SINGAPORE (Jan 27): DBS Group Research is maintaining its “buy” call on Parkway Life REIT (Plife REIT) with a target price of $2.75 as it offers one of the strongest earnings visibility profile among S-REITs, with a weighted average lease expiry of close to nine years.
In a Thursday report, lead analyst Rachel Tan says the bulk of revenue or 60% comes from Singapore, and is forecast to grow at CPI + 1% at a minimum of 1% while 40% is from its nursing homes and healthcare facilities in Japan which offer long-term certainty given a weighted average lease expiry of 13 years.
To recap, Plife REIT’s 4Q16 DPU (excluding one-off gains) grew 2.3% y-o-y, in line with consensus’ estimates. Net property income (NPI) came in 4% y-o-y, supported by Singapore hospitals following a marginal increase in revenue from Parkway East Hospital as it outperformed its minimum rent, and Japanese assets (+9%).
Plife REIT has divested four nursing homes in Japan and is expected to distribute $5.3 million gains quarterly during FY17 (about 0.2 cents per quarter). It has no refinancing needs until FY19, average debt to maturity is 3.6 years, and cost of debt is expected to remain stable at 1.4%.
Meanwhile, optimism has returned for acquisition opportunities in Japan, says Tan.
“We continue to see positive growth momentum for Plife REIT from its Japan asset recycling strategy. Management continues to look for acquisition opportunities to bulk up its exposure in Japan. Given a relatively low gearing ratio of around 36%, we see opportunities to expand via debt-funded acquisitions. We have priced in $45 million of acquisitions @ 6.5% yield in our forecast,” adds the analyst.
Units of Plife REIT are up 1 cent at $2.42.
