On 7 February 2018, Parkway Trust Management Limited, as manager of Parkway Life Real Estate Investment Trust (PLife REIT), announced the acquisition of a nursing rehabilitation facility, Konosu Nursing Home Kyoseien under a sale-and-leaseback agreement with Iryouhoujin Shadan Kouaikai for a negotiated consideration of JPY1,500 million (approximately SGD17.8 million).
Acquisition of yield-accretive property in Saitama prefecture, Japan
HSBC Institutional Trust Services (Singapore) Limited, as trustee of PLife REIT has through its wholly-owned subsidiary, Parkway Life Japan2 Pte. Ltd., entered into a Tokumei Kumiai agreement (or silent partnership) for the acquisition of the property. The acquisition will be made at approximately 7.4 per cent below the valuation and is expected to generate a net property yield of 6.7 per cent, thereby delivering immediate yield growth to PLife REIT. The acquisition is expected to be completed in the first quarter of 2018 and will bring PLife REIT’s portfolio to 50 properties with a total value of SGD1.75 billion.
Good attributes of the acquisition further strengthens PLife REIT’s Japan portfolio
The property is strategically located in the residential neighbourhood of Konosu City, Saitama prefecture, within the Greater Tokyo Region. It is easily accessible by train via Kitamoto train station and is an approximately 90-minute drive from the central business district of Tokyo.
Secured on a fresh 20-year master lease arrangement with the vendor, an experienced nursing home operator, the acquisition will further lengthen the weighted average lease expiry (WALE), which currently stands at approximately 7.91 years and 13.17 years for PLife REIT’s entire portfolio and Japan portfolio respectively. In addition, PLife REIT’s nursing home tenant base will be increased from 22 to 23. As at 31 December 2017, the property enjoys a stable operational occupancy of approximately 100 per cent and is well maintained.
Continuous growth of healthcare sector
Japan currently has the longest life expectancy in the world at 83.7 years. The rapid ageing population means that the government has to reallocate national resources to provide the infrastructure and services for a different demographic. Private nursing care recorded a spending of JPY8.6 trillion in 2014, which is expected to grow by 71 per cent in 2020. There are an estimated 366,000 elderly people waiting to be admitted to special nursing homes across Japan. This indicates an undersupplied market where the number of nursing homes will likely to continue growing to meet the rising demand.
Funding for the acquisition
The acquisition will be financed by internal funds and JPY-denominated debt, as such there is no significant impact on PLife REIT’s leverage level post-acquisition. PLife REIT’s approach to deploy JPY funding provides a natural hedge for the foreign exchange risks arising from its JPY-denominated assets. This hedging strategy mitigates the foreign exchange risks associated with this acquisition and ensures certainty of distributions to unitholders.
Commenting on the acquisition, Yong Yean Chau, Chief Executive Officer of the manager, said: “With the growing ageing population and shrinking family sizes continuing to contribute to the increase in demand for aged care facilities in Japan, we are pleased to kick-start 2018 with this Japan acquisition. As we work on strengthening PLife REIT’s portfolio attributes, this acquisition also brings about another new partnership with an established and experienced operator in Japan, signalling PLife REIT’s strategic presence in Japan.”
Parkway Trust Management Limited (manager of Parkway Life REIT) — Construction+ Online