I decided it’s time to do a review of my top 10 holdings as each of these investments costs me 4 to 10 months of expenses. A check on my site shows that I did a “Why I buy” series in 2016. Out of the 10 counters written then, I am only holding on to 3 of them now – Parkway Life Reit, Capitaland China Trust and Raffles Medical.

The (business) world is complex, so it is necessary to monitor our investment, so as to ensure that the original intent of buying still remains. It is also with clarity that allows us to be comfortable holding on to our investment regardless of price movement in the market.

Let’s start off with my top holding Parkway Life Reit!

This is not only the largest holding I have but also the longest one that I have held on in my current portfolio. It’s 7 years since I first bought it, and bought and sold some along the way. When I revamped my portfolio in 2020, the price I used for the then existing holdings was $3.32. Added more over the past 3 years and current average price is about $3.46.

The Positives

Singapore and Japan are the two main markets that ParkwayLife Reit is in, with Japan bringing in about 41% of the revenue. Both are affluent societies and have demand for healthcare services. Based on 2021’s figure, 28.8% of Japanese is already 65 years old and above, so the demand for nursing homes should continue to stay strong in the foreseeable future. We are facing similar ageing population and it is projected that 8 years from now 1 in 4 will be above 65 years old. Coupled that with the expected increase in number of millionaires, we can expect sustained demand for private healthcare.

Parkwaylife has grown its DPU since IPO! An amazing record, given that period include 2008’s GFC and 2020’s Covid pandemic. The growth rate has slowed to about 3% over the past 5 years and I think it’s not coincidental that management hinted on growing a third market early last year. The business is definitely resilient with astute management.

The highlight from last financial year must be the new master lease agreements with income visibility for the next 20 + 10 years! It is more complicated from 2023 to 2025 due to renewal capex and rental rebate but after which rental revision is going to follow CPI + 1% formula. Another possible growth is the possible injection of Mount Elizabeth Novena which I think fit very nicely to the Singapore segment. With its strong balance sheet, it can fund the expansion with borrowings but I do think that it might raise is first rights issue if debt stays expensive in the next 2 to 3 years.

The Negatives

There is not much not to like about ParkwayLife Reit. But if I were to pick two of them, then the first would be uncertainty of the third market. With the slowing growth in the past few years, it seems to be the correct time to expand into a third market. However, given the macro uncertainties at the moment and starting of the renewal work at Mount Elizabeth, this might be delayed for a while.

The second negative has nothing to do with the business but is valuation. Given that it continues to trade at a premium, its current yield is only at about 3.1%! Compared to recent fixed deposit promotion rates of 2.3% and above, it certainly is not very attractive for the short term. Even for the longer term, SSB is providing 2.5% to 3% over 10 years in recent issues, so while a 3.9% yield from 2026 onwards will be higher, it isn’t that attractive given the volatility of equity.

Based on the above, I will just continue to hold on to my current shares. If they decide to do a rights offer, I will definitely consider picking them up at the right price.