Parkway Life REIT - CIMB Research 2017-04-25: Steady and Resilient

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PARKWAYLIFE REIT C2PU.SI

Parkway Life REIT - Steady and resilient

• 1QFY17 results in line; 1QFY17 DPU at 23% of full-year forecast.
• Singapore NPI remained largely stable, with 0.6% yoy improvement.
• Japan NPI dipped a little in 1Q17; we expect it to pick up from 2Q17 onwards.
• No refinancing risk till FY19F; balance sheet robust.
• Maintain Add, with higher target price of S$2.71.

1QFY17 results highlights 

• PREIT posted 0.2% yoy uptick in gross revenue to S$26.9m while distribution income came in 9.6% higher yoy at S$19.84m, thanks to earnings from acquisitions made in 2016, a stronger ¥, interest savings and S$1.35m capital distribution from asset divestments. 
• In addition, there was one month of contributions from new acquisitions it made in Feb 2017. This was partly offset by income vacuum from the sale of four properties in Japan. 
• DPU of 3.28 Scts accounts for 23% of our FY17 forecast.

Singapore remained stable 

• Singapore contributed 62.5% of NPI in 1Q17. 
• NPI from Singapore hospitals rose 0.6% yoy to S$15.6m, thanks to higher income from Gleneagles while income from Mount Elizabeth Hospital and Parkway East remained stable.

Expect stronger Japan contributions over the next few quarters 

• Japan NPI saw a marginal 1% yoy dip to S$9.4m due to loss of income from the four properties it sold in Dec 2016 for S$48.9m or at a 6.1% yield. This was partly offset by around one month of new income (we estimate c.S$0.4m) from the S$59.5m worth of new properties purchased in Feb 2017. 
• We expect contributions from Japan to pick up in the coming quarters with the impact of a full-quarter’s income from these new assets.

Robust balance sheet, no refinancing needs till FY19F 

• Looking ahead, we expect PREIT’s earnings to remain one of the most resilient in the SREIT space, with its deflation-protected Singapore revenue and long-term lease structure in Japan. 
• In addition, we expect the remaining asset disposal gains of S$3.95m to be paid out in equal installments over the next three quarters. With the terming out of its loans due in FY18, PREIT does not have any refinancing needs till FY19. 
• Balance sheet remains strong with gearing at 37.6%.

Maintain Add 

• We raise our DPU estimates by 1.4-5.5% for FY17-19F to reflect the capital distribution from divestment gains and additional income from new purchases. 
• Our DDM-based TP is adjusted to S$2.71 to factor in the higher income and a lower Singapore discount rate (in tandem with our sector-wide adjustment). Hence, we maintain our Add call on the stock. 
• Upside risk exists should PREIT continue to unlock value from Japan and recycle capital into new investments. 
• Key risks to our call include a weaker ¥.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-04-25

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.71 Up 2.580