Seventeen years. That’s the remarkable length of Parkway Life REIT‘s (SGX: C2PU), or PLife’s, consistent core distribution per unit (DPU) growth.
This impressive streak wasn’t accidental but the result of careful planning by an astute management team, a trend that appears likely to extend for at least the next two years.
The REIT recently announced a 1.3% year-on-year (YOY) increase in its DPU to S$0.0384 for 1Q 2025. Looking ahead, barring unforeseen circumstances, the DPU for FY 2025 is projected to exceed S$0.15.
Further bolstering this growth is the anticipated completion of Project Renaissance by 4Q 2025, which is estimated to drive Singapore Hospitals rental income up by over 24% to S$99 million in FY 2026.
However, with PLife’s share price already appreciating by nearly 13% year-to-date (YTD), the question arises: is it still a worthwhile investment?
To answer this, let’s first explore the factors underpinning its consistent growth and then assess its investment appeal moving forward.
Strong demand for Singapore quality healthcare
A significant contributor to PLife’s stability is its Singapore portfolio, comprising Mount Elizabeth Hospital Property, Gleneagles Hospital Property, and Parkway East Hospital Property.
These assets contribute nearly 65% of the REIT’s gross revenue, providing a reliable long-term rental income stream.
This stability is further enhanced by the renewed master lease with its sponsor, IHH Healthcare Berhad (SGX: Q0F), which extends until 2042 with an option for another ten-year renewal. The lease includes an annual rent review formula guaranteeing at least a 1% increase over the previous year.
While this guaranteed increase is favourable, it naturally leads to the question of whether IHH can sustain these rising rental costs.
For the time being, the outlook seems positive.
During PLife’s recent AGM, IHH CEO Dr Peter Chow noted the continued strong demand, with 20-30% of their patient load originating from regional markets.
He highlighted that the quality of Singapore’s medical services attracts these international patients, even without insurance coverage, and mentioned ongoing efforts to collaborate with Indonesian insurers for differentiated coverage.
Addressing the potential sale of Mount Elizabeth Novena, IHH Group CEO Dr Prem Kumar Nair stated that IHH is not in a rush due to its strong cash flow.
Consequently, PLife appears well-positioned to continue benefiting from sustainable and quality rental growth in its Singapore portfolio for the foreseeable future.
Stable return from Japan nursing homes
PLife’s diversification into Japan’s nursing home sector began during the Great Financial Crisis in 2008, with the acquisition of ten properties. CEO Yong Yean Chau recalled that the initial capitalisation rate for these acquisitions was above 8%.
Today, PLife’s Japan portfolio has grown to sixty nursing homes, demonstrating their extensive experience in navigating the Japanese market.
CFO Loo Hock Leong outlined PLife’s robust risk management strategies in Japan.
- On average, PLife collects 4 months of security deposits.
- Arrangement with back-up operators for most properties
- Actively monitor the credits of the operators
- Intent to set up a Japanese office for even closer monitoring
These measures proved effective in managing the rental default of operator KK MCS for two nursing home properties (Sanko and Kikuya Warakuen) last year.
Yean Chau shared that while the smaller operators are struggling, nursing home operations in Japan are profitable. With its mature market of more than 3000 operators, they can secure a new operator quick enough.
He contrasted this with the less mature markets of Singapore and Malaysia, where finding replacement operators would be significantly more difficult, explaining PLife’s decision not to invest in nursing homes in these countries.
Regarding the significant depreciation of the Japanese Yen (JPY) , PLife’s management stated they have managed this risk effectively.
Principal forex risk is mitigated by funding JPY acquisitions with JPY loans and synthetic JPY loans. Income forex risks are hedged through net income hedges extending until 1Q 2029.
Despite this active management, the inherent forex exchange risk associated with the JPY was also a factor driving PLife’s decision to further diversify its portfolio by entering a third market: French nursing homes.
Learning about French nursing homes
Yean Chau shared that PLife secured an attractive deal for their French nursing home acquisitions, achieving a capitalisation rate of 6.5%.
Furthermore, the leases include indexed rent escalation: 3.5% for the first three years and CPI-linked increases for the remaining 12-year term.
Management believes this advantageous entry was possible because the operator, DomusVi, faced cash flow pressures stemming from rapid expansion coinciding with a swift increase in interest rates.
He further shared that after the acquisition, the capitalisation rate in the market has dropped to around 5%.
PLife is approaching this new venture cautiously, prioritizing learning about the French market over rapid expansion in the next one to two years.
Demonstrating a consistent risk management approach, they have secured five months of deposit security for their French properties and have hedged their income until 1Q 2030.
Is PLife worth the price?
Without a doubt, PLife is a resilient REIT with a strong track record and a positive outlook for the coming years.
However, at a share price of S$4.22, its trailing dividend yield stands at only 3.5%. If the FY 2026 DPU can reach S$0.18, the yield would improve to around 4.3%, two years later.
While this yield might not appeal, it still compares favourably to the average 10-year interest rate of 2.56% for the latest issue of Singapore Savings Bonds.
Of course, it’s crucial to remember that both the invested principal and DPU are not guaranteed.
For me, PLife has become the second-largest holding in my portfolio after increasing my stake over the past two years. As such, I will just maintain my position and enjoy the the investment’s returns.
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