CGS International Securities April 22, 2025
Parkway Life REIT: Robust Q1 2025 Performance Underpins Stable Growth Outlook
Parkway Life REIT (PREIT) demonstrated a healthy start to the year, reporting solid first-quarter 2025 results that align with forecasts, reinforcing its reputation for stability within the Singapore REIT landscape. Backed by a defensive income structure and strategic growth initiatives, PREIT remains an attractive proposition for investors seeking reliable distributions.
1Q 2025 Financial Highlights: Steady Growth Trajectory
PREIT announced its 1Q 2025 business update, revealing positive year-on-year growth.
- Revenue: Increased by 7.3% yoy to S\$38.9 million.
- Net Property Income (NPI): Grew by 7.5% yoy to S\$36.8 million.
This growth was primarily fueled by contributions from nursing homes in France and a Japan nursing home acquired in 2024. Furthermore, a scheduled step-up in its Singapore master lease arrangements provided additional support to rental revenue. However, the appreciation was partly moderated by the depreciation of the Japanese Yen (¥).
Distribution income for the quarter rose 9.1% yoy to S$25 million. This translated into a Distribution Per Unit (DPU) of 3.84 Singapore cents, a modest increase of 1.3% yoy. The slower DPU growth compared to distribution income is attributed to an enlarged unit base following an equity fundraising exercise conducted to finance the acquisition of 11 properties in France. The reported DPU is consistent with expectations, representing 24.9% of the full-year FY25 forecast.
Income Stability and Geographic Diversification
PREIT’s income profile benefits from a robust rental structure and strategic geographic diversification.
Singapore Portfolio: The Singapore assets remain the cornerstone of PREIT’s portfolio, contributing S$25.4 million in revenue (65.2% of total) and S$24.4 million in NPI (66.2% of total) during 1Q25. Revenue and NPI from Singapore were flat year-on-year. This stability reflects the straight-lining accounting treatment of rental income under the new master lease agreements which commenced on August 23, 2022.
Overseas Contributions: Overseas properties accounted for a higher proportion of total revenue at 34.8%.
- Japan: Revenue stood at S\$10.7 million, a slight decrease of 1.6% yoy, primarily due to the Yen’s depreciation against the Singapore dollar.
- France: The portfolio contributed S\$2.8 million in revenue, reflecting a full quarter’s contribution following acquisitions.
To mitigate currency fluctuations, PREIT recognized a realised foreign exchange gain of S\$2.2 million in 1Q25, largely offsetting the impact of the weaker Yen. The REIT maintains a strong hedging strategy, with Japanese Yen and Euro net income hedges in place until 1Q 2029F and 1Q 2030F, respectively, safeguarding distribution income stability.
Balance Sheet Resilience and Financial Strategy
PREIT maintains a strong financial position.
- Gearing: Stood at a healthy 36.1% as of end-1Q25.
- Interest Cost: The all-in interest cost saw a marginal increase quarter-on-quarter to 1.5%.
- Hedging: Approximately 90% of its interest rate exposure is hedged into fixed rates, reducing vulnerability to interest rate volatility.
Strategically, while expanding into Europe, PREIT ensures its core market remains robust. As of end-1Q25, an estimated 65.1% of its assets under management (AUM) are still located in Singapore. Management reaffirmed its commitment to a multi-pronged growth strategy while continuing to strengthen its presence in Singapore.
As part of its portfolio optimisation efforts, PREIT announced in April 2025 the proposed sale of strata units and lots at MOB Specialist Clinics in Malaysia for RM20.09 million.
Analyst Perspective: Valuation and Investment Thesis
The ‘Add’ rating for Parkway Life REIT is reiterated, with an unchanged DDM-based Target Price (TP) of S$4.91. This valuation is based on a cost of equity assumption of 6.45%.
The positive outlook stems from PREIT’s stability, which is underpinned by its defensive income structure featuring in-built rent escalation clauses. The current share price of S$4.20 offers a potential upside of 16.9% to the target price. The consensus rating among analysts is predominantly positive, with 6 Buys and 1 Hold. The CGSI forecast implies a 6.1% difference compared to the consensus.
