Introduction

Parkway Life REIT (PREIT) is one of Asia’s largest listed healthcare real estate investment trusts (REITs), specializing in income-generating real estate assets primarily used for healthcare and related purposes. With an impressive 17-year track record of uninterrupted distribution per unit (DPU) growth, Parkway Life REIT represents a bastion of stability and resilience in the healthcare-oriented real estate sector. This report delves into its latest financial performance, growth catalysts, and the outlook provided by UOB Kay Hian.

Stock Overview

Share Price: S\$3.87

Target Price: S\$4.85

Upside: +25.3%

Market Cap: S\$2.52 billion

Sector: Real Estate

Major Shareholders: Parkway Holdings (32.7%), Cohen & Steers (4.9%)

52-Week Range: S\$4.33 – S\$3.38

2H24 Results: Navigating Challenges with Resilience

Despite challenges such as the depreciation of the Japanese Yen (JPY) against the Singapore Dollar (SGD) and higher financing costs, Parkway Life REIT continued to deliver stable returns. Key highlights from the second half of 2024 (2H24) include:

• Gross revenue of S\$72.8 million, down 0.3% year-on-year (yoy), due to currency depreciation but partially offset by contributions from newly acquired nursing homes in Japan.
• Net property income (NPI) declined by 1.1% yoy to S\$68.2 million.
• Distributable income increased by 1.2% yoy to S\$45.8 million, reflecting higher rents from Singapore hospitals after straight-line rental adjustments.
• DPU for 2H24 was 7.38 Singapore cents, a slight decrease of 1.3% yoy.

Strategic Acquisitions: Expanding into France

Parkway Life REIT made significant strides by entering its third core market, France. The acquisition of 11 nursing homes with 850 beds for €111.2 million (S\$159.9 million) was completed on December 20, 2024. These properties, leased to DomusVi for 12 years, generated an NPI yield of 6.5%. Although the acquisition only contributed 12 days of earnings in 4Q24, it is expected to play a pivotal role in future growth.

Project Renaissance and Gleneagles AEI

Parkway Life REIT’s Project Renaissance at Mount Elizabeth Hospital (MEH) led to a temporary reduction in available hospital beds in 2023 and 2024. However, full operational capacity is expected by mid-2025, significantly boosting revenue. Additionally, an asset enhancement initiative (AEI) for Gleneagles Hospital is under evaluation and could commence in 2026.

Financial Metrics and Valuation

The REIT’s financial position remains robust:

• Aggregate leverage improved to 34.8%, down by 2.7 percentage points quarter-on-quarter (qoq).
• 87% of interest rate exposure is hedged, shielding against rate volatility.
• Net asset value (NAV) per unit increased by 3% yoy to S\$2.41.

Valuation metrics highlight Parkway Life REIT’s strong fundamentals:

• Price-to-Earnings (PE) ratio: 22.7x
• Price-to-Book (PB) ratio: 1.6x
• DPU yield: 3.9%, projected to rise to 4.6% in 2026.

Growth Catalysts

Several growth catalysts could drive Parkway Life REIT’s performance in the coming years:

• Mount Elizabeth Novena Hospital (MENH): The REIT has the first right of refusal to acquire MENH, valued at S\$1.36 billion. The hospital’s 333 single-bed wards and 13 operating theatres offer significant growth potential.
• Potential Divestment: Parkway Life REIT plans to divest its medical center in Kuala Lumpur, Malaysia, valued at S\$5.9 million, by 2025.
• Yield-Accretive Acquisitions: The REIT is exploring further acquisitions in Singapore and other markets.

Challenges and Risks

Parkway Life REIT faces some challenges, including higher financing costs due to increased SGD-denominated debt. However, these are manageable given the REIT’s conservative risk management strategies, including hedging 87% of its interest rate exposure and JPY income until 1Q29.

Analyst Recommendation

UOB Kay Hian maintains a “BUY” recommendation for Parkway Life REIT, citing its defensive healthcare orientation, long weighted average lease expiry (WALE) of 15.3 years, and low aggregate leverage. The target price is set at S\$4.85, reflecting a 25.3% upside from the current share price.