OCBC Investment Research Private Limited

23 April 2025

Parkway Life REIT: Solid Growth and Defensive Portfolio Drive “BUY” Rating

Investment Thesis: A Healthcare REIT with Growth Potential [[1]]

Parkway Life REIT (PLIFE) stands out as one of Asia’s largest listed healthcare REITs, boasting a stable portfolio of 75 high-quality, yield-accretive healthcare assets. These assets include private hospitals and medical centers in Singapore and Malaysia, as well as nursing homes in Japan and France, managed by 35 lessees. As of December 31, 2024, the portfolio’s total valuation reached SGD2.46 billion. Healthcare is a particularly defensive subsector. PLIFE’s long-term lease structures provide a steady stream of rental income, offering downside protection during market downturns. The REIT also presents growth potential through rental escalations and upside sharing with tenants. A combination of organic rental growth, accretive acquisitions, and prudent capital management has fueled consistent distribution growth since 2007. The REIT is supported by secular megatrends such as a rise in foreign medical tourism in Singapore and an aging population in Japan.

1Q25 Performance: Revenue and DPU Growth [[1], [2]]

• 1Q25 revenue and net property income (NPI) grew 7.3% and 7.5% year-on-year (YoY) to SGD39.0m and SGD36.8m, respectively.
• Contributions from newly acquired nursing homes in France and Japan, as well as rental step-ups for hospitals in Singapore were partially offset by JPY depreciation.
• Distributable income grew 9.1% YoY to SGD25.0m; combined with an enlarged unit base, DPU grew by a narrower 1.3% YoY to 3.84 Singapore cents, which constituted 25.3% of our initial full year forecast and is in line with our expectations.
• As PLIFE makes distributions on a semi-annual basis, this will form part of its 1H25 distribution.

Strong Balance Sheet and Capital Management [[1], [2]]

• PLIFE’s gearing rose 1.3 percentage points (ppt) to 36.1% as at 31 Mar 2025 on additional drawdown of loans for CAPEX and working capital purposes, as well as JPY appreciation since the previous balance sheet date (31 Dec 2024).
• Gearing remains at a manageable level.
• All-in cost of debt remained fairly stable, up 2bps to 1.50%, with ~90% of interest rate exposure hedged.

Divestment of Malaysia Portfolio [[1], [2]]

• PLIFE has announced the divestment of its Malaysia portfolio (comprising strata units and lots at MOB Specialist Clinics) to Pantai Medical Centre.
• The sale consideration of MYR20.1m (SGD6.1m) represents a 4.6% premium to the average of two independent valuations (MYR19.2m) as at 31 Dec 2024, and PLIFE is expected to recognize a gain on disposal of ~SGD0.1m.
• Divestment proceeds will be deployed towards paring down debt, which will provide the REIT with slightly more debt headroom and financial flexibility.
• The divestment is not expected to have a significant impact on DPU, given that the Malaysia portfolio contributed to just 0.2% and 0.1% of 1Q25 gross revenue and NPI, respectively.

Revised Fair Value Estimate [[1], [2]]

• Amidst the ongoing market volatility and tariff uncertainty, PLIFE stands out for its defensive portfolio and steady track record of DPU growth.
• PLIFE has put in place JPY and EUR net income hedges till 1Q29 and 1Q30, respectively, to mitigate income FX risk.
• The fact that 1Q25 DPU registered positive growth despite an increase in unit base is also testament to management’s prudence and ability to execute.
• Although PLIFE is trading at a relatively low dividend yield (forward 12-month dividend yield of 3.8% on Refinitiv as at the time of writing) versus the broader S-REITs complex, this is reasonable given the track record of the REIT and quality of management.
• PLIFE has multiple avenues to further grow its distributions in the medium to long-term, including asset enhancement initiatives at other Singapore hospitals, and making further inroads into Europe.
• The FY25 and FY26 DPU forecasts are raised by 1.1% and 0.3%, respectively, factoring in the divestment of the Malaysia portfolio.
• The fair value (FV) estimate lifts from SGD4.60 to SGD4.65, and the BUY rating on the counter is reiterated.

