Parkway Life REIT’s Japan Expansion: Will It Benefit Shareholders?

September 15, 2022

In Singapore, real estate investment trusts (REITs) are offering investors some shelter from stormy markets.

One popular and reliable REIT is healthcare-focused, Parkway Life REIT (SGX: C2PU).

It has just announced the acquisition of three nursing homes – Blue Terrace Kagura, Blue Rise Nopporo and Blue Terrace Taisetsu, in the Hokkaido region of Japan. The total purchase price is JPY 2.56 billion (S$26.1 million).

These facilities are operated by Blue Care Kabushiki Kaisha, a wholly-owned subsidiary of Living Platform, one of Parkway Life REIT’s existing nursing home operators in Japan.

The acquisition is also in line with Parkway life REIT’s strategy to acquire healthcare-related income producing assets.

According to the report, the deal is expected to be completed by the end of the third quarter of this year.

Acquisition will boost dividend

The expansion into Japan will likely boost earnings of Parkway Life REIT.

Based on the net income yield of 6.5%, this will boost earnings, allowing Parkway Life REIT to increase its dividend.

Currently, it is trading at a trailing dividend yield of 2.9%, which is at a premium when compared to the broader Singapore REIT market.

Parkway Life REIT’s Japan’s portfolio will expand to 32% of AUM

Upon the completion of the acquisition, Parkway Life REIT’s total assets under management (AUM) will increase to S$2.2 billion.

It will also bring Parkway Life REIT’s Japan portfolio to 55 properties, totalling around S$725.3 million in value. This translates into approximately 32% of the REIT’s total AUM.

Parkway Life REIT will also take over the existing lease agreements of the properties, which have 19 years left on their leases.

This will improve Parkway Life REIT’s weighted average lease expiry (WALE), by gross revenue, from 17.01 years to 17.05 years.

Yong Yean Chau, the chief executive of Parkway Life REIT’s manager, said:

“Against the backdrop of a COVID-19 impacted economy, Japan’s aged care market remains stable and resilient. The acquisition not only strengthens our presence in Japan, but also enhances our collaboration with our existing partner, Living Platform Group.”

Parkway Life REIT flexible to pursue inorganic growth

According to the management, Parkway Life REIT’s gearing ratio will rise from 32.5% as at end-June 2022, to 33.4% following the acquisition.

The increase is in line with the funding for the acquisition, which will be funded with JPY debt.

This provides a natural hedge for foreign exchange (FX) risks as earnings and assets are denominated in JPY.

With its robust balance sheet, Parkway life REIT is well positioned to tap funding for more inorganic growth opportunities.

REIT’s defensive income offers stability

In the current environment, investors are moving into dividend stocks given the rising interest rate environment.

I think investors looking for stability in their portfolio will like Parkway Life REIT for its defensive income structure.

With the expansion of its Japan footprint, this will provide new income streams that boost earnings and dividends.

Given its strong balance sheet and the funding structure of the three nursing homes, I believe that this will turn out to be a good acquisition for the REIT.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.

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