Parkway Life Reit is a healthcare Reit listed in SGX. Following is an extract about the Reit from its website http://www.plifereit.com:
"Parkway Life REIT is Asia's largest healthcare REIT. Listed on the Singapore Exchange in August 2007, Parkway Life REIT invests in income producing real estate or real estate related assets in the Asia Pacific region (including Singapore) that are used primarily for healthcare and/or healthcare-related purposes.
Parkway Life REIT aims to deliver regular and stable distributions and achieve long term growth for Unitholders."
The Sponsor
The sponsor of Parkway Life Reit is Parkway Holdings, also listed in SGX. Following is an extract about the Parkway Holdings from its website http://www.parkwayhealth.com:
"Parkway Holdings Limited, listed on the Singapore Stock Exchange since 1975, is one of the region's leading providers of healthcare services, with a network of 16 hospitals with more than 3,400 beds throughout Asia, including Singapore, Malaysia, Brunei, India and China. In Singapore, the Group owns Parkway Group Healthcare Pte Ltd and Parkway Hospitals Singapore Pte Ltd, which operates three of Singapore's premier healthcare providers: East Shore, Gleneagles and Mount Elizabeth Hospitals. The Group also owns Parkway Shenton Pte Ltd, a major provider of primary healthcare services; Medi-Rad Associates Ltd, a leading radiology services provider; and Parkway Laboratory Services Ltd, a major provider of laboratory services. In addition, Parkway Trust Management Limited provides management services to Parkway Life REIT, while Parkway Education Pte Ltd offers healthcare education through Parkway College of Nursing and Allied Health. The Group also operates 39 ParkwayHealth Patient Assistance Centres (PPAC) across the globe."
The Reit has a rights of first refusal agreement with its Sponsor over the sales of healthcare or healthcare-related assets in the Asia-Pacific region.
The Master Lessee
Parkway Life Reit is rather unique among the S-Reits in having its sponsor as its master lessee of the main bulk of its properties (all the 3 Singapore Hospital Properties). This may be viewed as a disadvantage or even a risk in terms of lack of tenant diversification from the point of view of the Reit. On the other hand, it is precisely this locked-in long term master leases which has helped to ensure 100% committed occupancy for the properties with a guaranteed constant revenue stream. Anyway this should not be a concern as long as Parkway Holdings has no issue with its operations, and currently there is no reason to think so. One of the major shareholders of Parkway Holdings is Khazanah Nasional (about 23% stake, the second largest after TPG Capital), the sovereign wealth fund of the Government of Malaysia.
The Asset Portfolio
The Reit started off with 3 hospital properties in Singapore, namely Mount Elizabeth Hospital, Gleneagles Hospital, and East Shore Hospital when it was listed in 2007. In 2008, it started to have overseas presence by acquiring 1 pharmaceutical facility and 9 nursing homes in Japan. Recently in Dec 2009, it has acquired another 8 nursing homes in Japan. So currently its total portfolio consists of 3 hospitals in Singapore, 17 nursing homes and 1 pharmaceutical facility in Japan. As at 31 Dec 09, approximately 71% of the Reit's gross revenue is derived from the Singapore Hospital Properties. So the main bulk of the rental income of the Reit is still from Singapore.
To date the Reit has not raised any funds by way of equity, whether by rights issue or private placement. The acquisitions of all the Japanese properties have been funded by debt, and this has progressively raised its gearing to 27.4%, with a total asset value of about S$1.1 billion. With a corporate rating of BBB+ by Fitch, the Reit can potentially gear up to 60%.
Inflation Hedge
The Singapore Hospital Properties of the Reit have a unique lease structure
that ensures a minimum guaranteed rental revenue growth pegged to CPI + 1%. CPI denotes the % increase in the Consumer Price Index announced by the Department of Statistic of Singapore for the relevant year compared to the immediately preceding year, computed on a 12-month average basis from July to June of the following year. Following is the related section about this taken from the Reit's IPO prospectus:
"Under each Master Lease Agreement, Parkway Life REIT will be entitled to receive from the Master Lessee, for the duration of the term of the Master Lease Agreement, rental payment, comprising a base rent and a variable rent. The aggregate rent for the Properties shall be the higher of the following:
(a) an annual base rent of S$30.0 million and a variable rent of 3.8% of the
Master Lessee’s Adjusted Hospital Revenue for the current financial year; or
(b) {1 + (CPI + 1.0%)} x the total rent payable for the immediate preceding year,
provided that the rental for the Financial Year ending 31 December 2007 shall be at least S$45.0 million (on an annualised basis) comprising a base rental of S$30.0 million plus a variable rental of S$15.0 million. Where the CPI is negative for any given year, the CPI shall be deemed to be zero for that particular year."
Simply put, there is an inflation hedge for the rental revenue of the Singapore Hospital Properties. There is also a minimum 1% upward rental revision in a deflationary situation when the CPI is negative. However, we must take note that the inflation hedge is on the rental revenue, which strictly speaking is more applicable to the landlord. As a unit holder, we still need to look at the stock dividend yield which depends on our entry price for the stock. Example you could have entered at a relatively high price that gives you a dividend yield of say only 5%. This will not help much in terms of inflation hedge if the CPI is at 6%. Having said that,this hedging feature is still a great advantage as it should ultimately bring about stability and consistent increment of the distributable income and the DPU.
Historical Share Price Movement
The Reit came in relatively late into the picture compared to the other S-Reits. In fact, it was listed in August 2007, which was nearing the peak of the stock market and when the subprime issue was surfacing. It did not enjoy the euphoric rise in stock prices like a number of other S-Reits which were listed much earlier. In fact, its debut performance upon IPO was rather disappointing. The IPO price was 1.28, while the closing price of the first day of trading was 1.19, down by 7%.
It could be precisely because it has not experienced an euphoric rise in stock price, that its share price was rather stable around 1.2 to 1.3 for much of 2008 before the collapse of Lehman Brothers, while most of the S-Reits have their stock prices down by up to 50% from their peak. Its relatively low gearing of under 10% at that time could have also played a part.
Eventually it was still unable to escape the sell down after the collapse of Lehman Brothers. Its stock price fell to a all time low of 0.645 (intra-day), closing at 0.655 on 28/10/2008. It recovered somewhat in the following weeks, but experienced another bottom at 0.680 on 10/03/2009. But overall its performance was still better than a number of other S-Reits, which fell by up to another 50%, bottoming around 25% of their peak prices.
Since March 2009, the Reit's stock price has been experiencing a slow but steady uptrend. Currently it is trading around 1.2 to 1.3, close to its NAV per unit of 1.37. In fact, it has achieved an all time high of 1.4 on 26/01/2010.
A Defensive Reit
This Reit can be considered one of the more defensive S-Reits. Following are some of the reasons:
- It is in the healthcare sector, which should be the most stable and least risky compared to the other sectors such as office and hospitality.
- The CPI + 1% inflation hedge feature, which helps to bring about stability and consistent increment in its rental income.
- Based on the historical share price movement. This could be rather subjective and is purely based on observation. Its share price does seems to be more stable and steady. It may not move up as fast as a number of other Reits during an up trend, but it does not move down much also during a down trend.
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