ParkwayLife REIT - SAC Capital 2022-06-10: Stable Growth With Potential Catalysts Await


ParkwayLife REIT - Stable Growth With Potential Catalysts Await

  • ParkwayLife REIT (SGX:C2PU) focuses on investing in income-producing healthcare and healthcare-related real estate assets. It is one of the largest listed healthcare REITs by asset size (~S$2.3 billion).
  • ParkwayLife REIT currently owns a portfolio of 56 properties, including 3 private hospitals in Singapore, 52 nursing homes in Japan and strata units in a medical centre in Malaysia.

Singapore hospitals master lease renewal to provide growth.

  • ParkwayLife REIT renewed the master leases for its 3 Singapore hospitals for 20.4 years till Dec 2042, with a 10-year extension option. Existing lease terms, in which rental escalation is calculated based on the higher of 3.8% of respective adjusted hospital revenue or CPI + 1%, will run until existing lease expiry on 22 Aug 22.
  • During the interim period (Aug 22 to Dec 22), rent is guaranteed to increase by 2.0%. Subsequently, ParkwayLife REIT will invest S$150m between FY23 to FY25 in asset enhancement works to improve the productivity and efficiency of its Singapore hospitals portfolio. During this period, rents are guaranteed to increase 3% annually after adjusting for rental rebate due to capex work. Thereafter, existing rental review formula will be reinstalled. This translates to a minimum 1% annual rental growth for the three hospitals in Singapore.
  • Capex for AEI is expected to be funded with debt. The Singapore properties are on a triple net lease basis, as such ParkwayLife REIT will not be affected by rising operating costs.

Japan nursing home portfolio to provide stable income.

  • 48 out of ParkwayLife REIT’s 52 (95.2% of Japan’s revenue) nursing homes are insulated from rent reduction. Of these, 45 properties are subjected to rental review every 2 – 5 years. Rent will be adjusted upwards if market rate is higher than existing rate. Rent of the remaining 4 of the 52 properties will be renegotiated every 2 – 3 years. JPY net income is 100% hedged till 3Q26.
  • The Japan portfolio will provide ParkwayLife REIT income stability with potential upside coming from periodic rental review.

Prudent capital management.

  • ParkwayLife REIT’s next refinancing need is in Jun 23. Its gearing effective interest rate to rise to 1.2% in our forecasts.

Initiate coverage on ParkwayLife REIT with HOLD

Lam Wang Kwan SAC Capital Research | https://www.saccapital.com.sg/ 2022-06-10
SGX Stock Analyst Report HOLD INITIATE HOLD 4.69 SAME 4.69