A rare jewel amongst S-REITs in a defensive industry, and offers high-quality earnings visibility - Parkway Life REIT (SGX:C2PU) is one of Asia’s largest listed healthcare REITs by asset size and a rare jewel amongst S-REITs that offers highly visible, stable, and sustainable earnings by virtue of its resilient industry and long leases with downside risk protection.
Stable return
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Top-line and net property income declined by 2.7% y-o-y and 2.5% y-o-y, respectively, to S$72.5mil and S$68.4mil, respectively. The dip was mainly due to the depreciation of the JPY against the S$, offset by the contribution from two nursing homes that were acquired back in Oct 23, and the step up in income from its hospitals in Singapore.
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Our view.
The stability offered by Parkway Life REIT is a welcome trait in the midst of macro uncertainties and high interest rates, which have impacted returns for most S-REITs. However, Parkway Life REIT’s financials continue to shine and remain resilient on the back of conservative capital and financial management strategies.
The manager has kept gearing at a consistent level of ~35% and maintains a long-weighted debt expiry of 3.3 years. A substantial portion of its debt is in JPY, of which rate hikes have been more modest and thus resulting in a more gradual rise in overall interest rates.
While we anticipate cost of debt would increase over time (from the current ~1.3% to an estimated ~1.8% in FY25F onwards), we continue to see resilient returns for Parkway Life REIT. While the headline of 4.3% appears to be the sharpest amongst S-REITs, we believe that the income visibility and step-up in growth offered by the REIT is a combination that is second to none.
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