Among all the REITs listed in Singapore, Parkway Life REIT (SGX: C2PU) is definitely one of the most defensive ones. The FY2020 results of Parkway Life REIT have just been released and it’s an exciting one to watch. The REIT has been able to grow consistently over the past few years and 2020 has not been a disappointment for shareholders. Without further delay, let’s jump right into the results.
Portfolio Overview
Parkway Life REIT is one of the largest listed healthcare REITs in Asia with an enlarged portfolio of S$1.96 billion. The REIT is defensive with its long-term lease structures which protect its downside. It also provides a stable stream of income which is supported by regular rental revisions.
1. Growth In Gross Revenue and NPI
| Year on Year Difference | FY2020 | FY2019 |
|---|---|---|
| Gross Revenue | S$120.892 million (+4.9%) | S$115.222 million |
| Net Property Income (NPI) | S$112.528 million (+4.0%) | S$108.225 million |
As we can see, Parkway Life REIT has yet again managed to grow its Gross Revenue and NPI consistently over the past few years. Being a healthcare REIT, Parkway Life REIT is very defensive in its nature which allows it to do well even during touch times and black swan events. With healthcare being a huge trend in 2020 due to the Covid-19 outbreak, the demand for these assets will be growing even faster.
2. Growth In Distributable Income and DPU
| Year on Year Difference | FY2020 | FY2019 |
|---|---|---|
| Distributable Income | S$83.409 million (+4.5%) | S$79.822 million |
| Distribution Per Unit (DPU) | 13.79 cents (+4.5%) | 13.19 cents |
Moving onto the Distributable Income and DPU, Parkway Life REIT has also managed to grow these 2 segments well by 4.5%. Investing in such strong growing yet defensive REITs allow investors, especially dividend/income investors, to invest with ease of mind as they collect their quarterly/semi-annually paychecks. The best part is that these paychecks are always increasing every year so it’s like you’re getting a pay raise without putting in any additional effort.
3. Solid and Stable Financials
| As at 31 Dec 2020 | As at 31 Dec 2019 | |
|---|---|---|
| Aggregate Leverage | 38.5% | 37.1% |
| Interest Coverage | 18.1x | 14.1x |
| Average Cost of Debt | 0.53% | 0.80% |
Moving onto the financials, Parkway Life REIT’s gearing has increased quite a bit from last year, increasing from 37.15 to 38.5%. Though the gearing is higher than what I would like, the debt headroom is still pretty big at S$243.8m and S$474.9m before reaching 45% and 50% gearing respectively. This provides ample room for any additional growth opportunities should they come in the near term which I will be talking about in the next point.
Their balance sheet is also very stable with an interest coverage ratio of 18.1x. Not to mention the extremely low cost of debt at 0.53%, Parkway Life REIT is well-positioned to continue bringing increased value to shareholders year over year.
4. Growth Potential
As mentioned in my previous post, Parkway Life REIT, Singapore’s Most Defensive REIT, I’ve shared that Parkway Life REIT has a lot of room to grow in the near term as the REIT has recently changed their general mandate back in June 2020. The general mandate allows the REIT to issue up to 20% of the units outstanding in a given year. Based on a pro-rata situation involving an equity fundraising or rights issue, the REIT could potentially issue up to 50% of its units outstanding in a calendar year.
Parkway Life REIT could be hinting at a potential acquisition in a new developed market. If Parkway Life REIT is planning to go into another Asia market, I’m guessing they will go for either Taiwan or South Korea. If you’re keen as to why I mentioned these 2 countries, you can check out the article here.
Final Thoughts
Overall, another very strong performance by Parkway Life REIT. Through the FY2020 results of Parkway Life REIT, investors can see that defensive assets can also perform very well for investors over the long term with little to no risk.
Parkway Life REIT is a fantastic and defensive REIT to hold though the valuation might not be attractive because of the high premium you are paying but always remember that when buying high-quality assets, a premium must be paid in order to hold such assets. You won’t be able to find an A5 Wagyu steak at the same price as a normal steak cut in the supermarket.