OCBC Investment Research has raised its fair value for Parkway Life REIT from $4.49 to $4.60, despite a slight 1.3% y-o-y dip in its distribution per unit to 7.38 cents for its 2HFY2024, as the unit base enlarged following its first ever equity fund raising exercise last October.
For the six months ended Dec 31 2024, PLife REIT's revenue and net property income dipped by 0.3% and 1.1% y-o-y, as revenue booked in yen weakened when translated into Singdollar. On the other hand, contributions from newly acquired properties added to the bottom line.
"Nonetheless, we continue to like PLife REIT for its recurring DPU growth despite the macro and FX volatility that has plagued most S-REITs since the pandemic," says analyst Ada Lim, who has kept her "buy" call on the counter.
The management, says Lim, is guiding for continued stable DPU growth in FY2025, thanks to the recent acquisition of 11 nursing homes in France.
The coming FY2026 will enjoy a more "significant" uplift, with expected rental growth after ongoing renewal works at the key Mount Elizabeth Hospital.
Lim likes this counter for its long-term lease structures for a steady stream of rental income and thus downside protection during market downturns.
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"At the same time, there is also growth potential through rental escalations and upside sharing with tenants.
"A combination of organic rental growth, accretive acquisitions, and prudent capital management has allowed PLife REIT to grow its distributions consistently since 2007, and we look favourably upon the REIT’s potential to continue along this trajectory, supported by secular megatrends such as a rise in foreign medical tourism in Singapore and an ageing population in Japan," adds Lim.
For now, she has fine-tuned her forecasts to increase her cost of equity assumption from 5.6% to 5.8% on a higher risk-free rate of 2.75%, partially offset by a slight decline in equity risk premium, leading to a higher fair value estimate of $4.60.
DBS Group Research, on the other hand, is bullish as well on the counter but with a slightly trimmed target price of $4.75 from $4.80.
Tabitha Foo and Derek Tan are eyeing PLife REIT to embark on its next leg of acquisition growth by exercising its right of first refusal on Mount Elizabeth Novena, valued at around $2 billion. This key re-rating analyst has not been priced in, the analysts say.
Their slightly lower target price of $4.75 takes into account lower estimates for revenue in Singapore and higher cost of debt assumptions.
Parkway Life REIT units changed hands at $3.99, up 1.27%.
