PLife – Phillip
Parkway Life (Plife) REIT reported gross revenue for 2QFY09 of $16.1 million (+28.9% y-o-y, -1.5% q-o-q)), net property income was $15.0 million(+27.9% y-oy, -1.3% q-o-q). Distributable income was $11.4 million(+13.7% y-o-y, flat q-o-q). DPU for the quarter was 1.89 cents (+13.8% y-o-y, flat q-o-q).
The growth in revenue comes mainly from the contribution of Japanese properties that were acquired in 3Q08 and also the annual revision of rental from the Singapore hospitals that took effect from August 2008. It can be seen that from 4Q08 onwards, revenue and DPU were fairly stable. The REIT manager further announced that the Singapore hospitals rental is set to increase by 4.36% beginning 23 August 2009. Revenue is also expected to get a boost from the increase in rental of the P-Life Matsudo property following completion of an asset enhancement initiative (AEI) to maximize plot ratio.
Plife REIT has no short term refinancing concern with a gearing of 22.7%. Total debt is $242 million with $34 million coming due in 2nd half 2010 and the rest in 2011. Plife has in place a $500 million multicurrency MTM programme as well as a newly secured $50 million Islamic revolving credit facility.
Being exposed to the relatively stable healthcare sector, Plife REIT has shown resiliency in the recession. The inflation linked revenue model ensures revenue is downside protected. We revised up our revenue forecast to factor in the growth from the annual revision of the Singapore hospitals and from the Matsudo property. Our FY09F DPU remains unchanged at 7.59 cents while FY10F DPU rises from 7.56 cents to 7.71 cents. Fair value revised upward from $1.19 to $1.21.
PLife – BT
Parkway Reit cautious despite good results
It has also secured a $50m Islamic revolving credit financing facility
PRUDENCE is the call at Parkway Life Reit, even as the healthcare trust reported an improved set of second-quarter results yesterday. The trust has secured a $50 million Islamic revolving credit financing facility by The Islamic Bank of Asia, even though it already has ample funding facilities to support potential acquisitions.
‘This $50 million is both a defensive and competitive strategy,’ said Yong Yean Chau, CEO of Parkway Trust Management, which manages the trust. ‘Defensive in a sense that the market has rallied, no doubt, but we’re not very sure whether the recovery is sustainable or it may break somewhere.
‘It could, well, pardon me, crash and go back down to the bottom. With this facility, because we’ve got a $34 million loan that is due next year July, if market crashes, the capital market can close easily and we don’t want to be stuck without financing.’
However, the maturity of its existing $34 million debt can be extended to 2012. In the event that the Islamic financing facility is not used, then it will serve to beef up its war chest for opportunistic acquisitions.
Parkway Life Reit has previously set up a $500 million multi-currency term note programme that has yet to be tapped. It also has access to credit facilities of $160 million, of which $34 million has been drawn. Other long-term borrowing include a term loan facility and several revolving credit facilities amounting to 13.66 billion yen (S$207.9 million), due in late 2011. This was used in 2008 to finance the acquisition of Japan properties.
The trust has a debt headroom of $308.3 million before reaching 40 per cent gearing ratio. Its gearing ratio stood at 22.7 per cent, but it does not intend to gear up above 35 per cent.
Parkway Life owns the Mount Elizabeth, Gleneagles, and East Shore hospitals in Singapore, and 10 assets located in Japan, including nursing homes and a pharmaceutical product distributing and manufacturing facility.
For the three months ended June, the Reit posted a 13.7 per cent increase in income available for distribution to $11.4 million. This brings distribution per unit (DPU) to 1.89 cents, higher than the 1.66 cents in Q2 last year.
Gross revenue for the quarter rose 28.9 per cent to $16.1 million, primarily due to higher revenue contribution from its Japan properties. This was further driven by the higher rent from the group’s Singapore hospital properties, which is pegged to a CPI + 1 per cent (ie 6.25 per cent) formula.
Property expenses went up 43.6 per cent to $1.1 million, resulting in net property income of $15 million, a jump of 27.9 per cent over last year.
For the half year, income available for distribution went up 15.1 per cent to $22.8 million. DPU rose to 3.78 cents, from 3.29 cents.
Despite the downturn, there has been little change in the valuations of healthcare and healthcare-related properties, according to Mr Yong. However, the lacklustre economic climate has presented more opportunities for investment as more healthcare players and owners explore an asset-light strategy. ‘And these are very good names, both in Singapore and overseas,’ he said.
Shares of Parkway Life Reit closed 3 cents higher at $1.08 yesterday, before its results were released.
PLife – CIMB
Asset enhancements and CPI to boost DPU
• In line. 2Q09 distribution of S$11.4m (+14% yoy) and DPU of 1.89 cts (+14% yoy) were in line with Street and our expectations. YTD DPU of 3.77cts forms 50% of our full-year forecast. Net property income of S$15.0m (+28% yoy) was driven by full contributions from Japanese assets as well as higher rent from Singapore hospitals due to a high CPI + 1% (i.e. 6.25%).
• Singapore Hospitals’ minimum guaranteed rent to grow by 4.36%. Management announced that CPI for the next minimum guaranteed rent period (23 Aug 09-22 Aug 10) has been determined at 3.36%. This implies that under its unique lease structure, the minimum guaranteed rent from PLife’s Singapore hospitals is set to grow by 4.36%, based on its CPI + 1% lease structure.
