Parkway Life REIT - CGS-CIMB 2018-05-01: Earnings From Operations Continue To Grow

PARKWAYLIFE REIT C2PU.SI

Parkway Life REIT - Earnings From Operations Continue To Grow

Parkway Life REIT's 1Q18 DPU of 3.17 Scts was in line, at 26.1% of our FY18F forecast.
Performance lifted by higher Singapore contributions and inorganic growth drivers in Japan.
Balance sheet is robust and JPY-sourced income hedged till 1Q2022.
Maintain HOLD with an unchanged Target Price of S$3.07.

Parkway Life REIT (PLife REIT) reported a 1Q18 gross revenue of S$27.8m, +3.2% y-o-y, boosted by higher Singapore hospital contributions and greater Japan earnings from a newly-acquired nursing home and higher income from two properties post AEI. This helped to offset weakness in the JPY vs. S$.
Distribution income fell 3.4% y-o-y to S$19.2m (DPU 3.17 Scts) due to the absence of distribution of divestment gains. Excluding this, earnings from operations would have risen 3.6% y-o-y.

Singapore NPI grew 1.9% y-o-y to S$15.6m in 1Q18 due to the minimum guarantee rent revision of 1.27% for the period 23 Aug 17 to 22 Aug 18 while we estimate Parkway East Hospital continued to enjoy the higher adjusted hospital revenue for the same period.

Japan NPI improved 6.4% y-o-y to S$10m thanks to new contributions from the new acquisition of a nursing rehabilitation facility in Feb 18. The property was purchased at a 6.7% NPI yield with a fresh 20-year master lease and was immediately accretive to the bottomline.
In addition, the trust completed two asset enhancements at Ocean View Shonan Arasaki. The AEI cost S$0.32m and is expected to generate a ROI of 8% from Mar 18.

PLife REIT’s balance sheet remains strong with a gearing of 38%. Post refinancing, its weighted average debt to maturity is 3.4 years and all-in funding cost declined to 0.99%. Based on a 40-45% gearing ceiling, PLife REIT has debt headroom of S$61m-S$231.5m to tap inorganic growth potential.
PLife REIT has also hedged its JPY income till 1Q2022.

We leave our FY18-20F DPU estimates unchanged post results. Our DDM-based Target Price remains at S$3.07.
PLife REIT’s share price has declined c.8% from the late-Jan peak and now offers c.10% upside to our Target Price. However, we maintain our HOLD recommendation for now as the stock is still trading above its +1s.d. forward yield of 4.6%. We would look for opportunities to accumulate on weakness.
Upside risks could come from accretive acquisitions.
Downside risks include deflationary periods where Singapore hospitals growth would revert to 1%.

LOCK Mun Yee CGS-CIMB | YEO Zhi Bin CGS-CIMB | https://research.itradecimb.com/ 2018-05-01

SGX Stock Analyst Report HOLD Maintain HOLD 3.070 Same 3.070