Asset recycling bears fruit
- PREIT’s 2Q and 1HFY15 DPUs were in line with expectations at 25% and 49% of our full-year forecast, respectively.
- DPU grew 15.6% yoy, largely due to distribution of divestment gains as organic growth was 2.6% yoy post its asset-recycling initiative.
- We maintain our Add rating, with a slightly lower target price of S$2.56 as we fine-tune our CPI estimates.
- Its FY15 dividend yield of 5.7% remains attractive against S-REITs’ average 6.7% and retail S-REITs’ 5.6% given its resilience.
- Management’s ability to add value via asset recycling despite the competitive acquisition landscape in Japan is also commendable.
- Re-rating catalysts could come from accretive acquisitions as there is S$162m-326m of debt headroom at 40-45% gearing.
DPU up 15.6% on divestment gain distribution
- PREIT’s 2Q and 1HFY15 DPUs were in line with expectations at 25% and 49% of our full-year forecast, respectively.
- DPU grew 15.6% yoy, largely due to distribution of divestment gains.
- Organically, DPU grew 2.6% yoy post PREIT’s asset-recycling initiative in Mar 2015 as higher rental income from the acquired properties was able to more than offset the divestment of assets that were of lower strategic value.
- PREIT’s balance sheet remains healthy with gearing of 34.1%, 78% of the debt hedged and no refinancing requirement until 2017.
- Resilient with muted organic growth PREIT’s portfolio remains one of the most resilient among S-REITs, with a long-weighted lease expiry of 9.5 years and downside protection for 93% of the leases by gross revenue.
- We anticipate muted revenue growth of ~1-2% in FY16 from lower inflation as the revenue at its Singapore hospitals is set to increase by 1.05% for the period from 23 Aug 2015 to 22 Aug 2016.
Maintain Add
- Maintain Add on PREIT as its FY15 dividend yield of 5.7% remains attractive against S-REITs’ average 6.7% and retail S-REITs’ 5.6% given its resilience.
- We continue to like the management for its ability to add value via asset recycling despite the competitive acquisition landscape in Japan.
- Additionally, there is still room for inorganic growth given the debt headroom of S$161.5m and S$325.5m at 40% and 45% gearing, respectively.
- Management had previously highlighted Malaysia, Australia, Japan and China properties as potential targets.
(TAN Xuan, CFA; PANG Ti Wee; LOCK Mun Yee)
Source: http://research.itradecimb.com/
