CIMB Research 2015-07-28: Parkway Life REIT - Asset recycling bears fruit. Maintain ADD.

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/



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