Analysts at CGS-CIMB Research and UOB Kay Hian are keeping “hold” on Parkway Life REIT (PLife REIT) following its 2HFY2022 ended December results.
PLife REIT posted 2HFY2022 DPU of 7.32 cents, marginally above UOB analyst Jonathan Koh’s expectations.
Koh highlights that PLife REIT enjoys steady growth from healthcare. For 2HFY2022, its gross revenue and net property income (NPI) grew 14.2% and 18% y-o-y respectively. This is on the back of higher adjusted hospital revenue from Parkway East Hospital and higher rent from its Singapore hospitals under the new master lease agreement (MLA).
For 2HFY2022, Singapore hospitals revenue and NPI grew 31.3% and 32.8% y-o-y to $46.7 million and $45.1 million respectively. This is due to the straight-lining of rental income under the new MLA which commenced from Aug 23, 2022 as well as Parkway East Hospital’s hospital revenue, which had outperformed its minimum guaranteed rent, points CGS-CIMB analysts Lock Mun Yee and Natalie Ong.
Under the new MLA and renewal capex agreement, PLife REIT will enjoy a rental step-up of 2% for the period of Aug 23, 2022 to Dec 31, 2022 and a 3% annual step-up for the next three years until the end of FY2025 during the renewal capex programme period.
Post FY2025, PLife REIT’s annual rent review formula should kick into effect from FY2026 to FY2042, providing the trust with built-in organic growth and strong earnings visibility, say Lock and Ong. Furthermore, with its triple-net lease structure, PLife REIT is shielded from higher inflation-related expenses, the analysts add.
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PLife REIT has also completed two separate acquisitions of nursing homes across the Japanese prefecture, including three in Hokkaido and two in greater Tokyo. Besides being yield-accretive, the acquisitions also initiated collaboration with reputable developer Daiwa House, Koh points out.
In total, PLife REIT has a portfolio of 57 nursing homes in Japan, which accounted for 34.4% of its portfolio valuation.
Impacted by the depreciation of the yen, PLife REIT’s Japan operations reported a 6.1% and 6% dip in revenue and NPI in 2HFY2022, Koh highlights. However, at the distribution income level, the trust remains well-hedged with its yen net income hedged till 1QFY2027, providing income stability to unitholders.
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Koh lifts his target price to $4.43 from $4.13 previously on the back of a lowered risk-free rate of 3% from 3.25% previously.
Meanwhile, Lock and Ong have lowered their target price to $4.78 from $5.06 previously as they assume higher cost of equity of 6.18% from 5.99% previously.
As at 3.19pm, units in PLife REIT are trading 2 cents lower or 0.48% down at $4.14.
