Parkway Life REIT vs. Keppel DC REIT: Which REIT is a Buy After Earnings?

I approach investment decisions with a focus on long-term value, strong fundamentals, and a clear understanding of the business model. Let's dive into the recent earnings reports of Parkway Life REIT and Keppel DC REIT to determine which one presents a better investment opportunity.

Parkway Life REIT: Defensive REIT with Moderate Growth

Parkway Life REIT (PLife) reported a gross revenue of S$30.6 million for the third quarter of FY2024, a decline of 2.2% year-on-year. This dip is largely attributed to the depreciation of the Japanese yen against the Singapore dollar. However, contributions from newly acquired properties in 2023 and 2024 partially offset this decline. The REIT reported a distribution per unit (DPU) of 11.3 cents for 9MFY2024. Despite the challenges, PLife remains a defensive REIT with a 3.7% dividend yield and a 37.5% gearing ratio.

Keppel DC REIT: Strong Growth and Positive Lease Reversions

Keppel DC REIT (KDCREIT) reported a net property income (NPI) of S$64.5 million for the third quarter of FY2024, an increase of 4.6% year-on-year. This growth was driven by strong lease reversions and rent escalations. The REIT recorded a DPU of 2.501 cents, a 6.1% increase quarter-on-quarter. KDCREIT's performance was also supported by contributions from Tokyo DC 1 and the partial distribution of the DXC settlement received earlier in H1 2024.

Investment Considerations

1. Growth Potential

Keppel DC REIT shows stronger growth potential with its positive lease reversions and rent escalations. The REIT's expansion into Tokyo provides further diversification and earning stability. On the other hand, Parkway Life REIT's growth is more moderate, with contributions from newly acquired properties helping to offset the impact of currency depreciation.

2. Dividend Yield and Stability

Parkway Life REIT offers a higher dividend yield of 3.7% compared to Keppel DC REIT's yield of 3.2%. This makes PLife attractive for income-focused investors. However, KDCREIT's consistent growth in DPU and positive lease reversions suggest potential for future dividend increases.

3. Gearing Ratio

Both REITs have manageable gearing ratios, with Parkway Life REIT at 37.5% and Keppel DC REIT at 39.7%. These ratios indicate a healthy balance between debt and equity, providing a buffer against market volatility.

4. Sector Outlook

The real estate investment trust (REIT) sector is expected to benefit from the recent interest rate cuts by the US Federal Reserve. Lower interest rates can reduce borrowing costs for REITs, potentially leading to higher distributions. Both Parkway Life REIT and Keppel DC REIT are well-positioned to take advantage of this environment.

Conclusion

Given the current economic conditions and the recent earnings reports, Keppel DC REIT appears to be a more attractive investment option. Its strong growth potential, positive lease reversions, and expansion into Tokyo make it a compelling choice for investors looking for both income and capital appreciation. However, Parkway Life REIT remains a solid defensive option with a higher dividend yield and moderate growth.

Ultimately, the decision to invest in either REIT should be based on your investment goals, risk tolerance, and portfolio diversification strategy. Please DYODD.

Modified in.10-19

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