CFA Society Singapore
SINGAPORE (Jan 29): DBS is keepings its “buy” rating on Parkway Life Real Estate Investment Trust (PLife REIT) with an increased target price of $3.15.
In a Monday report, analyst Rachel Tan says, “PLife REIT offers one of the strongest earnings visibility profiles among SREITs, with a weighted average lease expiry (WALE) of close to nine years.”
On Friday, the REIT announced its 4Q17 results, with its DPU rising 10.6% to 3.38 cents from 3.06 cents due to the one-off distribution of divestment gains, bringing total FY17 DPU to 13.35 cents.
However, gross revenue for the quarter dropped 0.7% to $27.5 million from $27.7 million due to the depreciation of JPY.
NPI for the quarter was up by 0.7% to $25.7 million, due to lower property expenses compared to the year before on the absence of one-off marketing commission paid to the manager.
The analyst believes that PLife REIT will be able to deliver steady and sustainable growth in returns through its three-pronged growth plans of asset recycling strategies; venturing into a new market (third pillar); and potential acquisition pipelines from its sponsor while maintaining its defensive stance in expansion.
On the outlook, the REIT has been less active in the asset recycling activities front in FY17, which may cause the market to questions its ability to outperform its commended past achievements.
However, the PLife REIT has always delivered on its asset recycling.
“We believe the asset recycling exercise will continue to lead its growth given its successful track record. However, the timing of the asset recycling remains uncertain,” says Tan.
Meanwhile, the REIT is building a third pillar for the next phase of growth.
This comes on the back of its Japan assets having grown to a decent size, contributing about 40% of its gross revenue.
The REIT’s management also continues to explore opportunities in developed countries with a mature healthcare market and believes that there could be potential opportunities in Australia and Europe. But it still remains cautious on new ventures, thus the timing of potential entries remain uncertain.
“We continue to like PLife REIT for its strong earnings visibility, which is a positive attribute given the current volatile and uncertain market conditions,” says Tan.
As at 12.52pm, units in PLife REIT are trading at $2.98 or 22.6 times FY18 earning with a distribution yield of 4.3%.