Quarterly Results - ParkwayLife REIT

ParkwayLife REIT (PLife) just released their quarterly results. I'll be briefly going through some of the numbers, and will talk a bit about what I think their future growth will look like! And yes, I realized that this is the second post in a row about PLife. It's coincidental, and there'll be more variety coming up soon!

Distribution

PLife announced a quarter DPU of 3.57 cents, up 6.7% year-on-year. This wraps up into a full year DPU of 13.79 cents, representing a full year increase of 4.5% compared to the last FY. 

With their quarterly distributions spread rather evenly (see historic data below), it's pretty safe to expect at least 14.28 cents for the next FY, translating to a 3.56% forward dividend yield.

Growth Outlook

In the recent few quarters, PLife has been emphasizing on their growth strategy. Apart from "proactive asset management" and "asset recycling", which they've already done consistently, it also includes "Third Party Acquisition" and "Sponsor's Acquisition". While it's not possible to predict and make a guess about the third party acquisition, they also mentioned that they would "prioritize and seek out investment opportunities in countries where PLife REIT already has investments". 

Also, this is the future asset mix that they're aiming for. Note the increase in "hospitals and medical centres" and "pharmaceutical facility", over "nursing homes".

All of the above suggests that they'll be looking at buying over properties in either Singapore or Malaysia from their sponsor. These include Mount Elizabeth Novena Hospital in Singapore, 15 hospitals in Malaysia alongside a few other medical centres and facilities.

Of particular interest to me is Mount Elizabeth Novena, which is a rather new (6 years) hospital with investments in advanced care facilities and technologies. 

As with any other REIT, acquisitions would have to be funded by debt somehow. In the 4Q presentation, they provided an update regarding gearing, which now stands at 38.5%, leaving $243.8 million and $474.9 million in headroom before reaching 45% and 50% gearing respectively.

Unfortunately, Mount Elizabeth Novena had a Net book Value of roughly S$1.3B at 31 Dec 2019, which places it out of reach of PLife REIT's debt headroom. 

Could PLife buy over maybe 33% of the stake in Mount Elizabeth Novena like what FCT did with Northpoint? Perhaps, but that would raise their gearing to a really high level, and it might be messy with a partial stake (with regard to lease arrangements and stuff). Not striking the option out though, they might make a mega deal together with the lease renewal for the other 3 Singapore hospitals, who knows!

I think the more likely option would be to expand their presence with Malaysia with small bite-sized acquisitions. Here's the top two Malaysia properties owned by IHH Healthcare, with a SGD Net Book Value of approximately $100 to $120 million in 2019.

While their sole Malaysia property has been lacklustre at best, given the management's overall track record I'm still inclined to have some faith that they'll make good acquisition decisions!

Cheers,

InvestingNugget

Author's note:

At the point of writing, I am a shareholder of ParkwayLife REIT. I have put in my best effort to ensure that the facts are accurate, but I do not guarantee it. Opinions are my own and do not constitute any recommendations.