This is one S-REIT with strong earnings visibility

SINGAPORE (Oct 28): DBS Vickers is maintaining its “buy” rating for Parkway Life Real Estate Investment Trust, even as the REIT posted a 8.8% decline in 3Q DPU to 3.06 cents.

DBS analysts Rachel Tan and Derek Tan noted that the REIT’s core earnings had, in fact, risen 2.7%, when the one-off distribution of divestment gains seen in 2QFY15 that were not repeated in the current quarter. Net property income had also risen 8% from its Singapore hospitals.

To be sure, DBS believes the investment idea behind Parkway Life is that it offers “one of the strongest earnings visibility profile among SREITs, with a weighted average lease expiry of close to 9 years”.

As the pair explains it, 60% of Parkway Life’s revenue comes from Singapore, which is expected to grow at least 1% ahead of the consumer price index. The rest of its revenue comes from nursing homes and healthcare facilities in Japan, which offer even more stability given its weighted average lease expiry of 13 years.

Furthermore, the REIT has no refinancing needs until 2HFY18 and an average debt to maturity of 3.4 years. Its cost of debt is also stable at 1.4%, adds the pair.

Looking ahead, DBS expects to see growth from the REIT’s Japan asset recycling strategy, as the REIT manager remains on the lookout for acquisition targets within the country.

“Given a relatively low gearing ratio of 38%, we see opportunities to expand via debt-funded acquisitions,” say the analysts in a note on Thursday.

Shares in Parkway Life REIT are trading 1 cent lower at S$2.55 (RM7.68). — theedgemarkets.com.sg