Parkway Life REIT (aka Plife Reit)

I was just taking a look at the full year financial statement of Plife reit.

NAV $1.55
Today's closing price $2.30
Distribution yield for the whole year based on today's price is 4.5%

Does it really make sense to buy a reit above NAV in the singapore context?

well like the old adage: price is what you pay, value is what you get.

Qualitative wise:

NAV for plife i believe the main underlying is the valuation of the building if i am not wrong, would it paint a accurate picture of the value? To replicate the biz model: have a competitor to come in to buy/lease land, apply for the various permits and build hospital, undercut you and lease it out? i think wouldn't be easy to do so, hence there is probably some investment moat.

More importantly, the numbers:

from the prospectus:

Gross rental revenue comprises the income derived from the rental of the properties. Under the terms of the master lease agreement, the rent shall comprise of (a) Annual base rent, (b) Variable rent subject to a minimum total rent, such that the aggregate rent for the current year shall exceed the preceding year's aggregate rent by a percentage no less than the percentage increase in the CPI of singapore for the preceding year plus 1%. Where the CPI growth pct is negative for any year, then the growth pct is 0 for computing the minmum total rent.

So in a sense, this reit has kind of a price floor and kind of "inflation-linked" yield. I probably wouldn't buy at today's prices as there are still some gems out there returning >4.5% but im quite sure at nav, its a big bargain to me, the only downside: the master lease agreement is 15 years and subject to revision i guess and also its a single tenant kind of biz, either got income or black tail event.. 0 income!

Think the guy who derived the inflation-link structure during Plife IPO must be really kicking himself - Did not forseen inflation can be so high when it IPO in 2007.
This probably will most interesting REIT I think, DPU at IPO was around 1.6 and without any right issue just adding debt DPU has increase to 2.69 really impressive for a REIT.
This REIT during 2009 was lowest at around 0.66 !!!! half of the IPO price - It is more than 3X at current price, who say buying REIT cant HUAT and only bring stable income.

I doubt it is that bad a deal for the parkway. They owned 30% of the REIT and enjoy ~9% of the total revenue as property manager. Only the hospitals in Singapore enjoys the inflation-linked structure which accounts for 2/3 of their revenue.

For the japanese asset, only 2 are linked to CPI in Japan (not very useful anyway). 72% has downside protection, but limited upside. while the other 28% is subjected to market rate. The attraction for the Japanese asset is long term lease, downside protection and good yield on acquisition cost. However, the downside is tax expense and exchange fluctuation. Majority of the loan and interest expenses of P-Life are in JPY Yen as well with interest rate charged at Libor+spread. Of course, you have to research on the strength of the counter party involved in the master lease in Japan.

sounds like First REIT, which most have CPI growth capped at 2%. so its like bloody stagnating.

having said that they say first reit NAV is 80 cents p to nav is 1.3 times. forward dpu 7.2 cents, 6.66% yield. do u think its overly expensive as well?

The IPO of plife start with only Singapore properties which contain the clause of CPI+1 only applicable which I feel is a disadvantage to the master lease which is 15 +15 option. I doubt master lease will continue after 15 years if CPI dont go back to our normal rate - 2% but that still a long way to go before 15 years expired in 2022.
Just the above clauses you can assume that private health care really cost a bomb in Singapore.
First Reit - on top of the normal CPI + 2%, there are some benefit on operator revenue.
Management really play a part REITs like other company although in early year I thought it is fairly easy to manage a REIT and management should not have such a big differences. Comparing First Reit & Lippo both are Indonesia (different sector), you will really see the differences.
I very familiar with both REITs structure as they are my core holding for the past few years.

(26-01-2013, 11:04 AM)Drizzt Wrote: sounds like First REIT, which most have CPI growth capped at 2%. so its like bloody stagnating.

having said that they say first reit NAV is 80 cents p to nav is 1.3 times. forward dpu 7.2 cents, 6.66% yield. do u think its overly expensive as well?

Between First reit and plife, i will choose first reit. Ultimately, the main purpose of reit is to provide a stable revenue and return for the reit holder. For healthcare reit to have significant growth, the only way is through acquisition given the type of long term master lease they are engaged in.

The reason why i will pick first reit is that forex risk is minimum as most of its loan, revenue are pegged in SGD with the exception of its South Korean properties which account for small percentage and they are pegged in USD.

On the other hand, PLife has 1/3 of its revenue from Japan and 90% of loan in Yen. There will be people that says forex risk is hedgable. Short term fluctuation can be hedged but if it is long term decline or increase like the USD or GBP, you will not be able to hedge it. It depends on what is your view on JPY which I am not too sure.

I believe the reason why First REIT dividend yield is higher is that its assets are based in indonesia which is deemed more risky. Neither can they gear up too much as SG banks will not lend them too much money due to the Indonesia risk. Neither can they borrow from the Indonesian bank as I heard the interest rate is ridiculously high.

If inflation is 5%, First Reit grows by 2% while Plife 2/3 revenue grow by 5%. However, the difference in dividend yield is 1.3% which is quite a huge amount. A simple calculation without applying discont rate will be that if i put $100 into both reit, they do not acquire any asset, plife revenue will have to grow by 5% every year to equalise the dividend one get from First REIT which grow by 2% every year for a period of 15 years. Will Singapore have 5% inflation for the next 15 years? Maybe or maybe not, but the Japan revenue will also have to grow by the same amount.

Thus, I will choose First Reit for the distribution is much more stable as compared to PLife with potential forex risk. 90% of First REIT portfolio is made up of hospital and even the nursing home has fixed 2% yearly step up. On the other hand, PLife nursing home rental are subjected to revision every 2-5 years and they did not annouce if there's fixed rental increase. (if there's any, I don't see why they won't want to say)

Of course, PLife is more capable to grow its portfolio with lower cost of debt and high net property yield of ~8% for acquiring nursing home in Japan. They might even intend to gear up to 45%.

Just my 2 cents worth

hmm same thoughts.

(26-01-2013, 11:33 AM)unknown1 Wrote: The IPO of plife start with only Singapore properties which contain the clause of CPI+1 only applicable which I feel is a disadvantage to the master lease which is 15 +15 option. I doubt master lease will continue after 15 years if CPI dont go back to our normal rate - 2% but that still a long way to go before 15 years expired in 2022.
Just the above clauses you can assume that private health care really cost a bomb in Singapore.

Asset enhancement policies without considering social costs is killing all of us softly for the benefit of few

PLife REIT has extended its footprint in Japan with its new acquisition from K.K Sawayaka Club, a wholly owned subsidiary of K.K Uchiyama Holdings. Under this transaction, PLife REIT acquires five nursing home properties.

The acquisition, which cost SGD57.5m in total, is expected to generate a net property yield of 7%. The purchase is expected to be done by October. With the additional properties, PLife REIT’s Japan portfolio will stand at 32.9% of the total asset management. Since 2010, PLife REIT has acquired 10 nursing homes from K.K Uchiyama Holdings.