PLife – Phillip

1QFY10 Results

• 1QFY10 revenue of $18.6 million, net property income of $17.2 million, distributable income of $12.5 million.

• DPU of 2.07 cents

• Maintain Buy, fair value of $1.57

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Steady as a rock

Parkway Life REIT reported a set of results which is very much within expectations. Revenue and DPU have grown steadily throughout the quarters. The REIT registered 1QFY10 revenue of $18.6 million (+14.1% y-y, +5.1% q-q), net property income of $17.2 million (+13.4% y-y, +4.5% q-q) and distributable income of $12.5 million (+9.7% y-y, +0.9% q-q). Revenue increased due to full quarter revenue contribution from the eight nursing homes in Japan that were acquired in Nov 2009 as well as the increase in rental from the annual rent revision. DPU for the quarter was 2.07 cents (+9.5% y-y, +1.0% q-q). Revenue from Singapore accounted for 72.1% while Japan contributed 27.9%. With the Japan properties acquisition, there is greater diversification of the revenue streams.

Balance sheet remains healthy. Parkway Life REIT has total debt of $336.3 million. The REIT refinanced $34 million of its debt which will be due in 2H2010, during the quarter with proceeds from the issue of $50 million of the MTN programme. With the refinancing, there is no debt maturing within the next one year. The next repayment is $206.3 million which is due in 2H2011. Current gearing is 28.2%.

The financial results of Parkway Life REIT present very little surprise to us and this is also the reason that we like it. 88.9% of the portfolio has a downside revenue protection from the inflation-linked leases and 98.1% of the total portfolio has a rent review provision. The terms ensure that revenue will grow steadily over time. The other reason we like the REIT is on the prudent debt management. We think management has held a conservative acquisition strategy that has not stretched the balance sheet, keeping a comfortable gearing level. We make slight revisions to our loan interest assumptions which raise our DPU forecast for FY2010 by less than 1% from 8.22 cents to 8.24 cents, translating to a dividend yield of 6.2%. Correspondingly our fair value is raised slightly from$1.56 to $1.57. Maintain Buy recommendation.