Financial Projections and Key Metrics
The following table summarizes the financial forecasts for PREIT:
Financial Summary
| (S\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Gross Property Revenue |
147.5 |
145.3 |
160.9 |
167.0 |
171.8 |
| Net Property Income |
139.1 |
136.6 |
152.0 |
157.9 |
162.4 |
| Net Profit |
100.5 |
95.0 |
113.4 |
115.5 |
119.3 |
| Distributable Profit |
89.3 |
91.4 |
100.6 |
110.0 |
113.8 |
| Core EPS (S\$) |
0.17 |
0.16 |
0.17 |
0.17 |
0.18 |
| Core EPS Growth |
21.7% |
(6.1%) |
8.0% |
1.0% |
3.3% |
| FD Core P/E (x) |
24.71 |
26.31 |
24.36 |
24.11 |
23.34 |
| DPS (S\$) |
0.15 |
0.15 |
0.15 |
0.17 |
0.17 |
| Dividend Yield |
3.52% |
3.55% |
3.67% |
4.02% |
4.15% |
| Asset Leverage |
35.4% |
34.7% |
32.1% |
30.5% |
30.9% |
| BVPS (S\$) |
2.34 |
2.41 |
2.57 |
2.95 |
2.96 |
| P/BV (x) |
1.80 |
1.75 |
1.63 |
1.42 |
1.42 |
| Recurring ROE |
7.28% |
6.73% |
6.93% |
6.31% |
6.09% |
Key Ratios & Drivers (Forecasts)
| Metric |
Dec-25F |
Dec-26F |
Dec-27F |
| Gross Property Revenue Growth |
10.8% |
3.8% |
2.8% |
| NPI Growth |
11.3% |
3.8% |
2.9% |
| Net Property Income Margin |
94.5% |
94.5% |
94.6% |
| DPS Growth |
3.36% |
9.39% |
3.47% |
| Gross Interest Cover |
10.33 |
8.68 |
8.75 |
| Occupancy (%) |
100.0% |
100.0% |
100.0% |
| Assets under management (S\$m) |
2,561.6 |
2,861.7 |
2,878.5 |
Growth Catalysts and Potential Risks
Potential Catalysts:
- Accretive Acquisitions: Successful acquisitions that enhance DPU could serve as a re-rating catalyst for the stock.
Downside Risks:
- Deflationary Periods: PREIT’s inflation-indexed income growth could be negatively impacted during periods of low inflation or deflation.
- AEI Execution: Potential capital expenditure (capex) overruns or delays in completing the asset enhancement initiative (AEI) at Mount Elizabeth Hospital in Singapore could affect the property’s operations or returns.
ESG Profile: Strengths and Opportunities
Parkway Life REIT received an overall LSEG ESG score of C- in 2023, broken down into Environmental (D), Social (C-), and Governance (C+). It scored notably well (A+) on ESG controversies.
Key ESG Initiatives & Highlights:
- GHG Emissions: Collaborating with IHH Group to address greenhouse gas emissions from its Singapore portfolio, with established reduction targets aiming for Net Zero by 2050. The near-term target is to cap carbon growth by 2025.
- Energy Efficiency: Ongoing replacement and upgrade of chiller systems across its Singapore hospitals (Gleneagles, Parkway East, Mount Elizabeth) are expected to yield significant energy savings (5% to 20%).
- Data & Governance: Partnering with Japan asset managers for energy data collection and reporting. A Sustainability Steering Committee has been in place since 2017.
- 2024 Performance: A 3.3% like-for-like increase in carbon emissions intensity (Singapore) was noted due to increased energy consumption from an aging chiller system at Gleneagles and construction works at Mount Elizabeth. Average training hours per employee declined to 25.1 hours in 2024.
- LSEG Rankings: Ranked 84th out of 104 companies in Singapore and 24th among Singapore real estate companies/REITs. Top-performing categories were Shareholders (A), Management (B), and Workforce (B).
Areas for Improvement (LSEG): Resource use (D-), environmental innovation (D-), community engagement (D-), and CSR strategies (C) were identified as areas with lower scores.
Implications: The renewal capex agreement for Singapore hospitals is anticipated to future-proof the assets and potentially improve PREIT’s ESG rankings upon completion. Currently, no specific premium or discount for ESG factors is applied in the fundamental valuation. Continuous efforts to enhance ESG scores are expected to positively influence operations and financial performance in the long run.
Peer Landscape: PREIT in the SREIT Market
The table below provides a comparison of Parkway Life REIT with its peers across various SREIT sectors as of April 21, 2025.
