Developed by American demographer Warren Thompson in 1929, the Demographic Transition Model illustrates the many phenomena seen in today’s developed countries. Based on the model, when a country’s economic structure progresses to one that is highly industrialised, a demographic shift is observed.

Accordingly, new employment opportunities with higher wages are created, paving the way for a higher standard of living which in turn leads to a higher life expectancy. For Parkway Life REIT (PLife) – the largest listed healthcare real estate investment trust (REIT) by asset size in Asia – this phenomenon of an affluent, rapidly-ageing population points to an increasing demand for high-quality private healthcare and elderly-care services which it stands ready to ride on.

Commendable DPU Growth
Listed on the Singapore Exchange in August 2007, PLife counted three Singapore properties – Gleneagles Hospital, Mount Elizabeth Hospital and Parkway East Hospital – in its initial portfolio and became the biggest private hospital player in the local scene. The trust subsequently forayed into Japan, whose population has the highest proportion of elderly citizens, by taking on a series of acquisitions including 29 nursing homes as well as one pharmaceutical product distributing and manufacturing facility. As at 31 December 2011, its portfolio of 33 properties was valued at $1.38 billion, representing a more than 60% increase compared to that at the time of its listing.

Notwithstanding this whirlwind pace of acquisition, PLife has adhered to its growth strategy of investing in yield-accretive assets with a view to ‘enhance the long-term income-generating ability and overall defensiveness of portfolio’. For the full year ended 31 December, the trust reported a 9.2% rise in distributable income to $58.1 million, which brought about a distribution income per unit (DPU) of 9.60 cents. Remarkably, its quarterly DPU has steadily increased from 1.59 cents in 4Q07 to 2.47 cents in 4Q11, marking a commendable growth of 55.3%.

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Parkway Life Chart

For FY11, the improved DPU was underpinned by higher gross revenue and net property income which rose 9.6% to $87.8 million and 9.1% to $80.3 million respectively. The growth came from both its Japan and Singapore assets – revenue of the former was boosted by full year income contribution from the nursing homes acquired in 2010 and 2011, while that of the latter was supported by the minimum upward guarantee rent revision of hospitals. In addition, the trust managed to rein in its overall financing cost by $2.2 million through interest cost savings from refinancing and re-pricing exercises.

Resilient Portfolio, Room For Acquisitions
Along with the release of its full year results, PLife announced retention of a portion of its distributable income with effect from FY12. This is an effort to reduce reliance on debt funding, as the trust intends to finance the recurring capital expenditure needs of its existing assets via operating cashflow. Though the move will inevitably lower its DPU – it is estimated that $3 million will be retained in FY12, reducing its DPU by 0.5 cents – such a prudent approach will ensure its gearing stays near the current healthy level of 34.8%. Assuredly, the trust has stated that it will maintain its policy to distribute at least 90% of its taxable income and net overseas income going forward.

In perspective, PLife has successfully built up a defensive portfolio which can deliver stable and sustainable returns to its unitholders. Specifically, the trust has entered long-term rental structures with a weighted average lease to expiry period of 12.22 years. Occupancy of its assets stands at 100%, with 88% having downside revenue protection and 65% pegged to inflation-linked rental revision formulae. In terms of balance sheet strength, its all-in cost of debt is at a low of 1.64% and has debt headroom of $266.4 million before reaching the 45% gearing level, giving it ample ammunition for future acquisitions.

Thus, this standout combination of defensive nature and growth potential has enabled PLife to consistently outperformed both the Straits Time Index and the FTSE ST REITs Index throughout the high-volatility 2011.

Phillip Securities has issued an ‘Accumulate’ rating and noted that ‘it would be good to accumulate PLife against the backdrop of global uncertainties and high inflationary environment given its resilient and sustainable model’.