UOB Kay Hian
Date of Report: Monday, 18 August 2025

PARKWAY LIFE REIT 1H25: Robust Growth, Strategic Diversification, and Defensive Strength Make It a Top Healthcare REIT Pick

Overview: Parkway Life REIT Delivers Strong 1H25 Results with European Expansion

Parkway Life REIT (PREIT), one of Asia’s largest listed healthcare REITs, continues to solidify its reputation as a resilient, growth-focused investment vehicle. With a steadfast commitment to geographical diversification and risk management, PREIT’s first half of 2025 results highlight both its innovative expansion strategy and its defensive core, anchored in the rapidly growing healthcare sector.

Key Highlights at a Glance

• Recommendation: BUY (Maintained)
• Share Price: S\$4.04
• Target Price: S\$5.34 (+32.2% upside)
• Market Cap: S\$2.64 billion
• FY25 NAV/Share: S\$2.61
• FY26 Net Debt/Share: S\$1.41
• Dividend Yield (2025F): 3.7% (rising to 4.5% by 2027F)
• Aggregate Leverage: 35.4%
• Long WALE: 14.9 years

1H25 Financial Performance: Above Expectations

PREIT reported a Distribution Per Unit (DPU) of 7.65 S cents for 1H25, marking a 1.5% year-on-year increase despite a larger unit base. This performance exceeded expectations, propelled by successful acquisitions and disciplined cost management.

Strategic Geographic Expansion: France Acquisition Diversifies Income Base

PREIT’s acquisition of 11 freehold nursing homes in France for €111.2 million (S$159.9 million) in December 2024 marks a major milestone, with these assets contributing fully for six months and accounting for 7.4% of total revenue and 7.8% of group NPI in 1H25. Operated by DomusVi under 12-year leases with fixed and indexed rent escalations, these properties offer a resilient NPI yield of 6.5%. The move diversifies PREIT’s overseas income base beyond Japan.

Strengthening the Core: Singapore Remains the Bedrock

Singapore continues to anchor PREIT’s portfolio, comprising three hospital properties under long-term master leases with a Weighted Average Lease Expiry (WALE) of 20.4 years. These assets provide stable and predictable returns, supporting the trust’s financial strength and disciplined growth trajectory.

Financial Overview and Key Metrics

Risk Management: Tax Exemptions, Hedging, and Financial Stability

• Tax Advantages: PREIT secured Inland Revenue Authority of Singapore (IRAS) approval for tax exemption on foreign-sourced dividends and interest income from seven of its 11 French nursing homes. This translates to estimated annual tax savings of S\$1.26 million, with potential for S\$0.44 million more if the remaining four assets are approved.
• Prudent Leverage: Aggregate leverage improved to 35.4% as of June 2025. The S\$180 million equity fund raising in November 2024 was swapped into euros to provide a natural hedge for the French portfolio.
• Interest Rate and Currency Hedging: Average cost of debt remained low at 1.5%. Notably, 97% of interest rate exposure is hedged, and all foreign income from Japan and France is fully hedged until 1Q29 and 1Q30 respectively.
• No Major Refinancing Risk: PREIT has no long-term debt refinancing requirements until September 2026.

Operational Excellence: Asset Enhancement and Portfolio Optimization

• Mount Elizabeth Hospital (MEH) Revamp: Project Renaissance is nearly complete, with all beds operational since mid-2025. Enhanced layouts and an increase in single bed wards (from 112 to 168) have improved workflow, privacy, and revenue generation.
• Potential AEI for Gleneagles Hospital: Asset enhancement plans are in evaluation, targeting improved efficiency and revenue. The AEI is expected to be finalized by 1H26. PREIT is also considering acquisition opportunities in day surgery, rehabilitation, and ambulatory centers.
• Malaysia Exit: PREIT has divested its strata units and specialist clinics in Kuala Lumpur for RM20.1 million (S\$6.1 million), achieving a 4.6% premium over the latest independent valuation and a 25.6% premium over the original purchase price.

Portfolio Mix: Geographic and Revenue Diversification

Uninterrupted Distribution Growth Since Listing

PREIT has achieved consistent DPU growth since IPO, supported by its robust asset base and prudent management. Distribution has risen from 6.3 S cents in 2007 to 14.9 S cents in 2024, with additional gains from divestments.

Balance Sheet Strength and Debt Profile

• Stable Gearing: Gearing stands at 35.4%, providing ample headroom for future acquisitions.
• Debt Maturity: No significant refinancing risks until 2026, with diversified loan currency exposure and fixed-rate notes.
• Interest Coverage: High at 9.1x, underlining financial prudence.

Growth Drivers: Healthcare Demand and Market Trends

• Singapore Healthcare Growth: By 2030, 24% of Singapore’s population will be aged 65 or older. The government’s healthcare expenditure is projected to grow at a CAGR of 8.9%, reaching S\$30 billion by 2030. Singapore’s medical tourism attracts 500,000 visitors annually, including 250,000 from Indonesia.
• Expansion Opportunities: PREIT is exploring further acquisitions and asset enhancements, particularly in Singapore’s high-demand healthcare sector.

Key Operating Metrics

Earnings Revision and Outlook

• 2025 DPU forecast raised by 1.7% due to strong 1H25 performance and tax exemptions on French assets.
• Target price maintained at S\$5.34 (DDM-based, 6.0% cost of equity, 2.8% terminal growth).
• Key catalysts: Higher contributions from extended Singapore hospital leases, potential AEI at Gleneagles Hospital, and further yield-accretive acquisitions.

Conclusion: A Defensive, Growth-Oriented Healthcare REIT for Risk-Averse Investors

Parkway Life REIT stands out as a compelling choice for risk-averse investors seeking stability and long-term growth in the healthcare real estate sector. Its unique blend of resilient core assets, successful international expansion, robust financials, and a proven track record of uninterrupted DPU growth affirms its status as a leading healthcare REIT in Asia. With a clear growth pipeline and prudent risk management, PREIT is well positioned to deliver sustainable returns.

Appendix: Detailed Profit and Loss, Balance Sheet, and Cash Flow Table

Final Thoughts

PREIT’s performance in 1H25 reaffirms its position as a premier healthcare REIT, offering a rare blend of defensive stability and strategic growth. The trust’s proactive management, geographic diversification, and prudent financial controls set a strong foundation for continued success and value creation for investors.