Parkway Life REIT - CIMB Research 2016-04-26: 1Q16 Still growing, excluding one-offs

Parkway Life REIT - CIMB Research 2016-04-26: 1Q16 Still growing, excluding one-offs PARKWAYLIFE REIT C2PU.SI 

Parkway Life REIT 1Q16: Still growing, excluding one-offs 

  • 1Q16 results uplifted by Singapore and Japan contributions; DPU still growing adjusting for previous divestment gains. 
  • Singapore benefited from a 1.05% upward rent revision in 1Q16. 
  • Income from higher-yielding assets helped Japan’s strong showing. 
  • Stable resilient income stream with debt capacity for inorganic growth. 
  • Maintain Add with a higher DDM-based target price of S$2.55. 

■ Results in line; DPU accounts for c.25% of our full-year forecast 

  • PREIT’s 1QFY16 results were in line with our expectations, and continued to demonstrate resilience, with revenue rising 8.6% to S$26.9m. This was underpinned by higher Singapore and Japan income, on the back of the latter’s asset recycling strategy. 
  • NPI margin held steady at 93.4%. However, DPU dipped 7% yoy to 2.99Scts, impacted by the lack of distribution from divestment gains in 1QFY16. Stripping this out, on a likefor-like basis, the bottom line would have grown 5.1% yoy. 

■ Singapore income lifted by rent revision 

  • Singapore operations made up a larger c.62% of NPI to c.S$15.5m, thanks to an upward minimum guarantee rent revision of 1.05% yoy. This came largely from Mt Elizabeth Hospital. 

■ Japan contributions boosted by asset recycling activities 

  • Japan operations produced a 22% yoy improvement in NPI to S$9.5m as PREIT’s asset recycling strategy paid off. PREIT sold S$88.3m worth of assets at 5.9% NPI yield and acquired S$126.1m worth of properties at 6.4% NPI yield in Dec 14-Mar 15. 
  • We estimate this would effectively raise its Japan NPI by c.12% yoy in 1QFY16. 
  • PREIT had recently acquired a nursing home facility in Sapporo, Hokkaido for S$13.6m or at a 6.7% NPI yield, at end-Mar 16. This should add to the bottom line from 2QFY16 onwards. 

■ Stable and resilient income stream 

  • PREIT’s portfolio remains one of the most resilient among S-REITs, with a longweighted lease expiry profile of 9.01 years and downside protection for 93% of the leases by gross revenue. 
  • While we anticipate muted revenue growth of 1-2% in FY16 from lower inflation at its Singapore hospitals, we believe the new Japan contributions could pick up the slack. 
  • Furthermore, with a gearing of 36.4%, the trust is well positioned to seek further inorganic growth drivers. 

■ Maintain Add 

  • We maintain our Add rating with a slightly higher DDM-based target price of S$2.55 as we factor in the latest Sapporo acquisition. 
  • We think there could still be room for inorganic growth given the debt headroom of S$101.5m or S$265.4m, based on a 40% and 45% gearing, respectively.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-04-26
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.55 Up 2.54