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
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http://research.itradecimb.com/
2015-12-09
CIMB Securities
SGX Stock
Analyst Report
2.56
Same
2.56
