Brokers’ take: DBS cuts target for Parkway Life Reit after factoring in higher capex

DBS Group Research cut its target price on Parkway Life Real Estate Investment Trust : C2PU 0% (Reit) after taking into account higher capital expenditures (capex) for asset enhancement initiatives.

In a report released on Thursday (Mar 7), the research team lowered its target to S$4.50 from S$4.80 and maintained its “buy” recommendation. This came after DBS raised its risk-free rate to 2.5 per cent and factored in a higher cost of debt for the Reit.

The new target implies a potential upside of 27.5 per cent from the counter’s last trading price of S$3.53 as at 11.46 am on Thursday. Units of Parkway Life Reit were up 0.6 per cent or S$0.02 at the time.

“We continue to like Parkway Life Reit for its strong earnings visibility, which is a positive attribute, especially in the current volatile and uncertain market outlook,” said analysts Rachel Tan and Derek Tan.

The Reit was also noted to be one of Asia-Pacific’s largest listed healthcare Reits by asset size. It is a “rare jewel” among Singapore-listed Reits, offering highly visible, stable and sustainable earnings due to its resilient industry and long leases with downside risk protection.

Furthermore, Parkway Life Reit owns three private hospitals in Singapore, making up most of its domestic market share.

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The research team believes the next stage of growth for the Reit could come from its potential acquisition of Mount Elizabeth Novena Hospital, where it has the right of first refusal, or expanding into a third pillar, despite the uncertain timing.

The Reit’s full-year results for 2023 were in line with expectations. On Feb 1, it posted a 2.7 per cent increase in distribution per unit (DPU) to S$0.1477.

Gross revenue was up 13.5 per cent at S$147.5 million, while net property income (NPI) climbed 14.1 per cent to S$139.1 million.

For the six months ended Dec 31, 2023, the Reit recorded a 2.1 per cent rise in DPU to S$0.0748. Acquisitions helped boost H2 gross revenue by 4.7 per cent to S$73.1 million. Accordingly, NPI was up 4.8 per cent at S$69 million.

DBS raised its DPU forecasts for FY2024 by around 0.6 per cent to account for recent acquisitions.