SREIT Peer Comparison
| Sector/REIT |
Ticker |
Rec. |
Price (LC) |
Target Price (LC) |
Mkt Cap (US\$m) |
Leverage |
P/NAV |
NAV |
Yield FY25F |
Yield FY26F |
Yield FY27F |
| Hospitality |
| CapitaLand Ascott Trust |
CLAS SP |
Add |
0.85 |
1.13 |
\$2,472 |
38.3% |
0.73 |
1.15 |
7.2% |
7.5% |
7.5% |
| CDL Hospitality Trust |
CDREIT SP |
Add |
0.77 |
1.07 |
\$739 |
38.8% |
0.52 |
1.48 |
7.7% |
8.3% |
8.5% |
| Far East Hospitality Trust |
FEHT SP |
Add |
0.54 |
0.75 |
\$836 |
30.8% |
0.59 |
0.92 |
7.5% |
7.3% |
7.3% |
| Frasers Hospitality Trust |
FHT SP |
NR |
0.60 |
NA |
\$773 |
35.0% |
0.94 |
0.64 |
4.1% |
4.4% |
4.8% |
| Industrial |
| AIMS AMP |
AAREIT SP |
NR |
1.25 |
NA |
\$754 |
33.7% |
0.99 |
1.26 |
7.4% |
7.3% |
7.5% |
| CapitaLand Ascendas REIT |
CLAR SP |
Add |
2.62 |
3.10 |
\$8,850 |
37.7% |
1.19 |
2.20 |
5.9% |
6.1% |
6.2% |
| ESR-REIT |
EREIT SP |
Add |
0.21 |
0.36 |
\$1,292 |
42.8% |
0.76 |
0.28 |
10.3% |
10.8% |
10.9% |
| Frasers Logistics & Commercial Trust |
FLT SP |
Add |
0.89 |
1.35 |
\$2,556 |
36.2% |
0.78 |
1.13 |
7.6% |
7.8% |
7.6% |
| Keppel DC REIT |
KDCREIT SP |
Add |
2.05 |
2.48 |
\$3,549 |
30.2% |
1.34 |
1.53 |
4.8% |
5.0% |
5.2% |
| Mapletree Industrial Trust |
MINT SP |
Add |
2.02 |
2.82 |
\$4,420 |
39.8% |
1.16 |
1.74 |
6.9% |
7.0% |
7.2% |
| Mapletree Logistics Trust |
MLT SP |
Add |
1.17 |
1.73 |
\$4,550 |
40.3% |
0.87 |
1.34 |
6.8% |
6.5% |
6.5% |
| Stoneweg European REIT |
SERT SP |
Add |
1.43 |
1.92 |
\$926 |
40.2% |
1.08 |
1.33 |
9.0% |
9.1% |
9.0% |
| Sabana Shariah |
SSREIT SP |
NR |
0.36 |
NA |
\$291 |
37.4% |
0.71 |
0.50 |
0.0% |
0.0% |
0.0% |
| Office |
| Keppel REIT |
KREIT SP |
Add |
0.83 |
1.09 |
\$2,451 |
41.2% |
0.67 |
1.24 |
7.0% |
7.1% |
7.1% |
| OUE REIT |
OUEREIT SP |
Hold |
0.28 |
0.32 |
\$1,182 |
39.3% |
0.47 |
0.59 |
6.9% |
7.3% |
7.6% |
| Suntec REIT |
SUN SP |
Hold |
1.13 |
1.33 |
\$2,545 |
42.3% |
0.55 |
2.05 |
5.7% |
6.1% |
6.4% |
| Retail |
| CapitaLand Integrated Commercial |
CICT SP |
Add |
2.10 |
2.45 |
\$11,790 |
38.5% |
1.00 |
2.09 |
5.3% |
5.6% |
5.9% |
| Frasers Centrepoint Trust |
FCT SP |
Add |
2.21 |
2.68 |
\$3,263 |
39.3% |
0.99 |
2.23 |
5.5% |
5.6% |
5.7% |
| Lendlease Global Commercial REIT |
LREIT SP |
Add |
0.51 |
0.69 |
\$948 |
40.8% |
0.68 |
0.74 |
7.8% |
7.9% |
7.9% |
| Mapletree Pan Asia Commercial Trust |
MPACT SP |
Add |
1.20 |
1.53 |
\$4,852 |
38.2% |
0.69 |
1.73 |
6.8% |
6.9% |
7.1% |
| Paragon REIT |
PGNREIT SP |
Hold |
0.97 |
0.98 |
\$2,114 |
35.3% |
1.06 |
0.92 |
5.2% |
5.4% |
5.6% |
| Starhill Global REIT |
SGREIT SP |
Add |
0.49 |
0.60 |
\$864 |
36.2% |
0.71 |
0.69 |
7.4% |
7.5% |
7.6% |
| Overseas-centric |
| CapitaLand China Trust |
CLCT SP |
NR |
0.67 |
NA |
\$916 |
41.9% |
0.61 |
1.09 |
8.4% |
8.5% |
8.6% |
| Elite UK REIT |
ELITE SP |
Add |
0.28 |
0.35 |
\$221 |
45.5% |
0.72 |
0.39 |
10.5% |
10.5% |
10.5% |
| Manulife US REIT |
MUST SP |
Add |
0.06 |
0.13 |
\$105 |
60.8% |
0.26 |
0.23 |
0.0% |
46.7% |
54.2% |
| Sasseur REIT |
SASSR SP |
Add |
0.62 |
0.85 |
\$597 |
24.8% |
0.75 |
0.83 |
9.9% |
10.3% |
10.6% |
| Healthcare |
| Parkway Life REIT |
PREIT SP |
Add |
4.20 |
4.91 |
\$2,103 |
36.1% |
1.74 |
2.42 |
3.7% |
4.0% |
4.2% |
Note: Forecasts for Not Rated (NR) companies are based on Bloomberg consensus estimates. Prices as at 21 Apr 2025.
PREIT stands out in the Healthcare sector with moderate leverage (36.1%) and a P/NAV ratio of 1.74. Its forecast dividend yields of 3.7%, 4.0%, and 4.2% for FY25F-27F reflect its stable, albeit lower-yielding profile compared to other sectors like Industrial or Retail, consistent with its defensive healthcare asset base.
Shareholder Information
- Market Cap: US\$2,103m / S\$2,740m
- Average Daily Turnover: US\$3.95m / S\$5.30m
- Current Shares Outstanding: 652.4m
- Free Float: 64.2%
- Major Shareholders: Parkway Pantai Limited (35.6%), Cohen & Steers (7.0%), Bank of New York Mellon Corp (4.7%)
