Parkway Life REIT - OCBC Investment 2024-02-05: Viva La Vida

• Parkway Life REIT (SGX:C2PU)’s 2H23 gross revenue and net property income (NPI) grew by 4.7% and 4.8% y-o-y to S$73.1m and S$69m, respectively, as contributions from newly acquired nursing homes in Japan and higher rent from the Singapore hospitals under the new master lease agreements were partially offset by the depreciation of JPY.

FY23 results were in line with our expectations

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• On a full year basis, Parkway Life REIT's FY23 gross revenue and NPI increased by 13.5% and 14.1% y-o-y to S$147.5m and S$139.1m, respectively, translating to an NPI margin of 94.3% (FY22: 93.8%). FY23 DPU grew 2.7% y-o-y to S$0.1477, representing a distribution yield of 4.2% (as at 2 Feb 2024), and constituting 101% of our initial forecast.

Credit metrics likely to remain stable with management adopting a prudent & pre-emptive capital management strategy

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• All-in cost of debt also inched downwards by 5bps to 1.27% across the same period, with interest coverage ratio at a healthy 11.3x.
• We note that Parkway Life REIT has secured long-term facilities to term out 100% and ~30% of long-term debts originally falling due in 2024 and 20245, respectively, such that the REIT no longer has any long-term debt refinancing needs until Mar 2025.
• Management has also entered into several interest rate swaps, which is expected to increase its proportion of fixed rate borrowings from 74% as at 30 Sep 2023 to a very high 90% level by 31 Mar 2024.

We continue to like Parkway Life REIT for its defensive, stable portfolio and steady track record of DPU growth

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Ada Lim OCBC Investment Research | https://www.iocbc.com/ 2024-02-05 SGinvestors.io

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