Parkway Life REIT - CGS-CIMB Research 2019-04-26: Still Growing


Parkway Life REIT - Still Growing

  • ParkwayLife REIT's 1Q19 DPU of 3.28 Scts was in line at 25.2% of our FY19 forecast.
  • Singapore underpinned by higher minimum rental guarantee; Japan lifted by new acquisitions.
  • Maintain HOLD with an unchanged Target Price of S$3.05.

ParkwayLife REIT's 1Q19 results highlights

  • PARKWAYLIFE REIT (SGX:C2PU) posted 1Q19 DPU of 3.28 Scts, up 3.5% y-o-y. This was achieved on the back of a 2.1%/2.2% y-o-y improvement in revenue/net property income to S$28.4m/S$26.5m, appreciation of the ¥ and lower funding costs. Portfolio NPI margin improved 0.2% pt to 93.5%.
  • Distribution income rose 3.5% y-o-y to S$19.8m after accounting for S$0.75m of income retained for capital expenditure.

Boosted by higher Singapore and Japan

  • The y-o-y rise in revenue was due to contribution from a nursing rehabilitation facility acquired in Feb 18 and higher income from Singapore properties.
  • Net property income for Singapore rose 1.9% y-o-y to S$16.2m on the back of a higher minimum guaranteed rent for Singapore hospitals, which has been set at a higher 1.38% for the period of 23 Aug 2018 to 22 Aug 2019.

New acquisitions lifted Japan revenue

  • ParkwayLife REIT derived c.39.6% of its 1Q19 revenue from Japan, which was 2% higher y-o-y, thanks to the additional contribution from the nursing rehabilitation centre acquired in Feb 2018. Its Japan portfolio is backed by a long weighted average lease term of 12.14 years.

Lowered overall funding cost; extended debt maturity profile

  • ParkwayLife REIT has successfully refinanced all its ¥ debt due in 2020 and extended its debt maturity profile to 2025 as well as reduced its all-in cost of debt to 0.91%. About 88% of its interest rate is hedged.
  • Gearing remains healthy at 36.4% providing the trust debt headroom to pursue inorganic growth opportunities.

Maintain HOLD

  • We leave our existing forecast and DDM-based Target Price of S$3.05 intact. ParkwayLife REIT offers investors stable yield backed by its defensive income structure.
  • ParkwayLife REIT is currently trading at 1.57x P/BV and offers a total return of c.9.5%. Hence, we maintain our HOLD recommendation.
  • Key catalysts include accretive acquisitions while downside risks include deflationary periods where Singapore rent reviews would revert to 1%.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-04-26
SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.050 SAME 3.050