Parkway Life REIT - CGS-CIMB Research 2019-12-03: Deepens Exposure In Japan

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PARKWAYLIFE REIT (SGX:C2PU)

Parkway Life REIT - Deepens Exposure In Japan

• ParkwayLife REIT buys 3 Japan properties for S$46.3m.
• Acquisitions are earnings-accretive, lifting our FY20-21F DPUs by 2%.
• Maintain HOLD with a higher Target Price of S$3.32.

Buys three properties in Japan

• PARKWAYLIFE REIT (SGX:C2PU) has announced the purchase of three Japan nursing homes located in Takayama City in Gifu Prefecture, Arita-gun in Wakayama Prefecture and Shunan City in Yamaguchi Prefecture for a total consideration of ¥3,700m (S$46.3m). See Parkway Life REIT Announcements.
• The acquisitions will add another 298 beds to ParkwayLife REIT’s portfolio and increase its Japan AUM to S$739m, accounting for c.39% of the total portfolio value and expand the total AUM by 2.5% to S$1.92bn.
• The transaction is expected to completed by Dec 2019.

Lengthens lease profile

• ParkwayLife REIT will secure fresh 20-year master leases for each of these properties, thus lengthening its portfolio average lease term from 6.29 years to 6.69 years. This will increase ParkwayLife REIT’s income resilience and visibility.

Accretive acquisition

• The properties have an estimated net property yield of 6.8% and are expected to be accretive to earnings when compared to the REIT’s current implied yield of 4%. ParkwayLife REIT intends to fund the purchase with ¥ loans as it continues to adopt a natural hedge strategy for the acquisitions.

Maintain HOLD

• We raise our FY20-21F DPU by 2% to factor in contributions from the new properties. Accordingly, our DDM-based Target Price is raised by 1.8% to S$3.32. See Parkway Life REIT Share Price; Parkway Life REIT Target Price. However, our recommendation remains at HOLD due to limited near-term Target Price upside.
• ParkwayLife REIT is currently offering a total return of 7.2%. We like ParkwayLife REIT’s stable yield backed by its defensive income structure, and would be buyers on weakness. See Parkway Life REIT Dividend History.
• Upside risks include accretive acquisitions, while downside risks include deflationary periods whereby Singapore rent reversions would revert to 1%.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-03

SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.32 UP 3.260