Parkway Life REIT (PLIFE) BUY: Solid 1Q25 Growth Lifts Fair Value to SGD 4.65 1

OCBC Investment Research Private Limited 23 April 2025
Parkway Life REIT: Solid Growth & Defensive Appeal Underpin BUY Rating and SGD 4.65 Fair Value

Investment Highlights: Steady Growth Amidst Expansion

Parkway Life REIT (PLIFE) demonstrated solid performance in the first quarter of 2025, reinforcing its position as a leading healthcare real estate investment trust in Asia. Key highlights include:

• DPU Growth: 1Q25 distribution per unit (DPU) increased by 1.3% year-on-year (YoY), reaching 3.84 Singapore cents. This growth was achieved despite an enlarged unit base following the REIT’s accretive first venture into the French market.
• Financial Health: The REIT maintains a healthy gearing ratio of 36.1% as of March 31, 2025. Its all-in cost of debt remains relatively low at 1.50%, with approximately 90% of its interest rate exposure hedged.
• Strategic Divestment: The planned divestment of its Malaysia portfolio is not anticipated to significantly impact DPU but will provide PLIFE with increased debt headroom and financial flexibility.
• Upgraded Fair Value: Reflecting the positive outlook and recent performance, the fair value (FV) estimate for PLIFE has been increased to SGD 4.65 from SGD 4.60, with a reiterated BUY rating (as at 23 April 2025, Last Close SGD 4.23).

Investment Thesis: A Defensive Healthcare Powerhouse

Parkway Life REIT stands out as one of Asia’s premier listed healthcare REITs, boasting a stable and high-quality portfolio. As of December 31, 2024, the portfolio comprised 75 healthcare assets valued at SGD 2.46 billion, managed by 35 lessees. These assets include private hospitals and medical centres in Singapore and Malaysia, alongside nursing homes in Japan and France.
While Singapore REITs (S-REITs) are generally viewed as defensive, the healthcare subsector offers exceptional resilience. PLIFE benefits significantly from:

• Long-Term Lease Structures: These provide a reliable stream of rental income, offering downside protection during market volatility.
• Growth Mechanisms: Potential for growth exists through built-in rental escalations and upside sharing arrangements with tenants.

This combination of organic growth, accretive acquisitions, and prudent capital management has enabled PLIFE to deliver consistent DPU growth every year since its listing in 2007. The REIT is well-positioned to continue this trajectory, supported by powerful secular trends such as the rise in foreign medical tourism to Singapore and Japan’s ageing population.

Financial Performance & Summary

1Q25 Results: Contributions Drive Growth

In the first quarter of 2025, PLIFE reported strong financial results:

• Gross Revenue: Increased by 7.3% YoY to SGD 39.0 million.
• Net Property Income (NPI): Grew by 7.5% YoY to SGD 36.8 million.

These gains were primarily driven by contributions from newly acquired nursing homes in France and Japan, as well as rental step-ups from its Singapore hospitals. However, the positive impact was partially offset by the depreciation of the Japanese Yen (JPY).
Distributable income saw a robust increase of 9.1% YoY, reaching SGD 25.0 million. The resulting DPU of 3.84 Singapore cents represents a 1.3% YoY growth, accounting for the enlarged unit base. This DPU constitutes 25.3% of the initial full-year forecast, aligning with expectations, and will contribute to the 1H25 distribution (PLIFE distributes semi-annually).

Results Highlights

Security Information & Financial Forecasts

• Ticker: PWLR.SI
• Market Cap (SGD b): 2.8
• Daily turnover (SGD m): 4.9
• Free Float: 66%
• Shares Outstanding (m): 652
• Top Shareholder: IHH Healthcare Bhd (32.9%)

Financial Summary (Estimates)

Key Ratios (Estimates)

Capital Management & Portfolio Update

Robust Balance Sheet

PLIFE’s capital management remains robust. As of March 31, 2025, the gearing ratio stood at 36.1%, an increase of 1.3 percentage points from December 31, 2024. This rise was due to additional loan drawdowns for capital expenditure (CAPEX) and working capital, along with the impact of JPY appreciation. Despite the increase, gearing remains at a manageable level. The all-in cost of debt saw a marginal increase of 2 basis points to 1.50%, with effective interest rate hedging covering approximately 90% of its exposure.

Malaysia Portfolio Divestment

PLIFE announced the divestment of its Malaysia portfolio, comprising strata units and lots at MOB Specialist Clinics, to Pantai Medical Centre. The sale consideration is MYR 20.1 million (approximately SGD 6.1 million), representing a 4.6% premium over the average independent valuation of MYR 19.2 million as of December 31, 2024. PLIFE expects to recognize a gain on disposal of about SGD 0.1 million.
The proceeds from this divestment will be allocated towards debt reduction, enhancing the REIT’s debt headroom and financial flexibility. Given that the Malaysia portfolio contributed only 0.2% to 1Q25 gross revenue and 0.1% to NPI, the divestment is not expected to materially affect DPU.

Outlook and Fair Value Adjustment

Amid ongoing market volatility and tariff uncertainties, PLIFE’s defensive portfolio and consistent DPU growth track record are significant strengths. The REIT has proactively managed foreign exchange risk by implementing JPY and EUR net income hedges extending to 1Q29 and 1Q30, respectively. The positive DPU growth in 1Q25, even with an increased unit base, highlights management’s prudence and execution capability.
Although PLIFE trades at a relatively lower forward 12-month dividend yield (estimated at 3.8% at the time of writing) compared to the broader S-REIT sector, this is considered reasonable given its strong track record and management quality. Future growth avenues include asset enhancement initiatives (AEIs) at its Singapore hospitals and potential further expansion into Europe.
Considering these factors and incorporating the Malaysia divestment, FY25 and FY26 DPU forecasts have been slightly raised by 1.1% and 0.3%, respectively. Consequently, the fair value estimate is lifted from SGD 4.60 to SGD 4.65, supporting the reiterated BUY rating.

