PARKWAY LIFE REIT: Eyes Third Pillar Amidst Healthcare Boom

Loo Hock Leong, Chief Financial Officer at Parkway Trust Management, Manager of Parkway Life REIT. Photo: Company

It was actually a chain of coincidences that led Loo Hock Leong to assume the role of Chief Financial Officer at Parkway Trust Management, Manager of Parkway Life REIT, Asia’s largest healthcare real estate investment trust.

How the Electrical Engineering Honours graduate from the National University of Singapore took on a treasury advisory job with DBS Bank, and rose through the ranks to become PLife REIT’s CFO, was very much incidental, Loo said.

“I call myself the accidental CFO,” the affable 45-year-old said with a laugh.

“I was not trained in finance, business or accounting – I was an electrical engineer, and became an accidental banker in DBS after attending a campus career fair in my final year,” he said.

“I am a people person, and I enjoy meeting people. Spending all my time dealing with electrical components like resistors and capacitors, being a lab rat, was just not my cup of tea.”

Loo spent 13 years with DBS, advising clients on interest rate and foreign exchange risk management solutions relating to capital structuring, as well as mergers and acquisitions. Along the way, he obtained a Masters of Applied Finance from Macquarie University.

That experience landed him the job as head of corporate finance at PLife REIT in 2008, and he was promoted to CFO about a year later. Since then, he has also secured a professional qualification from the Institute of Singapore Chartered Accountants and the title of Chartered Accountant of Singapore.

Loo attributes the drive to upgrade himself to his parents, who exemplified the values of perseverance and hard work.

“My parents were very good role models. My dad was a very astute businessman who worked hard to support the family, while my stay-at-home mum ran the household, ensuring that my five brothers and I were getting the best possible education and care.”

Going back to school as a mid-career professional also gave Loo an opportunity to study with his four sons, including a pair of twins, aged 10, 14 and 15 years.

“They take out their books, I take out my books, and we study together,” Loo said with a grin. “Of course, I would always outlast them in terms of concentration!”

“It’s all about teamwork, cultivating that kampung spirit, and helping my staff grow together with the company.”

- Loo Hock Leong
CFO

Parkway Trust Management

Apart from fostering a spirit of collaboration at work, Loo aims to maintain a culture of financial prudence at PLife REIT.

“We are very defensive in nature, and we are probably the most ‘kiasu’ REIT among all the Singapore REITs,” Loo said, referring to the popular Singlish term that means ‘afraid of losing out’ in vernacular Chinese.

Bon Sejour Shin-Yamashita is Parkway Life REIT's freehold 5-storey paid nursing home comprising of 74 units with care service in Japan. Photo: CompanyWith Japan accounting for 37% of its revenues, and more than S$500 million in Japanese assets, PLife REIT has adopted “a natural hedge” by borrowing in yen for its acquisitions.

“As our assets denominated in yen depreciated in value in line with the currency, our liabilities also declined. Therefore, we were able to mitigate the principal FX risk. If we had not adopted this natural hedge, we would be dead by now,” Loo noted.

The tenure of PLife REIT’s hedges is as long as five years. “That’s one of the longest among the S-REITs. The others typically hedge about six months to one year.”

The REIT also uses interest rate hedges for 80% of its outstanding debt, he said. “This is to ensure we are insulated against any pending rate hikes.”

And conservatism rules when it comes to managing PLife REIT’s gearing and capital structure.

“We aim to have no more than 30 per cent of our debt maturing in any single year, to ensure our debt profile is very well spread out, otherwise stakeholders would be extremely nervous in a particular year with large capital outflows,” he said.

“We do our refinancing a year ahead of the maturity date, so we have room to manoeuvre – more time to conduct beauty parades to drive down credit spreads, more time to negotiate for better terms.”

Needless to say, the state of the capital markets sometimes gives Loo restless nights.

“With the recent yuan devaluation and threat of currency war, we may see capital outflows and indiscriminate selling in the region by funds. This is of concern to us, as the well-being of a REIT depends on the efficient and healthy functioning of the capital markets,” he added.

The REIT’s defensive nature is also enhanced by its long-dated lease agreements and its focus on the healthcare industry.

PLife REIT’s weighted average lease expiry (WALE) is over nine years, longer than typical retail or industrial leases. “This helps to mitigate any loss of income due to tenant turnover,” Loo said.

WALE is a key metric used by investors to measure a REIT’s risk of going vacant. When a property is left vacant for long, income and distribution to unit holders will be affected.

“Coupled with ageing populations and rising per capita incomes in the region, particularly in Japan, demand will continue to expand. Medical technology will improve, but patients will live longer and need a place to be treated or live in,” he added.

The next step for PLife REIT is to find its third pillar of growth.

“Singapore is our anchor, accounting for about 63 per cent of our revenues. The next is Japan, and the third leg, which will make our entire portfolio more stable, could either come from Malaysia or Australia.”

“We are building up pipelines within these two markets. Our acquisitions are not an end in itself, but a means to an end, to ensure that our DPU is stable and sustainable over time,” Loo said, referring to the REIT’s distribution per unit.

“We would rather pass on deals than dilute the DPU and reduce the defensive nature of our portfolio.”

• Bolstered by robust demand for nursing homes in Japan, PLife REIT plans to consolidate its assets in the country to generate operating synergies and achieve greater cost of savings.
• With the healthcare industry witnessing unprecedented growth, and total healthcare spending expected to rise, PLife REIT is actively seeking new opportunities in other regional markets to meet growing demand.