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

PARKWAYLIFE REIT (SGX:C2PU)

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 (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.

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 ¥.

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.

We raise our Parkway Life REIT's FY21-22F DPU forecast by ~2% as we factor in contributions from the new acquisition made in Dec 2020. See Parkway Life REIT Share Price; Parkway Life REIT Target Price; Parkway Life REIT Analyst Reports; Parkway Life REIT Dividend History; Parkway Life REIT Announcements; Parkway Life REIT Latest News.
While we like Parkway Life REIT for its stable yield backed by its defensive income structure, our recommendation remains a HOLD given the 6% total return based on current Parkway Life REIT's share price. We would be buyers on any share price weakness.
Upside risks include accretive acquisitions while downside risks include deflationary periods whereby Singapore rent revisions would revert to 1%.

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