In a financial climate overshadowed by rising interest rates and persistent global inflationary pressure, investors are turning their focus to potential safe havens.
The burning question on everyone’s mind is: How will S-REIT giants – like healthcare-focused Parkway Life REIT (SGX: C2PU) – fare in these turbulent waters?
Well, Singapore dividend and REIT fans should dive in as I uncover the big highlights from Parkway Life REIT’s earnings for H1 FY2023.
1. Steady growth in DPU
One of the key factors that investors look at when investing in S-REITs is the distribution per unit (DPU).
During H1 FY2023, Parkway Life REIT reported a DPU of 7.29 Singapore cents, marking an impressive 3.3% increase from the 7.06 Singapore cents in the corresponding period a year ago.
This underscores not only the REIT’s consistent value creation for its unitholders but also its ability to leverage its assets effectively.
2. Driving the DPU uptrend
Two major factors drove DPU growth for Parkway Life REIT. These were:
- The strategic acquisition of five nursing homes in Japan in September 2022
- Augmented rents from properties situated in Singapore that boosted earnings
The acquisition in Japan reflects the REIT’s proactive approach to diversifying its revenue streams.
However, one cannot overlook the influence of external dynamics, such as the depreciation of the Japanese Yen that marginally dampened its growth.
This is a reminder for investors of the multifaceted nature and risks of international real estate investments.
3. Strong revenue and NPI growth
Parkway Life REIT’s operational efficacy shines through in its gross revenue, which touched S$74.4 million, registering a substantial year-on-year surge of 23.6%.
The healthcare REIT’s Net Property Income (NPI), a critical metric in real estate investments, also showed strong performance. It climbed by 25.1% year-on-year to sit comfortably at S$70.1 million.
4. Quality portfolio with occupancy rate close to 100%
Parkway Life REIT is Asia’s largest listed healthcare REIT and invests in income-producing real estate and real estate-related assets that are being used for healthcare or healthcare-related purpose.
As of 30 June 2023, Parkway Life REIT’s total portfolio size stood at 61 properties totalling approximately S$2.20 billion.
In terms of occupancy, Parkway Life REIT registered a near-absolute occupancy rate of 99.7%.
With properties in both Singapore and Japan enjoying full occupancy, the REIT evidently offers attractive assets in key markets.
However, Parkway Life REIT’s medical centre in Malaysia only has an occupancy rate of around 31%.
This will be a potential growth area going forward.
Furthermore, with a portfolio weighted average lease expiry (WALE) of 16.69 years, this indicates stable long-term commitments from its lessees.
5. Strategic growth area and foreign exchange hedge
Parkway Life REIT is in a strategic position to harness growth in Asia Pacific’s healthcare sector, given the rising demands of ageing populations.
With a prudent gearing ratio of 35.3% and a robust interest coverage ratio (ICR) of 13.8x, the REIT’s fiscal position is also in a healthy position.
The coffers are also well-padded with cash and equivalents to the tune of S$32.1 million.
This allows Parkway Life REIT to tap opportunities to expand its portfolio through a multi-pronged growth platform.
Among some of these include leveraging on its first mover advantage and strong network in Japan for expansion, building a third key market to enhance growth in the mid to long term, as well as through strategic partnerships.
On another note, the REIT manager has adopted a natural hedge for its Japanese investments to ensure a steady net asset value (NAV).
To further combat the Yen’s fluctuations, forward exchange contracts have been initiated, stretching out till Q1 FY2027. That means that distributions to unitholders have extremely strong visibility.
6. Resilient and decent distribution yield
Parkway Life REIT’s distributable income, essentially the portion available for unitholders, amounted to S$44.1 million, marking a 3.3% rise year-on-year.
This translates into an annual distribution yield of around 3.7%.
Resilient earnings despite current challenges and strong growth potential
The H1 FY2023 earnings narrative for Parkway Life REIT paints a story of a REIT that has managed to grow its revenue, property income and DPU despite the rising interest rate environment, rising cost and slowing economy.
Beyond its current state, Parkway Life REIT is poised for sustained growth over the long haul.
Factors propelling this optimism include the surging demand within the healthcare sector, an increasingly ageing population, and premium assets in the Asia Pacific region.
This robust potential is further echoed by the REIT’s impressive portfolio occupancy.
With more S-REITs reporting declines in DPU, the ability of Parkway Life REIT to increase its DPU in this environment should attract investors’ interest.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
