Parkway Life Reit buying Japanese nursing home for $18m

Parkway Life Reit is buying nursing rehabilitation facility Konosu Nursing Home Kyoseien in Japan for 1.5 billion yen (S$18 million).

The acquisition of the 120-room property in Saitama prefecture, under a sale-and-leaseback agreement with nursing home operator Iryouhoujin Shadan Kouaikai, will be made at 7.4 per cent below the valuation of 1.62 billion yen, as of the end of December last year.

It is expected to generate a net property yield of 6.7 per cent. This beats its current yield of about 4.5 per cent, and is thus expected to deliver "immediate yield growth" to the trust, the manager for Parkway Life Reit said.

The acquisition is expected to be completed in the first quarter, and will bring the Reit's portfolio to 50 properties worth $1.75 billion.

The property is also secured on a fresh 20-year master lease arrangement with the vendor, at an annual gross rental of about 112 million yen.

The property will also have a backup operator agreement with the lessee Iryouhoujin Shadan Kouseikai, whose role is to ensure that the business of the rehabilitation facility runs smoothly, in the event of any cancellation or termination of the current lease.

The property is located in the residential neighbourhood of Konosu city, is accessible by train, and is about a 90-minute drive from Tokyo's central business district.

As of the end of December last year, the property has a stable operational occupancy of about 100 per cent. The acquisition will be financed by internal funds and Japanese yen-denominated debt. There is therefore no significant impact on the Reit's leverage level after the acquisition.

Its yen-denominated debt also provides a natural hedge for the foreign exchange risks arising from its yen-denominated assets, and ensures certainty of distributions to unit holders, the Reit manager said.

Units of the trust rose two cents to end at $2.79 on the stock market.

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A version of this article appeared in the print edition of The Straits Times on February 08, 2018, with the headline Parkway Life Reit buying Japanese nursing home for $18m. Subscribe