Parkway Life REIT - CGS-CIMB Research 2021-01-25: Steadily Growing


Parkway Life REIT - Steadily Growing

  • Parkway Life REIT's 4Q20 and FY20 distribution of S$0.0357 and S$0.1379 per unit were slightly above our FY20F projections.
  • Improved Singapore operations and contributions from new Japan acquisitions boosted performance.

Parkway Life REIT's 4Q20 results highlights

  • Parkway Life REIT (SGX:C2PU) posted a 9% y-o-y increase in 4Q20 gross revenue to S$30.6m, thanks to additional contributions from four Japan assets bought in Dec 2019 and Dec 2020, appreciation of the ¥, and higher Singapore hospital income. See Parkway Life REIT's announcements. Net property income (NPI) grew a lower 4.2% y-o-y to S$28.5m with the absence of one-off items, resulting in a normalised NPI margin of 93.1%.
  • Distributable income to unitholders grew a larger 6.7% y-o-y to S$21.6m as Parkway Life REIT benefited from lower interest cost due largely to a low interest rate environment, realised forex gain as well as release of S$0.9m of COVID-19 related relief measures retained earlier.
  • 4Q20 and FY20 distribution of S$0.0357 and S$0.1379 per unit were slightly ahead of our expectations at 26.6%/102.6% of our FY20 forecasts. See Parkway Life REIT's dividend history.

Organic growth and new acquisitions boosted bottomline

  • Singapore hospitals achieved a 1.2%/1.2% y-o-y increase in 4Q20 revenue/NPI to S$17.5m/S$16.7m on upward minimum guarantee rent revision of 1.17%. This adjustment commenced on 23 Aug 2020 and will last until 22 Aug 2021. This provides the trust with strong income visibility.
  • Its Japan operations reported a 9.3% y-o-y expansion in 4Q NPI to S$11.8m, due to additional rental contributions from four properties acquired in Dec 2019 and Dec 2020 as well as a stronger ¥.

Strong balance sheet, new Japan property boost FY21F earnings

  • In Dec 2020, Parkway Life REIT completed the acquisition of a nursing home in the Greater Tokyo region in Japan for S$21.2m. The purchase is yield accretive, based on a property yield of 6.4% and should boost its earnings from Dec 2020 onwards.
  • Parkway Life REIT’s asset portfolio stands at ~S$2bn as at end-Dec 2020. Parkway Life REIT continued to strengthen its balance sheet as it put in place 6-year committed loan facilities to term out two loans due in Jun 2021 and extended its debt maturity to 3.5 years.
  • As at end-4Q20, Parkway Life REIT's gearing stood at 38.5%. Assuming a gearing of 45%, Parkway Life REIT has further debt headroom of S$243.8m to fund potential new purchases.

Reiterate HOLD rating

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 4.11 UP 4.030