Parkway Life REIT - CIMB Research 2016-10-27: Still growing

Parkway Life REIT - CIMB Research 2016-10-27: Still growing PARKWAYLIFE REIT C2PU.SI

Parkway Life REIT - Still growing

  • 3Q/9MFY16 results in line, accounting for 25%/75% of our FY16 forecasts.
  • Singapore revenue driven by resilient rent structure of CPI-plus-1% formula, with upside for Parkway East from higher revenue formula.
  • Japan contributions coming from higher-yielding assets purchased previously, new acquisitions and AEI.
  • Balance sheet remains strong with gearing at 38.3%.
  • Maintain Add with unchanged target price of S$2.78.

3Q/9M16 results highlights 

  • PREIT reported 3QFY16 revenue of S$28.1m, +8.2% yoy, while NPI improved 8% yoy to S$26.2m on higher contributions from Singapore and Japan, partly offset by a small dip from Malaysia. 
  • DPU of 3.06 Scts was lower 8.8% yoy due to a high base in the previous year from distribution of divestment gains. Stripping out the latter, DPU rose a similar 2.7% yoy.

Singapore benefited from resilient rent structure 

  • Singapore 3Q16 revenue and NPI grew 1.7%/1.9% yoy to S$16.5m/S$15.7m on higher contributions from Mount Elizabeth and Gleneagles Hospitals, which were pegged to a CPI-plus-1% growth formula. 
  • In the case of Parkway East, the improvement in performance was pegged to a base-plus-adjusted-hospital-revenue formula as underlying hospital operations had outperformed the minimum guaranteed rent level.
  • Singapore accounted for 58.6% of revenue and 60% of NPI for the quarter.

Japan growth spurred by organic and inorganic improvements 

  • Japan revenue and NPI rose 19.1%/18.1% yoy (+4.9%/+5% qoq) to S$11.5m/S$10.4m, driven by the purchase of one nursing home in Mar 16 and additional income from the completion of the Sawayaka Kiyotakan AEI, apart from the better-yielding assets acquired during its asset-recycling initiative. The AEI increased rent by 4.7% (S$0.5m) for the remaining lease term of 17 years w.e.f. 26 July 16.

No debt refinancing needs till 2HFY18 

  • PREIT has completed its debt refinancing needs for FY16 and has no loans due till 2HFY18. 98% of its interest rate exposure is hedged and gearing is at a healthy 38.2%.
  • This puts the trust in a strong position to pursue more inorganic growth potential in tandem with its strategy to optimise portfolio quality and returns through recycling and redeploying capital.

Maintain Add 

  • We leave our FY16-18 DPU estimates unchanged and maintain our DDM-based target price of S$2.78. 
  • PREIT offers investors earnings stability from its long average lease expiry profile of 8.69 years, resilient rent structure and downside protection for 92% of its gross revenue. 
  • Maintain Add. 
  • Upside risk could emerge should PREIT monetise assets and recycle into yield-accretive acquisitions. 

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | 2016-10-27
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.78 Same 2.780