ESG Considerations

PLIFE’s ESG rating was maintained in December 2024. While the REIT has opportunities related to green building investments, it currently lags peers in environmental initiatives and disclosure regarding green building certifications. However, PLIFE demonstrates leadership among global peers in business ethics practices, featuring board-level oversight and audits of its ethics standards. Its board is majority independent, and corporate governance practices align with peer standards. Areas identified for potential improvement include implementing formal grievance mechanisms for workforce issues and enhancing talent pipeline development measures.

Potential Catalysts

• Execution of DPU-accretive acquisitions.
• A hawkish stance by the Bank of Japan (BoJ), leading to JPY appreciation against the SGD.
• Higher-than-anticipated rental upside from strong performance of Singapore assets or successful upward renegotiation of Japan leases.

Investment Risks

• Persistently high interest rates or a hawkish BoJ could increase PLIFE’s funding costs, potentially impacting distributable income and hindering inorganic growth.
• Risk of tenant default or non-renewal of master leases.
• Potential for cost overruns related to AEIs and other capital expenditure programs.

Valuation Analysis and Peer Comparison

The following table compares PLIFE with selected peers based on estimated financials for FY25 and FY26:

Historical valuation charts indicate PLIFE’s Price-to-Book (P/B) ratio and Forward Distribution Yield relative to its historical averages and standard deviation bands, providing context for its current market valuation.

Company Overview (as of 6 February 2025)

Parkway Life REIT is a significant player in Asia’s listed healthcare REIT landscape. Its investment mandate focuses on income-producing real estate used primarily for healthcare purposes, including hospitals, nursing homes, medical facilities, and assets related to healthcare research, education, and pharmaceutical manufacturing/storage.
As of December 31, 2024, PLIFE’s diversified portfolio encompassed 75 properties valued at approximately SGD 2.46 billion. Key portfolio highlights include:

• Singapore: Ownership of the largest portfolio of private hospitals: Mount Elizabeth Hospital, Gleneagles Hospital, and Parkway East Hospital.
• Japan: A substantial portfolio of 59 high-quality nursing home and care facility properties across various prefectures.
• Malaysia: Strata-titled units/lots in MOB Specialist Clinics, Kuala Lumpur (pending divestment).
• France: A portfolio of 11 nursing homes acquired in December 2024 across six regions.

Managed by Parkway Trust Management Limited, PLIFE has been listed on the Mainboard of the Singapore Stock Exchange since August 2007.

FY24 Portfolio Breakdown

• By Asset Class: Hospitals and medical centres constituted 65.2% of the portfolio, while nursing homes made up the remaining 34.8%.
• By Geography: Singapore represented 65.1%, Japan 28.1%, France 6.6%, and Malaysia 0.2%.

Historical charts illustrate a consistent upward trend in both Net Property Income and Distribution Per Unit from FY18 through FY24, underscoring the REIT’s growth trajectory.

Company Financials Summary (Historical)

Income Statement (Selected Items)

Key Ratios (Historical Averages)

PLIFE has maintained healthy profitability and credit metrics over the past five fiscal years (FY2020-FY2024). Key trends include:

• Margins: Generally strong operating and net income margins, reflecting efficient operations and favourable lease structures.
• Returns: Return on Equity (ROE) and Return on Assets (ROA) have varied, influenced by valuation changes and income levels.
• Credit Metrics: Debt levels (Total Debt/EBIT, Net Debt/Equity) have been managed prudently, and interest coverage (EBIT to Interest Expense) remained adequate, although showing some impact from rising interest expenses in recent years.

Analyst Declaration & Disclaimer

The research analyst(s) responsible for this report certify that the opinions expressed accurately reflect their personal views about the securities mentioned and that their compensation is not directly or indirectly related to the specific recommendations or views contained herein. The analyst(s) and their connected persons do not hold financial interests in the listed entity and do not serve on its board or in trustee positions.
This report is intended for information purposes only and does not constitute an offer or solicitation to buy or sell any securities. While compiled from sources believed reliable, its accuracy and completeness are not guaranteed. Opinions are subject to change without notice. This report does not consider individual investment objectives or financial situations; investors should seek advice from a financial adviser regarding the suitability of any investment product. OCBC Investment Research, its related companies, and their employees may have interests in the securities mentioned, including providing financial services to the issuers. Potential conflicts of interest may exist. Forward-looking statements involve risks and uncertainties; actual results may differ materially. Past performance is not indicative of future results.

Ratings Definitions

OCBC Investment Research’s fundamental ratings (Buy, Hold, Sell) apply to a 12-month investment horizon.

• BUY: Total expected returns (excluding dividends) > 10%.
• HOLD: Total expected returns (excluding dividends) within +10% and -5%.
• SELL: Total expected returns (excluding dividends) < -5%.

*For REITs and Business Trusts, total expected returns including dividends apply.*
For companies with market capitalization ≤ S$150m:

• BUY: Total expected returns (excluding dividends) > 30%.
• HOLD: Total expected returns (excluding dividends) within +/-30%.
• SELL: Total expected returns (excluding dividends) < -30%.

*For REITs and Business Trusts, total expected returns including dividends apply.*