PLife – Phillip
VALUE + GROWTH
We met up with the management of Parkway Life REIT (Plife) for an update that bolstered our optimistic view on the REIT.
Value. Parkway Life REIT (Plife) has an underlying stable of properties that commands relatively stable cash flows with a growth component. As a reiteration, approximately 80% of gross revenue is contributed from the Singapore portfolio of hospital which grows at an annual rate of CPI + 1%. During the last revision in August 09, this was set at 4.36%. The Japan properties currently account for 20% of gross revenue. Being exposed to the defensive healthcare industry, its portfolio of properties faces little risk of asset devaluation as they are secured by relatively long leases with stable cash flows.
Growth. Besides organic growth from upward revision of rental, Plife has a growth strategy from asset enhancement and acquisition. Management revealed that it has dedicated personnel who are exploring the possibility of maximizing plot ratio of its assets and also efficient utilization of available spaces. In a recent asset enhancement initiative that was completed on the Matsudo property, incremental return of 19% to its gross revenue was achieved against capital spending on the property of 7%. Management also indicated that it is targeting the Singapore, Malaysia, Japan and Australia markets for potential expansion opportunities given the demographic and infrastructure suitabilities.
The other impetus for growth is the low gearing ratio of the REIT. Current gearing is 23% with total debt of $242 million. Assuming a gearing level of 35%, Plife has the capacity of take on an additional $200 million of debt for its expansion. In terms of funding sources, Plife has in-place a $50 million credit facility of Islamic financing and also a $500 million MTM program. The Islamic financing opens up an avenue of funding sources and also potential investor base.
Recommendation and valuation. We feel that the REIT sector has resolved most of the refinancing debacle that has plagued the sector in the past year. With credit issue out of the way, REIT managers should be turning their attentions to their growth strategy. In our opinion, Plife has satisfied all the criteria in carrying out an expansion.