Is Parkway Life REIT (SGX: C2PU)'s 3.5% Yield A Good Deal
Parkway Life REIT (SGX: C2PU) has recently announced its third-quarter 2020 financial results. It is trading at 3.5% dividend yield based on its last traded of $3.91 on 13 Nov.
Key Highlights:
Distribution per unit (DPU) and Dividend Yield (3.5%)
Price to book ratio (2.1)
Gearing (38.6%)
Portfolio Occupancy (99.7%)
Interest coverage ratio (17x)
Growth catalyst
Background of Parkway Life REIT
Parkway Life REIT is one of Asia’s largest listed healthcare REITs, which owns and manages 53 properties in Singapore, Japan, and Malaysia. In Singapore, Parkway Life REIT operates Mount Elizabeth Hospital, Gleneagles Hospital, and Parkway East Hospital.
1. Distribution per unit and dividend yield
Its net property income grew 2% to $28.1m. This was mainly due to the contributions from three Japan nursing rehab facilities acquired last year, higher rental from the Singapore properties as well as the appreciation of JPY.
Based on its latest price, the REIT is currently trading at about 3.5% dividend yield. Historically, the REIT has been delivering strong performance with increasing DPU over the years. The average yield was 4.96%.
2. Price to book ratio
Over the past 5 years, Parkway Life REIT has been trading at an average price to book ratio of 1.44. The recent price appreciation has increased the ratio to 2.1, indicating a 45% overvalued based on its historical valuation.
3. Gearing
Portfolio leverage remains conservative at 38.6%, with a weighted debt maturity of 2.7 years.
4. Portfolio Occupancy
The portfolio remains very resilient, with an occupancy rate of 99.7%. Its Singapore and Japan portfolio remain 100% committed.
5. Interest coverage ratio
Parkway Life REIT maintains a super high interest coverage ratio of 17 times, which is way above our preference of 4 times. The REIT has a low interest cost of 0.54%, 88% of its debt are under fixed rate. To mitigate refinancing risk, the REIT targets to refinance loan facilities by 4Q20 to term out all maturing debts due in 2021.
6. Growth Catalyst
Moving forward, the REIT management guides that all of its 53 healthcare assets continue to be in stable operations amid Covid-19 outbreak. As one of Asia's largest listed healthcare REITs, it was recently included in the FTSE EPRA NAREIT Global Developed Index in September.
Summary
Parkway Life REIT is one of more stable and growing REIT listed in Singapore. It maintains a strong track record since its IPO. We are monitoring the REIT closely for a potential entry.