Parkway Life REIT - CIMB Research 2015-12-09: Offering resilience and growth

Parkway Life REIT - CIMB Research 2015-12-09: Offering resilience and growth PARKWAYLIFE REIT C2PU.SI 

Parkway Life REIT - Offering resilience and growth 

  • Organic income growth and divestment gains lifted 3QFY15 results. 
  • Resilient portfolio with long WALE and downside risk protection. 
  • Healthy balance sheet with balance sheet capacity to make acquisitions. 
  • Successful capital recycling unlocks value. 
  • Maintain Add with DDM-based target price of S$2.56. 

■ Boosted by organic income growth 

  • PREIT reported a 2.5% rise in 3QFY15 revenue to c.S$26m, driven by higher-yielding properties and higher rent from Singapore properties. 
  • Distribution to unitholders was 15.6% higher yoy, with a divestment gain distribution of S$2.3m from asset recycling activities. 

■ Resilient portfolio 

  • PREIT’s portfolio remains one of the most resilient among the S-REITs, with a long weighted lease expiry of 9.39 years and downside protection for 93% of its leases by gross revenue. 
  • While its revenue growth is relatively muted, c.1.05% for the Singapore hospitals till Aug 16, due to lower inflation, this is compensated by the lower downside risk. 

■ Healthy balance sheet 

  • PREIT’s balance sheet remains healthy, with a net gearing of 35.2%. An estimated 78% of its interest rate exposure is hedged and there are no refinancing requirements till 2017. 
  • Additionally, there is still room for inorganic growth given its debt headroom of S$118m and S$281.4m, which correspond with gearing levels of 40% and 45% respectively. 
  • Management had previously highlighted Malaysia, Australia, Japan and China properties as potential targets. 

■ Successful capital recycling 

  • Management has successfully created value via its recent capital recycling in Dec 14. The sale, at an exit yield of 5.9%, is 16% and 8% above the assets’ book values and independent valuations respectively. 
  • Aside from financial gains, the portfolio also benefited from reduced tenant concentration risks with an improved WALE. 
  • At the same time, PREIT acquired seven other Japan nursing homes at 6.4% yield. This has unlocked value for unitholders, while the new purchases added to income visibility. 

■ Maintain Add 

  • We maintain our Add call on PREIT, which offers an FY15 dividend yield of 5.9%. 
  • We continue to like its resilient portfolio and management’s ability to add value via asset recycling despite the competitive acquisition landscape in Japan. 
  • Further yield accretive acquisitions could catalyse the stock.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.56 Same 2.56