Parkway Life REIT - CGS-CIMB Research 2021-07-27: Another Quarter Of Growth

PARKWAYLIFE REIT (SGX:C2PU)

Parkway Life REIT - Another Quarter Of Growth

Parkway Life REIT's 2Q21/1H21 DPU of S$0.0338/S$0.0695 in line, at 24%/49% of our FY21F forecasts.
Singapore contributions saw continued growth, while Japan income lifted by new acquisitions.
Reiterate ADD rating on Parkway Life REIT with an unchanged DDM-based target price of S$5.05.

Parkway Life REIT (SGX:C2PU) posted a 2.3%/2.8% y-o-y decline in 2Q21 gross revenue/net property income (NPI) to S$29.6m/S$27.4m, due to income vacuum following the divestment of P-Life Matsudo in Jan 2021, partly offset by the acquisition of a nursing home in Japan in Dec 2020 and higher rent from Singapore properties.
However, distributable income grew 0.7% y-o-y to S$20.5m (DPU S$0.0338), thanks to lower interest expense and absence of one-off COVID-19-related relief measures retained last year.
Parkway Life REIT's 1H21 DPU of S$0.0695 is within our expectations, at 49.2% of our FY21F forecast.

Singapore hospitals achieved a 1.2%/1% y-o-y increase in 2Q21 revenue/NPI to S$17.5m/S$10.2m, underpinned by an inbuilt rental escalation structure. Parkway Life REIT also announced a minimum rent adjustment of 1.66% for the 15th year of its lease agreement, (commencing 23 Aug 2021 until 22 Aug 2022), boosting its income visibility.
In addition, Parkway Life REIT also recently announced a new master lease agreement (MLA) and renewal capex agreement, as well as a 10-year ROFR for the Mount Elizabeth Novena Hospital with its sponsor IHH Healthcare (SGX:Q0F). The new MLA will be for a 20.4-year term (23 Aug 2022 to 31 Dec 2042), with an option to renew for a further 10 years (to 31 Dec 2052).
We estimate the new MLAs will lengthen Parkway Life REIT’s portfolio weighted average lease expiry (WALE) to 16.6 years, providing it with long-term income certainty and an inbuilt growth structure. Parkway Life REIT will seek unitholders’ approval for these transactions at an EGM.

Parkway Life REIT's Japan operations reported a 7%/8.5% y-o-y decline in 2Q21 gross revenue/NPI to S$12m/S$10.7m, due to an income vacuum from asset divestments. However, we anticipate an h-o-h improvement with the purchase of two nursing homes in Jul 2021 for S$49.4m. These properties are expected to add S$3.2m (~6.6%) of gross rental income to Parkway Life REIT’s Japan income stream.
Parkway Life REIT’s balance remains robust with a gearing of 37% at end 2Q21 and weighted average debt maturity of 4.1 years. Assuming a 45% gearing limit, Parkway Life REIT has further debt headroom of S$292.4m to fund potential new purchases.

We leave our FY21-23F DPU estimates for Parkway Life REIT unchanged and maintain our DDM-based target price of S$5.05. We like Parkway Life REIT for its stability, backed by its defensive income structure with inbuilt escalation features.
See
Potential re-rating catalysts 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 2021-07-27

SGX Stock Analyst Report ADD MAINTAIN ADD 5.050 SAME 5.050