gross revenue, net property income (NPI) increased by 2.3% to S$26.8 million, up from S$26.2 million a year back. NPI is the amount left after deducting property expenses. The REIT’s property expenses rose 10.7% to S$2.1 million for the quarter.
3. Growth in distribution per unit
Moving on, the total distributable income to unitholders climbed 2.6% to S$19.8 million. This amount is obtained after deducting cash retained for capital expenditure. Consequently, distribution per unit (DPU) went up by 2.6% from 3.19 Singapore cents to 3.27 Singapore cents.
Over the longer term, Parkway Life REIT’s DPU growth since its initial public offering (IPO) has been impressive:Source: Parkway Life REIT Q2 2019 investor presentation
4. Still conservatively financed
As of 30 June 2019, the REIT had a gearing ratio of 36.9%, below the regulatory limit of 45%. Parkway Life REIT has debt headroom of around S$100 million and S$280 million before reaching 40% and 45% gearing levels, respectively. This headroom gives the REIT leeway to increase its leverage to acquire more assets when needed.
The debt maturity profile is also well-staggered, with the weighted average term to maturity at 3.1 years. Meanwhile, the REIT’s effective all-in cost of debt stood at just 0.9%, and the interest coverage ratio was very healthy at 13.8 times.
5. Minimum guaranteed rental
For the 13th year of lease term starting from 23 August 2019 to 22 August 2020, the minimum guaranteed rent for the Singapore hospitals is set to increase by 1.61% over the total rent payable for the preceding year. This is based on the CPI + 1% formula.
The Foolish takeaway
It was once again a quarter that all went to plan for Parkway Life REIT as gross revenue, net property income, and DPU increased year-on-year. The long-term tailwind of higher demand for quality healthcare services should continue to propel the REIT forward. At Parkway Life REIT’s current unit price (as of the time of writing) of S$2.98, it has a price-to-book ratio of 1.6 and a distribution yield of 4.4%.
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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.