Parkway Life REIT Delivers Strong Results Amidst Economic Headwinds – Is It A Smart Investment Move?

November 2, 2023

In the volatile and uncertain macroeconomic environment, Parkway Life REIT (SGX: C2PU) stands out with its resilience and growth story. As one of the leading healthcare REITs in Asia, Parkway Life REIT’s portfolio now encompasses 61 prime assets, collectively valued at S$2.2 billion as of 30 June 2023.

The Q3 2023 earnings updates articulate a story of resilience and strategic foresight, underscoring the REIT’s robust position in a sector that demands both stability and agility. Here are some key highlights from its latest earnings.

1. Solid growth amid economic headwinds

Despite global economic tremors and a challenging currency environment, Parkway Life REIT has delivered growth that keeps investors’ aspirations on track. During the first nine months of FY2023 (9M2023), the REIT reported a 24.6% year-on-year (yoy) growth in its gross revenue. The growth was largely fuelled by enhanced rental income from its Singapore hospitals and the strategic acquisition of five Japan nursing homes in 2022.

2. Hedging strategy offset the impact of the Japanese yen’s weakness

Despite strong revenue growth, Parkway Life REIT reported a slight dip of 2.1% in its total return after tax before distribution to S$69.7 million. This was mainly due to the depreciation of the Japanese yen amid its expansion into Japan.

The management, however, highlighted the effective foreign exchange (forex) risk mitigation in place with Japan acquisitions fully funded in Yen, providing a natural hedge. Aside from that, income forex risk has been strategically hedged til Q1 2027, complemented by a 74% hedge on interest rate exposure.

3. Consistent return through its DPU

Parkway Life REIT reported an increase of 2.8% in its distribution per unit (DPU) to 10.99 cents for 9M2023 as compared to a year ago despite the challenging market environment, marked by rising interest rates and escalating costs.

At its current level, the forward dividend yield stood at an attractive level of around 4.4%.

4. Singapore’s revenue surge

Zoom in on Singapore, PREIT’s revenue powerhouse, where a significant rise in rents under a new 20-year lease agreement has led to a substantial 43.2% jump in revenue. This growth reflects the strategic depth of PREIT’s domestic market operations and its robust asset base.

5. Strong balance sheet

With a solid financial foundation, Parkway Life REIT is well-positioned to seize expansion opportunities. As of Q3 2023, the REIT maintained a gearing ratio of 36%, demonstrating a balanced approach to leveraging. Notably, its interest coverage ratio stood at an impressive 12.8x, the highest among Singapore-listed REITs, signalling strong earnings relative to interest obligations. Despite a slight increase in all-in interest cost to 1.32% from the previous quarter, its financial metrics remain robust.

6. Strategic acquisitions for future gains

The recent acquisition of two additional nursing homes in Osaka in October 2023 slightly nudged the REIT’s aggregate leverage to 36.5%. Nevertheless, this remains within a conservative range, affirming the REIT’s capacity to pursue further strategic acquisitions. This modest increase in leverage is viewed as a calculated step towards fostering growth in Parkway Life REIT’s established markets in Singapore and Japan and potentially venturing into a new strategic market, thereby promising to amplify its long-term growth potential.

Add Parkway Life REIT into your portfolio for steady growth

In summary, Parkway Life REIT emerges as a robust investment choice, underpinned by strategic growth and a solid financial footing amidst economic turbulence. The REIT’s adept management of forex risks, consistent DPU performance, and prudent acquisitions, particularly in Japan, exemplify its commitment to delivering value. With healthcare assets providing a defensive edge, Parkway Life REIT is well-positioned to offer investors a harmonious blend of stability and potential for long-term capital appreciation, making it an attractive addition to any investment portfolio.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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