Since I first invested in Parkwaylife REIT in 2015, it has never disappointed me. Yes, it extends another year of un-interrupted DPU growth since its IPO. This is probably possible because they are operating in healthcare segment that benefitted from aging populations, and also the low interest rate in Japan over the past decade.
Not forgetting the strong management who is able to forge a good relationship with the sponsor and hence getting favourable terms for their master lease. How the REIT has performed over the past two years is also an indication of the management’s competency.
In spite of the renewal capex at Mount Elizabeth Hospital, the 87% jump in the finance cost, and depreciation of Japanese Yen, they still manage to eke out an increase in distributable amount and DPU.
So boring that it’s good
There’s little excitement in this investment though. Even when they did acquire new properties, it’s really hard to feel excited about having more nursing homes.
It’s not like retail malls, where I can visit and think “oh, I have a tiny stake in this”. Even if eventually I do reside in a nursing home, it is definitely not one of theirs in Japan! As for hospitals, looking at how my insurance premium will jump in not so far away future, I am likely to be priced out from theirs by the time I need it.
And of course there’s no dramatic merger, no default of occupants, and no steep drop in valuation of properties. So if you are looking to get your adrenaline pumped up, then you can skip this counter.
Think in years when investing in Parkwaylife REIT
The common grouse by many is that the yield from Parkwaylife is too low and it’s better off to just invest in T-bills and Singapore Savings Bonds. Short term, I don’t disagree with that. The 1-year T-bill interest rate last year was 3.87%, and investing in Parkwaylife at $4.06 then would only give a trailing yield of 3.54%!
However, if one thinks about this investment in years, then the picture will look different. In fact, the situation has reversed in one year! The latest rate of 1-year T-bill has dropped to 3.45% and the latest dividend from Parkwaylife would have given a cost yield of 3.64% (based on $4.06).
Going forward, T-bill’s rate is more likely continue to trend downwards, while dividend of Parkwaylife should continue to increase gradually. The icing comes from the likely jump in FY2026. If DPU hits the pro forma figure of 18.26 cents, then that will provide a cost yield of 4.50% (based on $4.06)
The current price makes the investment even more enticing! At $3.64, it’s trading at a yield of 4.1% and that will become 5% in FY2026!
What’s the risk?
It is still a business entity and faces common business risks. Besides that, interest rate in Japan might continue to increase and Japanese Yen might continue to depreciate.
Despite that, I am confident that the management is able to handle it. They have extended the Japanese Yen income hedge for another 2 years till 1Q 2029. Not forgetting the guaranteed rental for Singapore hospitals for the next few years. Hence the likelihood of it delivering is high.
I am definitely holding on to my current stake. I will consider adding more when a tranche of my T-bills matures in March.
Referral
These are the referral links for the services and platforms I used. If you would like to use any of them, do sign up my referral links.
Trust Bank (code: 1X9DDP1V, additional $10 Fairprice voucher)
Keppel Electric
FSMOne (code: P0003528)
StocksCafe (code: TFI)