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Buy. Across the REIT sector, Fitch Ratings has highlighted that the strong performance of healthcare S-REITs, supported by an inelastic demand for healthcare services and an ageing population in Asia, is likely to continue in 2016 & beyond.
ALP INVESTMENT CLUB
ParkwayLife Reit (C2PU)
(15 Dec 2016) close price: S$2.38
12M-Target price: S$2.45
Distribution Yield: 4.87%
1.) Type of Reit: Healthcare REIT
2.) Number of property in the portfolio:
- 3 strategically-located world-class local private hospitals in Singapore.
- 43 high quality healthcare properties in Japan.
- 1 healthcare property in Malaysia.
3.) Countries that the business operates in:
4.) Top 3 properties that generates the highest revenue (Decreasing order):
- Mount Elizabeth Hospital
- Gleneagles Hospital
- Parkway East Hospital
5.) Weighted average lease expiry (WALE) profile:
Defensive lease structure with WALE of 9.12 years.
6.) Debt maturity profile:
While Singapore remains popular for high-end treatment, neighbor Malaysia’s market for medical tourism has nearly doubled since 2010. Hence, since the main bulk of the Reit’s revenue comes from Singapore, Malaysia might pose a considerable risk to Singapore in terms of decreasing market shares. Hence, Plife REIT might want to establish connections and foster collaboration among healthcare players in Malaysia, Singapore and Japan.
Plife REIT derives around 40% of its earnings from its healthcare assets in Japan. Thus, foreign exchange volatility could hit earnings as distributions are based on SGD. However, we note that the trust has conservatively hedged its foreign income exposures on a long-term basis.
Optimism returns for acquisition opportunities in Japan. We continue to see positive growth momentum for Plife REIT from its Japan asset recycling strategy. Management continues to look for acquisition opportunities to bulk up its exposure in Japan. Given a relatively low gearing ratio of around 35%, we see opportunities to expand via debt-funded acquisitions.
In addition, the rise of ageing population in Japan could spurred the growth of the Reit.
9.) Significant events:
- Announced the acquisition of 4 nursing homes and 1 group home in Japan on 16 March 2015.
The Properties are:
1.) Habitation Hakata I, II, III located at Fukuoka City, Fukuoka Prefecture
2.) Excellent Tenpaku Garden Hills located at Nagoya City, Aichi Prefecture
3.) Liverari Shiroishi Hana Ichigo-kan1 located at Sapporo City, Hokkaido Prefecture
4.) Liverari Shiroishi Hana Nigo-kan2 located at Sapporo City, Hokkaido Prefecture
5.) Liverari Misono3 located at Sapporo City, Hokkaido Prefecture.
The Weighted Average Lease Term to Expiry as at 31 December 2015 for these five new leases is 18.08 years.
11.) Recommendation: Buy. Across the REIT sector, Fitch Ratings has highlighted that the strong performance of healthcare S-REITs, supported by an inelastic demand for healthcare services and an ageing population in Asia, is likely to continue in 2016 & beyond. In addition, we think that PLife REIT will remain stable and continue to generate stable cash flow from its portfolio, supported by its strong balance sheet, favourable lease structures and excellent financial flexibility.
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
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