Category: PLife
PLife – Phillip
VALUE + GROWTH
We met up with the management of Parkway Life REIT (Plife) for an update that bolstered our optimistic view on the REIT.
Value. Parkway Life REIT (Plife) has an underlying stable of properties that commands relatively stable cash flows with a growth component. As a reiteration, approximately 80% of gross revenue is contributed from the Singapore portfolio of hospital which grows at an annual rate of CPI + 1%. During the last revision in August 09, this was set at 4.36%. The Japan properties currently account for 20% of gross revenue. Being exposed to the defensive healthcare industry, its portfolio of properties faces little risk of asset devaluation as they are secured by relatively long leases with stable cash flows.
Growth. Besides organic growth from upward revision of rental, Plife has a growth strategy from asset enhancement and acquisition. Management revealed that it has dedicated personnel who are exploring the possibility of maximizing plot ratio of its assets and also efficient utilization of available spaces. In a recent asset enhancement initiative that was completed on the Matsudo property, incremental return of 19% to its gross revenue was achieved against capital spending on the property of 7%. Management also indicated that it is targeting the Singapore, Malaysia, Japan and Australia markets for potential expansion opportunities given the demographic and infrastructure suitabilities.
The other impetus for growth is the low gearing ratio of the REIT. Current gearing is 23% with total debt of $242 million. Assuming a gearing level of 35%, Plife has the capacity of take on an additional $200 million of debt for its expansion. In terms of funding sources, Plife has in-place a $50 million credit facility of Islamic financing and also a $500 million MTM program. The Islamic financing opens up an avenue of funding sources and also potential investor base.
Recommendation and valuation. We feel that the REIT sector has resolved most of the refinancing debacle that has plagued the sector in the past year. With credit issue out of the way, REIT managers should be turning their attentions to their growth strategy. In our opinion, Plife has satisfied all the criteria in carrying out an expansion.
REITs – CIMB
Equity raising: Round 2 on the cards?
• Almost S$4bn of cash calls YTD. Since Jan 09, a number of SREITs have made cash calls amounting close to S$4bn, mostly to pare down maturing debt.
• Equity raising expected to continue, driven by acquisitions… Frasers Centrepoint Trust, PLife REIT, and CapitaMall Trust are most likely to make acquisitions in the next 12 months, in our estimation. We expect FCT and CMT to resort to equity raising as debt headroom is unlikely to be sufficient, in view of the sizeable potential pipeline. CMT could potentially raise more than S$1bn, assuming Sun Hung Kai also divests its 50% stake in Ion Orchard to CMT. In the medium term, we also expect Suntec REIT to acquire Suntec Convention Centre, potentially financed by a cash call.
• … and potential asset devaluation. The recent devaluation of Singapore Land Tower to about S$1,842psf is expected to put pressure on CCT to write down its two key office assets, 6 Battery Road and One George Street, with significantly higher valuations of above S$2,200psf. CCT would need to raise more than S$200m in equity to stay safely within the 40% asset leverage level if asset values fall by more than 20%.
• Mid-sized REITs preferred; PLife has lease risk of equity raising. We prefer mid-sized REITs with strong balance sheets such as FCT and PLife REIT. However, our top pick in the SREIT space for potential near-term acquisitions with the least risk of equity raising would be PLife REIT, as debt headroom of more than S$300m remains sizeable. Our target price of S$1.31 and forward yields of 7.2% have yet to account for potential acquisitions.
PLife – DBS
Getting even more Life-ly
At a Glance
• 2Q09 net property income of S$15.0m in line with consensus and our estimates; DPU of 1.89cents
• New S$50m Islamic facility adds diversity to funding sources
• AEI at P-Life Matsudo for S$2.56m, increase gross rental from asset by 19.4% and DPU by 0.042cents
• Maintain Buy, TP revised to $1.17.
Comment on Results
2Q09 stable as it is. Net property income (NPI) grew 27.9% to S$15.0m, lifted by contributions from its Japanese assets acquired in 2H08 and a higher rental pegged to CPI rate (6.25%) for its Singapore hospitals. NPI margin was slightly lower at 93% vs 93.7% in 2Q08 due higher expenses from the Japanese assets.
DPU of 1.89cents for 2Q09. DPU remained similar to 1Q09 at 1.89cents but registered a growth of 13.7% yoy from 1.66cents in 2Q08. The DPU translates into an annualized yield of c.7% at current price. Ex-date for the dividend is 13 Aug.
S$50m Bank Murabaha facility; low gearing of 22.7%. It has been offered a S$50m 3-yr Revolving Murabaha Facility with Islamic Bank of Asia. This is on top of its S$500m MTN facility and S$126m untapped bilateral bank facility. Hence, P-Life has the flexibility to tap on diversified sources of funds. Gearing remains at a very healthy 22.7%, providing gearing headroom of S$308m and S$996m before the REIT reaches the targeted 40% and 60% maximum gearing levels.
AEI at P-Life Matsudo. The REIT completed a JPY160.1m (S$2.56m) AEI at its P-Life Matsudo asset, involving the conversion of existing utility space into a device manufacturing room. This will increase gross rental of the asset by 19.4% and DPU by c.0.042cents.
Recommendation
Maintain Buy, TP raised to $1.17. We like PREIT for its stable revenue stream, with protection against downward revision, and potential to deliver acquisitions given its debt headroom. We raised our DPU up slightly by c.5-6% for FY09F and FY10F as we revised up our rental assumptions for its Singapore hospitals and a higher NPI from its Japanese assets. Consequently, our DCF-derived TP is adjusted to S$1.17 (WACC 6.6%, terminal growth 1%).
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.