Parkway Life REIT
Another record year
▊ Plife’s 4Q DPU reached another record high, up 6.0%/4.8% on qoq/yoy basis (5.5% yoy growth excluding a one-off IRAS tax adjustment of S$0.7m). Growth largely came on the back of Japanese acquisitions and Singapore hospital rental adjustments. FY13 results is broadly in line, forming 99% and 98% of our and consensus estimates. Maintain our Hold rating on valuations, as we believe a premium has been priced in at 1.4x FY14 P/BV and 5.3% FY14 dividend yield. Our DDM-based target price remains unchanged at S$2.37.
Growing organically and inorganically
PLife grew organically through its CPI-linked Singapore portfolio which saw revenue rising by 5.7% yoy. Inorganic growth largely came from its S$82.3m acquisitions of Japanese nursing homes in 2013. While a weaken yen reduced the positive growth at the revenue level, it was offset by PLife income hedge strategy at distributable income level. S$32m of revaluation gains were booked on its investment properties as the Singapore hospitals incorporates the latest CPI increase (valuation increased by 6%). The Japanese assets had c.14% downward revaluation, but was offset by matching yen-denominated liabilities.
We expect rental growth for the Singapore portfolio to be slightly reduced given Song Seng Wun, our Singapore economist, headline and core CPI expectation of 2.5% (2012: 4.6%). We believe growth should largely be underpinned by potential acquisitions, possibly in Malaysia, Australia or Japan, given PLife’s gearing at 33%. Another positive, albeit a smaller one, come from its three Japanese nursing homes undergoing asset enhancement initiatives (S$0.64m), which are expected to complete by end Jan 2014 and bring in ROI of 10-21%.
At 1.4x FY14 P/BV, the stock is supported by likely revaluation gains on its Sinagpore hospitals on the back of positive rental adjustments for the CPI-linked leases. FY14 dividend yield of 5.2% warrants a Hold rating on the stock given the limited upside. Re-rating catalysts include yield accretive asset acquisitions and higher-than-expected CPI adjustments.
Publish date: 27/01/14