Parkway Life REIT to hit $5?

How high will Parkway Life REIT go? Amid the COVID-19 pandemic, the hospital S-REIT acquired another nursing home in Japan, divested a non-core property in Japan and also delivered an impressive set of full-year financial result. These events helped to turbo-charge the unit price of Parkway Life REIT to wonderland. At the going rate, this counter is behaving more like a growth stock instead of a REIT.

Parkway Life REIT

The interesting thing about Parkway Life REIT is that the counter is not just performing like a growth stock, it also has an impressive 13-year track record of DPU growth since IPO. Indeed, this sounds incredible as there are not many such stocks in Singapore Exchange. But I am not joking. The graph below depicts the kind of growth for Parkway Life REIT.

Source: Parkway Life REIT

Question now is: will Parkway Life REIT hit $5 in 2021? On the basis of the current form, hitting $5 is not considered to be “mission impossible”. Frankly, I have been a long-time admirer of Parkway Life REIT. But if the counter really reached such a level, does it represent any value for money for investors to enter? In this article, I will share my analysis of the impact of COVID-19 on the financial performance of Parkway Life REIT. I will also reveal why the distribution for Parkway Life REIT in FY2020 increased 4.5% year-on-year despite the global disaster of COVID-19.

Most investors assume that REITs are low-risk investments ideal for dividend play. Actually, this may not be necessary true. The downfalls of Eagle Hospitality Trust and First REIT illustrate the potential risks involved when investing in REITs. In view of this, investors should not judge REITs based solely on their distribution yields. It is really important to pay attention on the business fundamentals as well.

Parkway Life REIT owns a well-diversified portfolio of 54 properties with a total portfolio size of approximately $2.02 billion as at 31 December 2020. It owns the largest portfolio of strategically located private hospitals in Singapore comprising Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital, 50 healthcare assets in Japan and specialist clinics in Malaysia.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in Parkway Life REIT before. Whether Parkway Life REIT will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

Parkway Life REIT solid as gold

One of the top reasons why I like Parkway Life REIT is because it derives the bulk of its revenue from the three local private hospitals. As of 31 December 2020, Singapore Hospital Properties contributed approximately 57.4% of total gross revenue. Due to this, the risk of foreign currency exchange is reduced. The Group also entered into foreign currency forward contracts to hedge its net foreign income from Japan. For FY2020, the foreign exchange gain was $90,000.

As the hospitals of Parkway Life REIT are all located in Singapore, investors would have access to local media coverage should there be any significant developments impacting Parkway Life REIT’s businesses. Given that the Singapore hospitals are Parkway Life REIT’s major source of revenue, it would make sense to pay attention to the health of these assets. For REITs in which the principal activities are located in foreign countries (e.g. First REIT), the source of information is mainly through the companies’ investor relations, which may be biased data.

For Parkway Life REIT, the downside risks are [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: May 16, 2021 — 9:29 pm

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