Should You Invest In Parkway Life REIT [Fundamental Analysis]

In this article, we'll be conducting a fundamental analysis of Parkway Life REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having a high degree of capital preservation ability.

Information Is Accurate Up To Nov 2023

Business Description

Parkway Life REIT is a Healthcare REIT that was listed in 2007 and owns 61 properties (3 Hospitals in Singapore, 57 Nursing Homes in Japan & 1 Specialist Clinic in Malaysia)

What I Like About Parkway Life REIT:

Management is able to grow the DPU sustainably without diluting their units in issue which is a remarkable feat in the space of REITs
Defensive industry with high downside protection to rental income
Overall portfolio’s WALE is high
Management has consistently generated yield accretive capital recycling efforts over the years and has a clear strategic direction

What I Do Not Like About Parkway Life REIT:

A good chunk of the revenue is subjected to foreign exchange risk (mainly Japanese Yen) which, while the demographic of future expansion/acquisition makes sense, brings about inevitable FX risks.

Updates From Recent Performance (Q3 2023)

General Comments:

DPU for the first 9 months had grown by 2.8% Y.O.Y as both gross revenue (+24.6% Y.O.Y) and Net Property Income (+26.2%) grew at the back of contributions from the five-nursing home acquired in Sept 2022
Financing costs doubled due to higher interest costs and from Singapore-denominated debt and additional funding of capex which is offset by the depreciation yen.

Positive Headwinds:

Contribution from an additional acquisition of 2 nursing homes that is expected to be completed in 2023 should take effect in the financial year 2024.

Negative Headwinds:

The recent depreciation of the Japanese yen in 2023 (-11% YTD) against SGD will cause a drag in distribution as a result of potential foreign exchange losses and also the fact that a good portion of the income is derived from Japan. That said, given that the management has had an FX hedging strategy in place and has forward positions till 1Q 2027 as a natural hedge against FX movements, it is yet to be seen how the FX effects will show on the P&L statements. (Be it in the form of higher cost of hedging or direct FX losses)

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- Work In Progress -

Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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