Parkway Life Real Estate Investment Trust - DBS Research 2017-04-26: A Decade Of Undying Love

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PARKWAYLIFE REIT C2PU.SI

Parkway Life Real Estate Investment Trust - A Decade Of Undying Love

• 1Q17 DPU up 9.6% boosted by divestment gains.
• 2nd asset recycling with a yield spread of +0.8ppt.
• 3rd pillar potentially in Australia/Europe.
• 10th year anniversary on 23 August 2017.

Maintain BUY; raised TP to S$2.82. 

• Parkway Life REIT (Plife REIT) offers one of the strongest earnings visibility profile among SREITs, with a weighted average lease expiry of close to nine years. We maintain our BUY rating and raised our TP to S$2.82 from previously S$2.75 incorporating the newly acquired Japan properties.

Where we defer: Potential for steady and sustainable growth in returns as promised. 

• In the past decade, Plife REIT has delivered DPU growth and share price absolute performance of 8% and 7% CAGR respectively, and consistently trading at 1SD dividend yield deviation range of 4.6-7%. 
• While the market may question its ability to outperform its commended past achievements, we continue to believe Plife REIT will be able to deliver steady and sustainable growth in returns through its three-pronged growth plans of
  1. asset recycling strategies, 
  2. venturing into a new market (3rd pillar), and 
  3. potential acquisition pipelines from its sponsor while maintaining its defensive stance in expansion.

Potential Catalysts: Potential acquisitions/asset recycling 

• Debt headroom for accretive acquisition and beneficiary of low interest rates in Japan. Plife REIT has a gearing of 37.6% with debt headroom of S$239m at 45% gearing. 
• In addition, 20% of its interest rates hedge will be up for renewal in the next two years, timely to benefit from the low interest rates in Japan, albeit small.

Valuation

• Maintain BUY and raised our TP to S$2.82. 
• We raised our FY17F-FY19F DPU estimates by 2-3%, incorporating its newly acquired Japan assets.

Key Risks to Our View

• Currency risks. Plife REIT derives c.40% of its earnings from healthcare assets in Japan. Thus, foreign exchange volatility could hit earnings as distributions are based on SGD.

Rachel Lih Rui Tan DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2017-04-26

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.82 Up 2.750