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Parkway Life REIT - DBS Research 2015-11-05: Steady Ship

Parkway Life REIT - DBS Research 2015-11-05: Steady Ship PARKWAYLIFE REIT C2PU.SI 

Parkway Life REIT - Steady Ship 

Steady ship in the midst of uncertainty. 

  • Parkway Life REIT (Plife REIT) offers one of the strongest earning visibilities among S-REITs, with a weighted average lease expiry of close to 9.9 years. Its Singapore operations (c.67% of revenues) are forecasted to grow at CPI + 1%, ensuring that rental income keeps pace with inflation growth. 
  • The remaining 40% are derived from its nursing homes and healthcare facilities in Japan which offer long-term certainty given a weighted average lease expiry of 14 years. 

Optimism returns from Japan; acquisitions to grow portfolio. 

  • After a portfolio recycling exercise in Japan, we continue to see positive growth momentum for Plife REIT in the country. The manager is aiming to acquire and bulk up its exposure in Japan. 
  • Given a low gearing ratio of c.34.1% as of 3Q15, we see opportunities to grow via debt-funded acquisitions. 
  • We have priced in S$80m of acquisitions @ 6.5% yield in our forecast. 

Conservative balance sheet profile. 

  • Plife REIT has been proactively refinancing its maturing debts in advance to prevent any near-term refinancing risks. As a result, the REIT has no need for refinancing until 2016, with a weighted average debt to maturity of 3.6 years and a low 1.5% cost of debt which is fully hedged. 


Valuation: 

  • Our target price is maintained at S$2.56, based on DCF. The stock offers attractive yields of >5%. 


Key Risks to Our View: 


Currency risks. 

  • Plife REIT derives c.34% of its earnings from its healthcare assets in Japan. Thus, foreign exchange volatility is expected to hit earnings as distributions are based on SGD.


Derek Tan DBS Vickers | Mervin SONG DBS Vickers | http://www.dbsvickers.com/ 2015-11-05
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.56 Same 2.56


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