Demographic change is a defining issue of our time. Global fertility rate has fallen to a record low level from 5 in 1950 to 2.45 in 2020. This has caused the rapid aging situation to re-surface in recent years as the number of new births is unable to replace the aging population.

As the worldwide population ages, the healthcare systems of every country will face significant challenges to meet the needs of the aging population.

According to The Japan Times, by 2030, 1 out of every 3 Japanese will be over the age of 65 and 1 out of every 5 Japanese will over the age of 75. Back home in Singapore, based on projection from the United Nations (UN), 47% of Singapore’s total population will be aged 65 years old and above by 2050.

Source: population.sg

aging population

PARKWAYLIFE REITSGX: C2PU

Another stock that will benefit from this megatrend will be ParkwayLife REIT (SGX: C2PU).

One of Asia’s largest listed healthcare REITs, ParkwayLife REIT is established by Parkway Holdings to invest primarily in income-producing real estate and/or real estate-related assets in the Asia-Pacific region (including Singapore) that are used primarily for healthcare and/or healthcare-related purposes.

Source: ParkwayLife website

As at 31st December 2019, Parkway Life REIT’s total portfolio size stands at 53 properties totaling approximately S$1.96 billion.

Some of the hospital properties that are operated by ParkwayLife REIT are Gleneagles Hospital, Mount Elizabeth Hospital and Parkway East Hospital. The master lessee for these 3 properties is IHH Healthcare Berhad which is a leading healthcare operator in Malaysia and Singapore. Currently, IHH Healthcare Berhad have a stake of 35.6% in ParkwayLife REIT.

Leveraging on strategic partnerships and clustering approach, ParkwayLife REIT aims to establish a self-sustainable “healthcare ecosystem”, comprising of a comprehensive range of high-quality healthcare facilities, in the long run.

By offering integrated healthcare facilities catering to both operators and end-users, ParkwayLife REIT would be better positioned to capture the burgeoning regional demand for more sophisticated healthcare infrastructure and services.

aging population - pa

rkwaylife reit

Source: ShareInvestor WebPro

Revenue for FY2018 was S$112.8 million, showing a year-on-year increase of 2.7% from FY2017. The growth was largely attributed to the contribution from the Japan acquisition, higher yielding properties acquired from the asset recycling initiative completed in February 2017 and higher rent from the existing properties.

Distributable income to unitholders for FY2018 declined by 3.5% as compared to FY2017, due to the absence of one-off distribution from divestment gain on the disposal of 4 Japan properties in FY2017.

For FY2019, ParkwayLife REIT’s revenue rose 2.1%, or S$2.4 million, year-on-year to S$115.2 million, mainly due to revenue contribution from Japan property acquisitions in February 2018 and December 2019, higher rent from existing properties and appreciation of the Japanese Yen.

Distributable income to unitholders for FY2019 was S$79.8 million, a year-on-year increase of 2.4%. The increase was led by contribution from three Japan properties that the Group acquired in December 2019, rental growth of existing properties as well as cost savings arising from refinancing initiatives completed in 2018 and 2019.

Past Performance

aging population - pa

rkwaylife reit

Key Personnel

Source: ParkwayLife REIT

Source: ParkwayLife REIT

Yong Yean Chau is the Chief Executive Officer (CEO) and Executive Director of ParkwayLife REIT. He joined ParkwayLife REIT as Chief Financial Officer (CFO) in February 2008 and was promoted to CEO in December 2008. Previously, he was the CFO of the Singapore Tourism Board, overseeing its finance and corporate services functions. Prior to that, he was the CFO of Ascendas Pte Ltd.

During his tenure with Ascendas, he was seconded to China-Singapore Suzhou Development Ltd and Singapore-Suzhou Township Development Pte Ltd as the CFO in Suzhou, China. Before joining Ascendas, Mr. Yong held other finance and audit positions in Beijing ISS International School, Housing and Development Board and Arthur Andersen.

Tan Seak Tze has more than 25 years of experience in the areas of real estate investment, corporate finance, operation, business development and marketing.

Prior to joining Parkway Trust Management Limited in June 2009, he was the Vice President, Investment of CapitaLand Group overseeing the investment activities of CapitaLand’s retail business unit in India. Prior to that, he worked for two years in the Philippines as the Chief Operating Officer of a business process outsourcing firm. In 2004, he was seconded by Ascendas Pte Ltd to the position of Chief Executive Officer of L&T Infocity-Ascendas Ltd, a developer company of IT complexes in Hyderabad, India. He held various finance and corporate finance positions within the Ascendas Group between 2001 and 2003.

aging population - pa

rkwaylife reit

Peer Comparison

Source: ShareInvestor WebPro

For peer comparison, First REIT (SGX: AW9U) and a global peer, Healthcare Realty Trust Inc. (NYSE: HR) are identified as ParkwayLife REIT’s peers.

