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UOB Kay Hian Research 2015-07-29: Parkway Life REIT - 2Q15 Divvying Up The Gains. Maintain HOLD.

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/



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