• First asset-enhancement initiative; no borrowings required. The manager announced the completion of its maiden asset-enhancement work on its Japanese property, PLife Matsudo, at end-Jul 09. A total of S$2.56m had been spent to convert a utility room to a production area. The work was funded by cash on hand, with no impact on asset leverage. The enhancement should be highly accretive with a 17.4% return on investment. However, the incremental impact on DPU is not material at less than 1%. Nonetheless, this is a positive move to enhance the contribution of assets. We understand that this is the start of more enhancement work, which could include Singapore assets that contribute the lion’s share of revenue at 80%.
• Maintain Outperform; FY10-11 forecasts and target price raised. We raise our earnings estimates based on the announced CPI numbers, and include the accretion from asset enhancement. Separately, we increase our trust expense assumptions. Our DPU estimates rise by 2% for FY10-11. Our DDM-based target price rises correspondingly to S$1.31 from S$1.29 (discount rate 7.2%). We like PLife REIT for its visible earnings from its CPI + 1% formula and possibly upside from further asset-enhancement work. The acquisition of assets also looks probable in the near future with its low asset leverage of 23% and the availability of funding at undemanding costs. PLife offers an attractive and sustainable yield of 7% at 0.8x P/BV. Maintain Outperform.
LMIR – OCBC
Retail outlook still weak but we see value
Distributable income falls YoY and QoQ. LMIR Trust reported a 20.3% YoY fall in 2Q09 revenue to S$19.5m and a 20.6% YoY fall in net property income to S$18.5m. The manager said about half of the decline was due to the depreciation of the IDR against the SGD. The rest was attributed to a reduction in casual leasing income as well as lower car park and miscellaneous income. Conversely, revenue and NPI rose 4.7% QoQ and 5.5% QoQ respectively thanks to the appreciation of the IDR in the past three months. The positive forex effect offset lower revenue from two of LMIR’s malls undergoing asset enhancement work. Distributable income, which is hedged, fell 12.5% YoY and 4.3% QoQ to S$13.9m. Unitholders will receive 1.3 S cents per unit, in line with our expectations.
Occupancy looks to be stabilizing. Mall occupancy was stable at 95% compared to three months ago, and outperformed the broader market rate of 84% (Jakarta only, Cushman & Wakefield). Mal Lippo Cikarang’s 86.5% occupancy is the lowest within the portfolio due to the non-renewal of anchor space. The manager has temporarily leased the space to factory outlets but is in discussions to secure longer term leases. We understand rent reversions are on average 3-5% above preceding rents. The manager has tried to offset any weakness in rents with shorter lease durations or by incorporating a step-up component.
Retail outlook still weak. Macroeconomic news on Indonesia has generally been quite benign. Low inflation and signs of political stability have boosted consumer confidence. The IMF forecasts growth of 3.5% this year, the fastest pace in Asia after India and China. However, the retail property sector is still plagued by weak demand and oversupply, particularly in Jakarta’s CBD. The manager guided that rental rates could remain soft in 2H09 but expected LMIR’s ‘middle market’ malls to show some resiliency.
But value exists. We have updated our earning estimates to reflect actual 1H performance. We are expecting portfolio performance to stabilize in 2H09, with a slight uplift from completed AEI projects. Our 2H09 DPU estimate is 2.76 S cents, up 3.9% HoH. We have also adjusted our valuation parameters to reflect current market and forex conditions. Our fair value estimate of S$0.50 (prev: S$0.24) is at a 25% discount to our SOTP value of S$0.67 for the trust. Despite the weak near-term retail outlook, we think LMIR presents value in the medium-term. Upgrade to BUY (total return of 22%).
LMIR – BT
LMIR Trust income dips despite stable rents
It cites depreciation of rupiah, drop in casual leasing and other income
LIPPO-MAPLETREE Indonesia Retail Trust (LMIR Trust) yesterday reported a 12.5 per cent year-on-year drop in distributable income to $13.9 million, for its second quarter.
Distribution per unit also fell to 1.3 cents for the quarter ended June 30, from 1.5 cents for last year’s Q2.
Gross revenue fell 20.3 per cent to $19.5 million. Reasons include the depreciation of the Indonesian rupiah, reduced casual leasing income, and lower car park and miscellaneous income as retailers cut back on publicity expenses such as signage fees, the trust’s manager said.
Property expenses dropped 14.3 per cent to $1.1 million.
Net property income fell 20.6 per cent to $18.5 million from $23.3 million one year back.
LMIR Trust’s property portfolio currently consists of eight retail malls and seven retail spaces located within other retail malls, all in Indonesia.
Its portfolio occupancy rate held steady at 95 per cent in the second quarter, ‘significantly better than the industry average’, the trust’s manager said.
In Q2, average monthly gross rents remained stable in Jakarta, where most of LMIR Trust’s portfolio properties are situated.
Some new properties, now under construction and expected to come onto the market in the coming year, could keep rental rates soft for the rest of this year, but will most likely affect the upper category of retail malls.
LMIR Trust’s management said that ‘the middle target market for its malls and their choice locations will allow its portfolio to be resilient, particularly in light of Indonesia’s economic outlook’.
Its gearing as at June 30 was 12.1 per cent, with total borrowings of $125 million for a tenure of four years from March 31.
LMIR Trust’s unit price closed one cent up, at 44 cents yesterday.