In terms of Return on Assets (ROA) ratio, ParkwayLife REIT is ahead of its peers with a ratio of 6.1% while First REIT and Healthcare Realty Trust Inc. lagged with 3.2% and 1.04% respectively. ROA is considered as a measurement to the effectiveness of how the management is using a company’s assets to create profit and this shows that the management of ParkwayLife REIT is utilizing the assets in an efficient manner.

When compared against the interest coverage ratio, ParkwayLife REIT also performed better than its peers, coming in close to 21 times while First REIT and Healthcare Realty Trust Inc. managed to secure 5.3 and 1.6 times respectively. This shows that ParkwayLife REIT’s can cover its current interest payment with its available earnings with a high margin of safety.

aging population - pa

rkwaylife reit

Current Positioning in the MarketFor ParkwayLife REIT, they have a strong presence in the Japanese market with a portfolio of 49 high quality healthcare properties comprising 1 pharmaceutical product distributing and manufacturing facility (P-Life Matsudo) and 48 private nursing homes. Nursing home properties are also strategically located in dense residential districts in major cities.

Source: ParkwayLife REIT

ParkwayLife REIT’s portfolio of nursing homes is run by 26 high-quality nursing home operators which allow the REIT to diversify its tenant risk. Furthermore, there are also back-up operator arrangements in place to minimize operator default risks.

There is also rental guarantee in place by vendors for most of the properties to ensure stability in the rental payment amount to ParkwayLife REIT. Vendors providing rental guarantees include K.K. Bonheure, K.K. Uchiyama Holdings, Miyako Kenkoukai, K.K. Excellent Care System, K.K. Habitation and K.K. Living Platform.

Details of key nursing home operators in Japan – Source: ParkwayLife REIT

aging population - pa

rkwaylife reit

How ParkwayLife REIT Will Ride on The TrendAgainst the backdrop of strong aging demographics in Japan in the next few years, this will allow ParkwayLife REIT to continue position itself favorably with the acquisition of aged-care properties to fortify the resilience and quality of the REIT.

Moreover, one of ParkwayLife REIT’s growth engines is to work with its key partner K.K. Habitation to reinforce its presence in Japan. This means that there will likely be more acquisitions along the way for ParkwayLife REIT to tap on the growing aging trend in Japan.

ParkwayLife REIT will continue its consolidation of assets in Japan to generate operating synergies and derive further cost saving for the REIT. With more cost savings in place, this will translate into higher distribution income for their unitholders.

Growth Prospects

Source: ShareInvestor WebPro

Based on Consensus Estimates, analysts are forecasting ParkwayLife REIT’s revenue to grow by 3.4% and 0.8% for FY2020 and FY2021. In terms of its distribution per unit (DPU), ParkwayLife REIT’s growth in DPU is expected to come in at 3.33% in FY2020 and 1.03% in FY2021.

An extract from report: “Demographics Asia: Opportunity in Adversity” by IPE Real Assets in March 2018, states that senior-care offerings, including home, facility and the elderly-care market in Japan will be worth an estimated 15 trillion yen (S$200 billion) by 2025.

As one of the largest listed healthcare REITs in Asia, ParkwayLife REIT will be able to benefit from the fast-growing healthcare sector in the region, which is driven by aging populations and demand for quality healthcare and aged care services.

aging population - pa

rkwaylife reit

Some of the possible risk that ParkwayLife REIT might face will be interest rate risk where any increase in interest rate will result in the increase of finance cost incurred for the REIT and this will indirectly reduce the distribution per unit for unitholders.

With the expansion into Japanese market, ParkwayLife REIT will incur forex risk as income from the Japanese assets will have to be converted into Singapore Dollar (SGD) and the REIT might face certain degree of forex losses.

Locally, there will also be challenges as the increase in demand for medicial services and nursing homes will inevitablity interest new entrants into the market and lead to more competition within the sector.

Since 2019, the revenue from Singapore’s hospitals has been dipping due to the drop in medical tourism and ParkwayLife REIT will need to ensure that these operators are in good financial shape as most of their current revenue is generated from hospitals located in Singapore.

possible risks

aging population - pa

rkwaylife reit