Parkway Life REIT (SGX: C2PU) recently reported its fiscal 2020 third-quarter earnings.
Despite the COVID-19 pandemic, the healthcare real estate investment trust (REIT) has experienced steady capital appreciation throughout the year.
Year to date, Parkway Life REIT’s share price has increased by 16.0%.
It is near its all-time high at S$4.29 compared to S$3.37 at the start of the year.
Parkway Life REIT’s portfolio consists of three Singapore private hospitals and 48 Japanese private nursing homes.
The REIT also owns one Japanese pharmaceutical product manufacturing facility and a handful of high-quality Malaysian healthcare assets worth S$6.8 million.
From this earnings report, it is clear why Parkway Life REIT share price has risen during these uncertain times.
In this article, we will breakdown the REIT’s recent developments and determine its outlook into the future.
Growth in top and bottom line
Parkway Life REIT reported a 0.8% growth in revenue to S$30.2 million in its third quarter, up from S$29.9 million a year ago.
Net property income (NPI) has also ticked upward by 2% to S$28.1 million from S$27.6 million.
In line with this growth, the REIT’s distributable income (DI) and distribution per unit (DPU) have also increased.
Both are up by 7.4% year on year.
DI for the third quarter is at S$21.4 million from S$19.9 million, while DPU is at S$0.0354 as compared to S$0.033 a year back.
At this rate, the REIT looks poised to maintain its recurring DPU growth since its initial public offering in 2007.
Parkway Life REIT’s stellar third quarter results are not without reason.
Its REIT manager attributes the results to contributions from three recently acquired Japan nursing rehabilitation facilities, the appreciation of the Japanese yen, and higher rent from the hospitals in Singapore.
This reaffirms Parkway Life REIT’s position as a reliable dividend provider.
Parkway Life REIT also reported a higher gearing ratio of 38.6%, as compared to 37.2% a year ago.
While there is slightly less headroom to take on more debt, this number is still far below the Monetary Authority of Singapore’s (MAS) increased leverage limit of 50%.
Additionally, the REIT enjoys a low all-in cost of borrowing of 0.54% with a weighted average term to maturity of 2.7 years.
For the third quarter of 2020, the healthcare REIT had an impressive interest coverage ratio of 17.0 times, an improvement from 14.3 times a year ago.
These are signs of a stable business model that will do just fine in the foreseeable future.
One of the main perks of Parkway Life REIT’s portfolio lies in the certainty of positive rental reversions.
Most of its Japanese properties have “Up only” rental reversions, meaning rental income from those tenants will only increase over time.
The Singapore hospitals, which contribute 57.6% of total gross revenue, have a guaranteed minimum upward rent reversion of 1.17%.
What is concerning is that the Singapore portfolio’s 15-year master lease is coming to an end in August 2022.
While there is a very good chance that the contract will be renewed since the owner of the hospitals is Parkway Holdings Limited, the REIT’s sponsor, nothing is confirmed at the moment.
Investors will be watching this situation closely as it is crucial to the future success of the REIT.
A piece of good news that emerged recently was Pfizer’s (NYSE: PFE) COVID-19 vaccine attaining 90% effectiveness.
This brings hope to people all around the world that the end of this pandemic may be in sight.
While this vaccine news is indeed exciting, the actual transportation and logistics for the vaccine remain problematic.
In the meantime, countries are exploring other alternatives to boost their economy.
On November 11, Singapore’s transport minister Ong Ye Kung announced the country’s first air travel bubble arrangement with Hong Kong.
From November 22 onwards, there will be one flight a day into each city with a quota of 200 travellers.
This arrangement opens the door to medical tourism.
Parkway Life REIT’s Singapore portfolio contains the Republic’s most sought-after private hospitals.
They are Mount Elizabeth hospital, Gleneagles hospital, and Parkway East hospital.
The eventual resurgence in medical tourism over the next few years would boost revenue for the REIT’s tenants.
With the future of its tenants looking up, the REIT looks to be a dependable investment.
Much like its tenants, Parkway Life REIT offers reassurance and comfort in times of trouble.
As an investor, you might wonder what the future holds for the REITs in your portfolio. Or how to select REITs that can make you money as Singapore’s economy struggles to recover from the pandemic.
Download your FREE special REITs report: “How You Can Make Money Investing In REITs As Singapore Recovers” HERE!
Disclosure: Zachary Lim does not own shares in any of the companies mentioned.