DBS Group Research's Rachel Tan and Derek Tan have maintained their 'buy' call on Parkway Life REIT, calling the owner of hospitals and nursing homes a "rare jewel" among its peers offering "highly visible, stable and sustainable earnings" and "downside protection".
In contrast to many other REITs that reported lower DPU mainly because of higher financing costs, PLife REIT bucked the trend.
For its most recent 2HFY2023, the REIT reported a DPU of 7.48 cents, up 2.1% y-o-y. This brings full year distribution to 14.77 cents per unit, up 2.7%.
This was largely led by full-year contributions from 5 nursing homes acquired in Sept 2022 and two nursing homes acquired in October 2023, higher rents from Singapore hospitals. However, the weaker yen somewhat weighed down the bottom line reported in Singdollar.
The DBS analysts point out that PLife REIT's all-in cost of debt has been reduced marginally q-o-q to 1.27% vs 1.32% in 3QFY23, although still more costly versus 1.04% back in FY2022. Nonetheless, its interest cost remains among the lowest among S-REITs.
"We continue to like PLife REIT for its strong earnings visibility, which is a positive attribute, especially in the current volatile and uncertain market outlook," state the analysts.
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However, they've trimmed their target price from $4.80 to $4.50 to factor in higher capex for asset enhancement initiatives. They've also raised their risk-free rate assumption to 2.5% and factored in a higher cost of debt, as well as a marginally lower DPU forecast to take into account recent acquisitions.
"Further upside to our forecasts stems from the rollout of more asset-recycling exercise in Japan, and acquisitions of earnings-accretive hospital assets in Singapore or overseas," the DBS analysts say.
Parkway Life REIT units changed hands at $3.53 as at 10.53am, up 0.57%.
