Tuesday, 11 April 2017

ParkwayLife Reit - Stability in tough market conditions

I mentioned that I have 3 REITs in my portfolio and ParkwayLife Reit (PLife) is the second to be shared over this space.
I personally like stocks that fit this profile

  • Little fluctuation in price
  • Stable earnings 
  • Pay decent dividends yearly 
On my numbers app, PLife is highlighted Golden. I rate Golden stocks as stocks that I do not mind doing Dollar Cost Averaging and will also accumulate more if the price dips.

The Healthcare sector, in my opinion, is an evergreen industry. the 4 stages of life, 生 - Birth, 老 - Aging, 病- Sickness, 死 - Death revolves around usage of heath care. As long as there's life, health care is part and parcel. With higher life expectancy to be expected, it further increase the demand for health care.

Some additional information with regards to PLife that are extracted from their annual report for FY 2016.

  • There is no immediate long-term loan refinancing needs till 2019
  • Post refinancing exercise in January 2017, life rent's weighted average debt term to maturity improved from 3.2 years to 3.6 years with no significant amount of loan due in any single year.
  • Healthy gearing at 36.3%
  • Low all in cost of debt at 1.4%

PLife core markets are in Singapore (62.4%) and Japan (37.3%), with 0.3% going to Malaysia.

For Singapore side, it consists of 3 strategically located world class local private hospitals. A growing concern that was in the limelight recently was the lease of HDB. I'm glad to say that the leases for the 3 Singapore Hospitals will not be facing this issue for at least half a century.

  • Mount Elizabeth Hospital (Balance 58 years)
  • Gleneagles Hospital (Balance 66 years)
  • Parkway East Hospital (Balance 66 years)

Quoted from the annual report:
Distinct features of our Singapore Hospital
Long-term Master Leases with Parkway Hospitals Singapore Pte Ltd
  • 15 + 15 years with effect from 23 August 2007
  • 100% Committed occupancy
Triple Net Lease Arrangements
  • PLife Reit does not bear these cost: property tax, property insurance, property operating expenses
  • Minimal exposure to escalating operating expenses
Favourable Lease Structure
  • CPI + 1% rent review formula for Singapore Hospital Properties guaranties minimum 1% growth annually (CPI deemed as zero if it is negative)
Ultimately, PLife is still a REIT and having 100% committed occupancy means that it is being leased out at full capacity.

For the Japan Side, in March 2016 PLife acquired another nursing home property, Silver Heights Hitsujigaoka (Ichibankan & Nibankan) in the Hokkaido Prefecture for JPY 1.1billion (Approx $13.6m SGD) which comes fresh on 20 year master lease.

Other than 1 Japan Property, all others are freehold in nature. PLife had done an excellent job in capital recycling with regards to their Japan nursing home. This probably is earned through their first mover advantage as well as vast experience accumulated over the years and is a competitive advantage for them that competitors will find it hard to replicate.

There are some concerns for the REIT though.

Quoted from the annual report:

Despite Singapore's healthcare facilities still being widely recognised for its high quality by its neighbours, the soaring healthcare costs in the country has led to a decline in tourist treatment receipts since 2012
As cost competitive neighbouring countries such as Malaysia invest considerable funds in upgrading their own facilities to meet increasing demand, this could potentially have a negative impact on medical tourism in Singapore in the longer run
Furthermore, there will be an increase in private hospital with the development of Raffles Hospital new wing. 
PLife is currently being traded at a premium as compared to their NAV. This is also helped with the seemingly revival of the S-REIT sector. With low cost of debt and low gearing ratio, there is headroom for further expansion. I intend to keep PLife for a long time and might do a yearly DCA to increase my position further if it shows no sign of dips.

Disclaimer: I'm currently vested in PLife Reit. The above information are based on my limited understanding and does not constitute a buy or sell call. Always do your own due diligence before taking any actions.