Parkway Life REIT - DBS Research 2016-01-27: Steady Ship

Parkway Life REIT - DBS Research 2016-01-27: Steady Ship PARKWAYLIFE REIT C2PU.SI 

Parkway Life REIT - Steady ship 


Steady ship amid uncertainty. 

  • Parkway Life REIT (Plife REIT) offers one of the strongest earnings visibility profile among SREITs, with a weighted average lease expiry of close to 9 years. 
  • Revenue from Singapore (c.63% of total revenues) is forecast to grow at CPI + 1%, ensuring that rental income keeps pace with inflation growth. 
  • The remaining 36% is derived from its nursing homes and healthcare facilities in Japan which offer long-term certainty given a weighted average lease expiry of 13 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 relatively low gearing ratio of c.35%, we see opportunities to grow via debt-funded acquisitions. 
  • We have priced in S$45m 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, there is no refinancing until 2017, with a weighted average debt to maturity of 3.5 years and a low 1.6% cost of debt which is fully hedged. 

Valuation: 

  • We reduce our target price to S$2.50 from S$2.56, taking into account a lower CPI assumption and smaller acquisitions. Maintain our buy rating on an attractive yield of > 5%

Key Risks to Our View: 

  • Currency risks. Plife REIT derives c.36% of its earnings from its healthcare assets in Japan. Thus, foreign exchange volatility could hit earnings as distributions are based on SGD. 




Derek Tan DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-01-27
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.50 Down 2.56


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