The analyst expects its acquisition in France, in-built rent escalation in Singapore to support DPU growth
MAYBANK Securities has initiated coverage on Parkway Life Real Estate Investment Trust (Reit) with a “buy” call and a S$4.10 target price.
In a report on Wednesday (Jan 8), analyst Krishna Guha noted that even though the stock is expensive, it is defensive given the Reit’s “strong record of uninterrupted recurring dividend growth”. He said: “While the yield spreads are tight, we view that the attractive attributes and favourable sector or thematic justify the premium valuation.”
The target price is based on 7 per cent cost of equity and 2 per cent medium-term growth rate. The Reit currently trades at 1.55 times its price-to-book ratio at its historical mean, and has a tight yield spread of 130 basis points.
Guha is also positive about Parkway Life Reit’s growth strategy and growing distribution profile from lease renewals. He estimates that the Reit’s distribution per unit for financial years 2024 to 2026 will grow at a compound annual growth rate of 7.2 per cent. This will be backed by in-built rent escalation in Singapore and acquisition in France, he pointed out.
In October 2024, Parkway Life Reit purchased 11 nursing homes in France for a total consideration of about 111.2 million euros (S$159.9 million). Its maiden accretive investment helped the Reit to establish a third key market besides Singapore and Malaysia, and Japan.
The properties will continue to be leased to DomusVi, under a new lease term of 12 years, after the deal goes through. This tie-up is likely to help the Reit scale its presence, said Guha. The analyst also likes the stock for its “visible revenue and distribution growth”, following the renewal of master lease for the Reit’s Singapore hospitals.
Guha also believes that Parkway Life Reit is “well-positioned to capture further growth opportunities” amid favourable cost of capital with a yield of around 4 per cent and a cost of debt at 1.4 per cent.
Units of Parkway Life Reit were trading 0.8 per cent or S$0.03 higher at S$3.79 as at 10.55 am on Thursday.
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