Parkway Life REIT - UOB Kay Hian 2018-05-02: 1Q18 results Of Plife In Line

Parkway Life REIT - UOB Kay Hian 2018-05-02: 1Q18 results Of Plife In Line PARKWAYLIFE REIT SGX: C2PU

Parkway Life REIT - 1q18 results Of Plife In Line

  • Results of Parkway Life REIT (PLIFE REIT) in line with our expectations.
  • PLIFE’s management sees rising demand (and undersupplied market) for aged care facilities in Japan, and acquired Konosu Nursing Home Kyoseien for ¥1.5b (S$17.8m) during the quarter.
  • Maintain BUY and target price of S$3.32. Maintain OVERWEIGHT on the sector.


Results in line with expectations; maintain BUY and target price of S$3.32

  • Results in line with expectations; maintain BUY and target price of S$3.32, based on a two-stage dividend discount model (required rate of return: 5.9%, terminal growth rate: 2.3%). 
  • Parkway Life REIT (PREIT) reported 1Q18 DPU of 3.17 S cents, down 3.4% y-o-y. Upon stripping out one-time divestment gains, 1Q18 core DPU grew 3.6% y-o-y.
  • 1Q18 gross revenue and NPI grew by 3.2% and 3.3% respectively, due to additional rental contributions from properties acquired in 1Q17 and 1Q18, and upward minimum guarantee rent reversion of Singapore hospitals by 1.27%. The results are in line with our expectations, with 1Q18 core DPU forming 24.8% of our full-year estimates.
  • Resilient portfolio performance. Overall occupancy rate remained stable at 99.97% (flat q-o-q). Occupancies remained full (100%) across Singapore and Japan properties, while Malaysia properties remained at 94% (flat q-o-q).
  • Gearing increased to 38.0% (+1.6% q-o-q). The all-in effective cost of debt declined to 0.99% (vs 1.03% in 4Q17), while its average debt maturity increased to 3.4 years, post- refinancing exercise in 1Q18. Management also refinanced and termed out the remaining JPY loan due in 2019, using the proceeds from a 6-year ¥3.5b (about S$43.3m) fixed rate notes as well as a 6-year ¥4.4b (about S$54.4m) term loan facility.
  • Accretive acquisition of Konosu Nursing Home Kyoseien for ¥1.5b (S$17.8m). The transacted price is fair, which is 7.4% below independent valuation of ¥1.62b (S$19.2m). The asset has an NPI yield of 6.7%, on the back of near-100% occupancy. Post- acquisition, PLife’s portfolio will have 50 properties with a total valuation of S$1.75b. The acquisition was funded by internal funds and JPY-denominated debt.
  • Management sees increasing demand (and undersupplied market) for aged care facilities in Japan, supported by the growing ageing population and shrinking family sizes. The rapidly ageing population means that the government has to reallocate more national resources to provide the infrastructure and services for a different demographic. Private nursing care, which recorded a spending of ¥8.6t in 2014, is expected to grow by 71% in 2020. Meanwhile, there are also about 366,000 elderly people waiting to be admitted to special nursing homes across Japan.
  • Long-term outlook continues to be favourable, driven by patient demographics and demand for better quality healthcare and aged care services. The REIT is also supported by favourable rental lease structures (at least 95% of its Singapore and Japan portfolios have downside revenue protection and 61% of the total portfolio is pegged to CPI-linked revision formulae), as well as a long WALE of 7.91 years, ensuring revenue stability and growth.





Vikrant Pandey UOB Kay Hian | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2018-05-02
SGX Stock Analyst Report BUY Maintain BUY 3.320 Same 3.320



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