Is Parkway Life REIT's (SGX: C2PU) Share Price of S$3.57 a Buy?
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Is Parkway Life REIT's (SGX: C2PU) Share Price of S$3.57 a Buy?

Sudhan P
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Parkway Life REIT‘s (SGX: C2PU) share price (technically known as unit price for REITs) right now is at S$3.57. 

At that unit price, Parkway Life REIT is valued at a price-to-book (PB) ratio of 1.8 and has a distribution yield of 3.7%. 

Would I be investing in this REIT even though it looks expensive at a glance? 

Let’s explore using my 10-step guide to pick the best Singapore REITs.

How to pick the best REITs

As a summary, here are the 10 steps I use to pick the best Singapore REITs:

  1. Growth in Gross Revenue and Net Property Income
  2. Growth in Distribution Per Unit
  3. Property Yield of Between 5% and 9%
  4. Gearing Ratio of Below 40%
  5. Interest Coverage Ratio of Above 5x
  6. Healthy Portfolio Occupancy Rate
  7. Positive Rental Reversions
  8. Presence of Growth Prospects
  9. Acceptable Price-to-Book Ratio
  10. Distribution Yield of Above 5%

Business Background

Before we start analysing Parkway Life REIT, let’s find out what its business is about.

Parkway Life REIT is one of Asia’s largest listed healthcare REITs. It owns 53 properties in total in Singapore, Japan, and Malaysia. In Singapore, Parkway Life REIT has Mount Elizabeth Hospital, Gleneagles Hospital, and Parkway East Hospital under its umbrella.

Parkway Life REIT portfolio (as of 31 Dec 2019)
Source: Parkway Life REIT earnings presentation

One key highlight of this particular REIT is that it’s plugged into the fast-growing healthcare industry in this part of the world.

Gross Revenue and Net Property Income (NPI) Check

Check for: Increasing gross revenue and NPI

Parkway Life REIT has a financial year that ends on 31 December each year. The REIT just announced its 2019 earnings results on 22 January 2020.

The following table shows how Parkway Life REIT’s gross revenue and NPI have been over the last five years:

 20152016201720182019Compound Annual Growth Rate (CAGR)
Gross revenue
(S$' million)
102.7110.1109.9112.8115.22.9%
Net property income
(S$' million)
96.0102.4102.6105.4108.23.0%

The gross revenue has an overall increase (with a small shortfall in 2017), and the NPI has grown steadily from 2015 to 2019.

In this aspect, Parkway Life REIT passes this criterion.

Verdict: Pass

2. Distribution Per Unit (DPU) Check

Check for: Increasing DPU

Along with the growth in gross revenue and NPI, DPU (excluding one-off divestment gains) has stepped up over the years as well.

 20152016201720182019CAGR
Distribution per unit (Singapore cents)
11.7912.1212.46 12.8713.192.8%

Over the longer term since the REIT’s IPO in 2007, DPU has also climbed consistently.

Parkway Life REIT DPU since 2007
Source: Parkway Life REIT earnings presentation

Verdict: Pass

3. Property Yield Check 

Check for: Property yield of between 5% and 9%

Next up, let’s look at Parkway Life REIT’s property yield.

For 2019, Parkway Life REIT had an NPI of S$108.2 million while its valuation of investment properties stood at S$1.96 billion. This translates to a property yield of 5.5%, which meets my criterion. 

Verdict: Pass

4. Gearing Ratio Check

Check for: Gearing ratio below 40%

As of 31 December 2019, Parkway Life REIT had a gearing ratio of 37.1%, which is acceptable.

Parkway Life REIT gearing ratio (as of 31 Dec 2019)
Source: Parkway Life REIT earnings presentation

It still has debt headroom of S$95.5 million before hitting my threshold of 40% and S$286.3 million before hitting the regulatory limit of 45%.

Verdict: Pass

5. Interest Coverage Ratio Check

Check for: Interest coverage ratio above 5 times

Parkway Life REIT’s interest coverage ratio, as of end-2019, stood at around 14x, which is more than twice my threshold of 5x.

Parkway Life REIT interest cover ratio (as of 31 Dec 2019)
Source: Parkway Life REIT earnings presentation

Verdict: Pass

6. Portfolio Occupancy Rate Check

Check for: Healthy portfolio occupancy rate

Parkway Life REIT enjoyed healthy portfolio occupancy rates in 2019.

As of 31 December 2019, the committed occupancy for the Singapore and Japan portfolio was 100%.

The committed occupancy for Parkway Life REIT’s sole Malaysian medical centre stood at a dismal 31%. The low occupancy was due to expiry of an existing lease in February 2019. However, it should be noted that the Malaysian property only contributed 0.3% of Parkway Life REIT’s 2019 gross revenue. 

Parkway Life REIT’s overall portfolio occupancy of 99.7%, though, is a resounding pass. 

Parkway Life REIT portfolio occupancy (as of 31 Dec 2019)
Source: Parkway Life REIT earnings presentation

Verdict: Pass

7. Rental Reversion Check

Check for: Positive rental reversions

The Singapore properties contribute to the majority of Parkway Life REIT’s gross revenue. The hospitals’ rentals include a built-in rental escalation, based on the consumer price index (CPI), a measure of inflation. This feature guarantees a 1% growth in minimum rental each year.

Parkway Life REIT Singapore properties rental structure
Source: Parkway Life REIT earnings presentation

As for the Japan properties, most of the assets have an “up only” rental structure, meaning that rentals only have one way to go, which is up.

Parkway Life REIT Japan properties rental structure
Source: Parkway Life REIT earnings presentation

The regular rental reversion also provides Parkway Life REIT with a growing income stream as seen under point 1.

Verdict: Pass

8. Growth Prospects Check

Parkway Life REIT can benefit from the fast-growing healthcare sector in the Asia-Pacific region, which is driven by ageing population and demand for quality healthcare and aged care services. 

In Japan, particularly, one in three Japanese are projected to be above 65 years old by 2050. These folks would need quality care, which Parkway Life REIT’s nursing homes can provide.

Verdict: Pass

9. Price-to-Book Ratio Check

Check for: Acceptable price-to-book ratio 

At Parkway Life REIT’s current unit price of S$3.57, it has a PB ratio of 1.8.

Over the past five years, its average PB ratio stood at around 1.5x.

At 1.8 times its historical book value, which is 20% above the average, Parkway Life REIT looks expensive right now. 

Verdict: Fail

10. Distribution Yield Check

Check for: Distribution yield to be above 5% 

At Parkway Life REIT’s current unit price of S$3.57, it has a distribution yield of 3.7%, which is not attractive enough for me. 

Verdict: Fail

The Final Verdict

Parkway Life REIT has a final score of 8/10.

The REIT ticks many of the right boxes. Some of the investment merits are its: 

  • Strong historical growth in gross revenue, NPI, and DPU;
  • Attractive lease terms;
  • Healthy balance sheet; and
  • Tailwinds for long-term growth.

However, I’m not comfortable with the REIT’s high PB ratio and low distribution yield to invest in it, even though some would be willing to pay up for a quality REIT. 

Therefore, I’m putting Parkway Life REIT on my watchlist, and it’s something I’ll be closely watching in 2020.

Would You Invest In Parkway Life REIT?

Come discuss your thoughts and more in our Seedly Community under a page specifically dedicated to Parkway Life REIT (SGX: C2PU).

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. 

REITs Tool

About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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