Ada Lim of OCBC Investment Research has kept her "buy" call and $4.27 fair value estimate on Parkway Life REIT, following a robust FY2023 driven by both organic and inorganic drivers.
For its 2HFY2023 ended December, PLife REIT grew its gross revenue by 4.7% y-o-y to $73.1 million and net property income (NPI) by 4.8% y-o-y to $69 million.
The REIT enjoyed higher contributions from newly-acquired nursing homes in Japan and higher rent from the Singapore hospitals under the new master lease agreements. However, the takings were partially offset by the yen's depreciation versus the Singdollar.
While financing costs were higher, 2HFY2023 distributable income was up 2.1% y-o-y to $45.3 million and distribution per unit was 7.48 cents, bringing full-year payout to 14.77 cents, representing a yield of 4.2% based on unit price on Feb 2.
Lim likes PLife REIT for its prudent and pre-emptive capital management strategy. Its gearing improved by 0.4 percentage points (ppt) q-o-q to 35.6% as at Dec 31 2023, which is likely due to a gain of $15.8 million recorded during the year-end portfolio revaluation exercise.
This implies a debt headroom of $400.4 million before the REIT reaches the 45% gearing limit. All-in cost of debt has inched downwards by 5bps to 1.27% across the same period, with an interest coverage ratio at a healthy 11.3x.
Besides taking out longer-term loans, the REIT's manager has also entered into several interest rate swaps, which is expected to increase its proportion of fixed rate borrowings from 74% as at Sep 30 2023 to a very high 90% level by Mar 31.
Lim continues to like the REIT for its defensive, stable portfolio and steady track record of DPU growth.
"We remain comfortable with PLife REIT’s stable fundamentals and look forward to significant growth come FY2026 once renewal capex works at Mount Elizabeth Hospital are completed," adds Lim.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
She estimates the REIT to give a FY2024 distribution yield of 4.3%, which is around one standard deviation (s.d.) above the five-year historical average.
The REIT is now trading at a forward 12-month price-to-book (P/B) ratio of 1.2x, which is more than one s.d. below its five-year historical average, which Lim interprets as "an attractive entry point" for long-term investors seeking a stable and defensive income stream.
Parkway Life REIT closed at $3.60 on Feb 2, up 4%