1Q25 Results Highlights [[2]]

ESG Updates [[3]]

• PLIFE’s ESG rating was maintained in Dec 2024.
• PLIFE has opportunities related to green building investments, it continues to lag peers in environmental initiatives, and there is limited disclosure available on its green building certification.
• PLIFE leads global peers in business ethics practices, including board-level oversight and audits of its ethics standards.
• It also has a majority independent board, and its corporate governance practices are on par with peers.
• PLIFE has room for improvement in terms of formal grievance mechanisms to address potential workforce issues, as well as talent pipeline development measures.

Potential Catalysts [[3]]

• DPU-accretive acquisitions
• A hawkish Bank of Japan (BoJ) supports the appreciation of JPY vis-à-vis SGD
• Higher-than-expected rental upside from strong performance of Singapore assets or successful renegotiation of Japan leases upwards

Investment Risks [[3]]

• High interest rates and a hawkish BoJ lift PLIFE’s funding costs, weighing on distributable income and stifling inorganic growth prospects
• Tenant default or refusal to renew master lease
• Potential cost overruns from asset enhancement initiatives and other capital expenditure programs

Valuation Analysis [[3]]

Parkway Life REIT is compared to First Real Estate Investment Trust and Raffles Medical Group Ltd based on several financial metrics:

Historical Price/Book and Forward Distribution Yield [[4]]

Historical Price/Book and Forward Distribution Yield charts are provided, visually representing trends from Apr-20 to Apr-25.

Company Overview (as of 6 February 2025) [[5]]

Parkway Life REIT (PLIFE) is one of Asia’s largest listed healthcare REITs by asset size. It invests in income-producing real estate and real estate-related assets that are used primarily for healthcare and healthcare-related purposes. PLIFE owns a well-diversified portfolio of 75 properties with a total portfolio size of approximately SGD2.46b as at 31 Dec 2024. It owns the largest portfolio of strategically located private hospitals in Singapore comprising Mount Elizabeth Hospital, Gleneagles Hospital, and Parkway East Hospital. In addition, it has 59 assets of high-quality nursing home and care facility properties in various prefectures of Japan. It also owns strata-titled units/lots in MOB Specialist Clinics, Kuala Lumpur in Malaysia. In Dec 2024, it completed the acquisition of a portfolio of 11 nursing homes across six regions in France.

FY24 Portfolio Breakdown [[5]]

• By Asset Class: Hospitals and medical centres (65.2%), Nursing homes (34.8%)
• By Geography: Singapore (65.1%), Japan (28.1%), Malaysia (0.2%), France (6.6%)

Net Property Income (SGD m) and Distribution per unit (S cents) [[5]]

Historical NPI and DPU data from FY18 to FY24 is presented, showing consistent growth in DPU over the years.

Company Financials [[6]]

Detailed income statement, profitability ratios, and credit ratios for FY2020-FY2024 are provided.

Income Statement (In Millions of SGD except Per Share)

Profitability Ratios

Credit Ratios

Analyst Declaration [[7]]

The analyst(s) who prepared this report certifies that the opinions contained herein accurately and exclusively reflect his or her views about the securities of the listed entity, and that he or she has taken reasonable care to maintain independence and objectivity in respect of the opinions herein.

Disclaimer [[7]]

This report is solely for information purposes and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without the prior written consent of OCBC Investment Research Private Limited.

Ratings and Recommendations [[7], [8]]

• OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon.
• OIR’s BUY rating indicates total expected returns (excluding dividends) in excess of 10% based on the current price; a HOLD rating indicates total expected returns (excluding dividends) within +10% and -5%; a SELL rating indicates total expected returns (excluding dividends) less than -5%. For REITs and Business Trusts, total expected returns including dividends apply.