2Q15: Divvying Up The Gains
RESULTS
Results in line with expectations.
- Parkway Life REIT (PLife) reported a 2Q15 DPU of 3.35 S cents (+15.5% yoy, 4.3% qoq) and gross revenue of S$25.6m (+1.2%yoy, 3.5% qoq) increased 15.5% yoy, underpinned by one-off divestment gains from seven Japanese properties sold in Dec 14.
- Excluding one-off divestment gains, the results were within our expectations, with 1H15 core DPU representing 48.3% of our full-year forecast.
IMPACT
Gearing dipped 0.3ppt qoq to reach 34.1% in 2Q15
- Gearing dipped 0.3ppt qoq to reach 34.1% in 2Q15, while all-in effective cost of debt remains at 1.5%, with debt maturity currently at 4.0 years.
- Japanese yen-denominated income has been fully hedged until 2020, through the use of forward swaps.
Active asset recycling in Japan to improve portfolio quality.
- Plife divested seven nursing homes in Japan, before acquiring two new ones (Ocean View Shonan Araski and Habitation Jyosui) in 4Q14.
- The successful divestment of the aforementioned properties saw gains of S$9.1m to be paid out in a series of four quarterly tranches, starting from 1Q15.
- As of 1H15, S$4.6m has been distributed to investors in the form of dividends.
- PLife may also proactively explore asset enhancement (AEI) opportunities and establish a presence in Japan to leverage on its growing portfolio of Japan nursing homes.
Longer-term initiatives will still evolve around potential acquisitions and AEIs, supported by substantial debt headroom.
- Acquisitions have the potential to drive near-term growth, as the company has S$161.5m in debt headroom, assuming gearing of 40%.
- Acquisitions may arise from sponsor assets in Malaysia, or third-party assets in Japan, Australia and Malaysia.
- AEI opportunities could also emerge from assets in Singapore and Japan.
- In the longer term, we understand that PLife is also looking to tap on the expertise of its Japanese nursing home partners to explore small-scale developmental opportunities in Malaysia.
EARNINGS REVISION
- None.
RECOMMENDATION
Maintain HOLD
- Maintain HOLD with a target price of S$2.52 based on the dividend discount model (required rate of return: 6.4%, terminal growth: 1.8%).
- Entry price is at S$2.19.
(Singapore Research Team)
Source: http://research.uobkayhian.com/