PLife – Phillip

Within expectations, and we like it

Parkway Life REIT (Plife) reported gross revenue for 3QFY09 of $16.5 million (+23.6% y-o-y, +2.5% q-o-q)), net property income (NPI) was $15.0 million (+23.3% y-o-y, +2.7% q-o-q). Distributable income was $11.6 million (+12.1% yo-y, +1.6 q-o-q). DPU for the quarter was 1.91 cents (+11.7% y-o-y, +1.1% q-o-q).

The financial results came in within expectations, and we think that is a good sign. To recall, Plife completed acquisition of the Japan properties in Sep 2008, therefore there were noticeable increase in revenues from 4QFY08 onwards. From 4QFY08, quarterly revenues were relatively stable, a reflection of the stability of the underlying healthcare related assets. DPU has also been on the incline with a consistent distribution margin around 0.7 level. The annual rent increment of 4.36% of the Singapore hospitals kicks-in in August 2009 and coupled with the increase in rental from the asset enhancement carried out on a Japan property, these will provide the impetus for growth in revenue in the next quarter.

On the capital management front, Plife’s gearing is 23.2% with total debt of $249 million. $34 million denominated in SGD is due in 2H2010 while the rest is denominated in JPY and due in 2011. Refinancing is not a major concern as Plife has already gotten funding facilities in place through a $50 million credit facility and also a $500 million MTM program.

Valuation and recommendation. We make no changes to our projections and maintain our optimism in the REIT. We have a FY09F DPU forecast of 7.59 cents, which translate to a dividend yield of 6.27%. We believe Plife is on track to meet our forecast and may even surprise slightly on the upside. We maintain our fair value of $1.37and Buy recommendation.