UOB Kay Hian continues to rate Parkway Life REIT (PREIT) a “buy”, but with a lower target price of $4.85 from $5.12 previously, on higher cost of equity.
“PREIT appeals to risk-averse investors who value PREIT’s defensive strength due to its healthcare orientation and long WALE of 15.3 years,” says analyst Jonathan Koh.
PREIT clocked the 17th year of uninterrupted DPU growth in 2024 despite dilution from its recent equity fund-raising (EFR) in November 2024. FY2024 ended December 2024 DPU came in 1% higher y-o-y at 14.92 cents. Excluding the EFR, DPU would have come in at 15.11 cents, 2.3% up y-o-y.
See more: Parkway Life REIT 2HFY2024 DPU dips 1.3% y-o-y to 7.38 cents
Meanwhile, the acquisition of 11 nursing homes in France was completed on Dec 20, 2024. The properties will be leased to and operated by DomusVi for 12 years. The 11 nursing homes provide NPI yield of 6.5%. They generated gross revenue and NPI of $0.4 million in 4QFY2024, representing only about 12 days of earnings contributions.
The REIT recognised a portfolio valuation gain of $97.2 million, supported by projected rent growth for Singapore hospitals, offset by capex incurred for Project Renaissance at Mount Elizabeth Hospital (MEH). NAV per unit increased 3% y-o-y to $2.41.
Finance costs have increased 14.9% y-o-y in 2HFY2024 due to funding of capex for Project Renaissance and new acquisitions in 2023 and 2024 as well as higher interest costs from SGD-denominated debts. Interest costs on loans drawn down to fund Project Renaissance have no distribution impact as they are capitalised.
The way Koh sees it, MEH could provide upside from variable rent. MEH was operating with only about half of its available hospital beds during Project Renaissance in 2023, 2024 and 1H2025. All its hospital beds would be back online from mid-2025, which would greatly enhance revenue generation.
The layout of clinical assets and back rooms were redesigned with related activities clustered together, which enhances workflow, operating efficiency and patients' privacy. Its wards will be reconfigured with an additional 56 single-bed wards to its existing 112 single-bed wards to cater to the growing demand for admissions from local and foreign patients.
Administrative and support functions were relocated to nearby buildings, such as The Heeren and Tong Sia Building, freeing up valuable floor space for the expansion of revenue-generating inpatient hospital-based clinical services.
Meanwhile, PREIT will focus on strengthening its home base in Singapore. It has the right for first refusal (ROFR) to acquire the hospital block of Mount Elizabeth Novena Hospital (MENH). The REIT is also evaluating an asset enhancement initiative (AEI) for Gleneagles Hospital. This could commence in 2026.
The REIT intends to divest its medical centre at Jalan Ampang in Kuala Lumpur, Malaysia valued at $5.9 million as of December 2024. Potential buyers have shown keen interest and the property could be divested in 2025, according to Koh.
Growth catalysts in Singapore include the potential acquisition of MENH and AEI for Gleneagles Hospital. “PREIT provides a bastion of defensive strength supported by its healthcare orientation, long WALE of 15.3 years and low aggregate leverage of 34.8%,” he adds.
As at 11.15am, units in PREIT are trading at $3.89.
