Brokers’ take: CGS-CIMB lowers Parkway Life Reit to 'hold' on limited share price upside

CGS-CIMB downgraded its call on Parkway Life Real Estate Investment Trust : C2PU 0% (Reit) to "hold" from "add" as near-term upsides for the counter’s unit price appears limited, it said in a report on Monday (Apr 25).

While analyst Lock Mun Yee said she likes the Reit for its stability, she expects that stability has likely been priced in, with its unit price having outperformed in recent months.

Units of healthcare-focused Parkway Life Reit were trading at S$4.88 as at 10.30 am on Tuesday, down S$0.08 or 1.6 per cent.

Lock, who has a target price of S$5.05 on the counter, said the Reit has a defensive income structure with inbuilt escalation features.

She maintained her estimates for the Reit’s distribution per unit for FY2021 to FY2023, noting that the Reit reported Q1 results that were largely in line with her projections.

Parkway Life Reit on Friday posted a 1.9 per cent on-year increase in net property income to S$28.6 million for its first quarter ended March. Gross revenue rose 2.3 per cent on year to S$30.7 million, due to contributions from 3 Japan properties acquired in 2021 and higher rent from Singapore properties.

The analyst is positive on contributions from Singapore, which should gain from its rental escalation structure.

She expects the Reit’s new master lease agreement and renewal capex agreement, which guarantee rents and step-ups, will provide strong income visibility, while an annual rent review formula will provide inbuilt organic growth.

The Reit’s triple net lease structure is also likely to shield it from higher inflation-related expenses.

As for its Japan operations, Lock noted that income will likely remain stable as the management has hedged its Japanese yen income for FY2022 to FY2023.

Additionally, the analyst also expects Parkway Life Reit is likely well-placed to tap on inorganic growth opportunities with its robust balance sheet.