Category: PLife
PLife – BT
P-Reit downgraded by Fitch Ratings
FITCH Ratings yesterday downgraded Parkway Life Real Estate Investment Trust (P-Reit).
In the downgrade, P-Reit’s long-term issuer default rating (IDR) and its $500 million multicurrency medium term note (MTN) programme were downgraded to ‘BBB’ from ‘BBB+’.
While P-Reit has good interest coverage, low cost of debt, low refinancing risk, stable rental mechanism, a diversified source of patients and strong position in the healthcare industry, it has a weak sponsor in Parkway Holdings (PHL), the owner of Parkway Hospital Singapore Pte Ltd (PHSPL), the operator of P-Reit’s three Singapore hospitals, Fitch said.
This has a negative impact on the credit profile of P-Reit, given that it still relies heavily on lease payments from PHSPL.
Although the financial ratios of P-Reit are sound and it is bolstered by a defensive rental mechanism, the majority of its gross revenue (80 per cent) is still based on the three Singapore hospitals, which are operated by PHSPL, in turn wholly owned by PHL.
‘On a standalone basis, Fitch thinks PHSPL is profitable through its three Singapore hospitals and has good credit metrics. Nevertheless, PHSPL is a wholly owned subsidiary of PHL and is not ring-fenced from its parent,’ the rating report said.
‘Any deterioration of PHL’s credit quality could lead to an increased consolidation risk between PHL and PHSPL, and hence negatively affect PHSPL’s ability to service lease payment to P-Reit.’
Fitch said it has noted that the leverage of PHL has significantly increased following the extra debt incurred for the Novena Hospital project, and the key financial ratios of PHL have ‘deteriorated’. — Reuters
PLife – CIMB
On the road
• PLife non-deal roadshow. We brought PLife REIT on a non-deal roadshow to Singapore, Kuala Lumpur and Hong Kong recently. Management elaborated on its acquisition rationale and strategies, and clarified on tenant concentration risks from Parkway Holdings.
• Acquisition rationale and strategies. Whilst short term acquisitions are likely to remain opportunistic in nature, medium term targets will focus on low-risk countries with quality healthcare assets and transparency in government regulations. The management will also attempt to keep similar leasing arrangements for future acquisitions so as not to erode the defensiveness of the REIT. In the longer term, the management intends to cut down concentration risks from PWAY to 60%.
• Potential acquisitions to be a kicker. An acquisition within the year looks increasingly likely. PLife’s trading yields have been compressed to 7.9%. Offers from cash-strapped healthcare operators continue to grow and capital markets seem to be opening up again. We expect acquisitions to be a kicker for PLife. Maintain Outperform with unchanged target price of S$1.20 (discount rate 8.1%)
SREITs – DBS
Catching up
• Results in line with expectations
• Bulk of 2009 refinancing needs addressed, cashflow is still key
• Lagged developers in recent performance, room to catch up
• Preference for suburban retail over office segment
Results generally in line. Slower pace of topline growth, +14% yoy and –0.3% qoq, was affected by the weaker hospitality reits performance. NPI improved a better 14% yoy and 4% qoq due to cost containment measures by the Sreits. Distribution income was up a smaller 9% yoy and 0.1% qoq as higher interest cost and more prudent payout policy eroded bottomline growth.
Refinancing concerns abating, cashflow preservation still key. With 75% of the Sreit debt due in 2009 already locked in 1Q09, concerns over credit availability is abating. Nevertheless, cashflow preservation is still key given that higher average cost of funding and downward pressure on rents from weaker economic prospects are likely to result in negative DPU growth over the next 2 years. In this regard, Sreits are exploring other avenues of cashflow retention, including lowering dividend payout and dividend reinvestment scheme.
Be selective. Sreits have lagged developers in the recent price run up and we see room for catching up. In terms of valuation, Sreits are trading on an average 0.5x P/bk NAV and offer average FY09 yield of 10%. We continue to like the Sreits for its attractive valuations, however, in view of the recent run-up we would be more selective at this point. Our top buys remain FCT, Suntec, Parkway Life and Starhill Global. FCT offers dividend yield of 8.2-8.6%, higher than its comparable peers and its pure suburban retail exposure appears more resilient. Suntec is yielding 11.8-10.3% over FY09-10. Recent debt renewal exercise has removed refinancing needs till 2011. We continue to like Parkway Life for its ‘base plus’ revenue model, low gearing and minimal refinancing risk. We have upgraded Starhill Global to Buy with TP of $0.70. Starhill is yielding c12% FY09-10. Newsflow of increased competition from soon-to-open malls have been factored into current share price. The upside risk at this point is the potential of spillover effect of increased pedestrian traffic once these malls open. We have downgraded AiT to Hold purely on valuation grounds after the recent surge in share price. The risk for the Sreit sector at this point remains the possibility of further fund raising if share prices continue to power up.
Link – Tables
PLife – CIMB
In the pink of health
• In line, NPI driven by 5.25% inflation rate in 2008. 1Q09 results were in line with consensus and our expectations. DPU of 1.89 cts forms 25% of our forecast of 7.54 cts, up 16.3% yoy. The minimum guaranteed rent from the Singapore hospitals is set to grow annually on a unique structure of the preceding year’s inflation rate + 1%. Net property income of S$15.2m was up 36.6% yoy driven by CPI of 5.25% in 2008. All of PLife’s asset remain 100% occupied as at 31 Mar 09.
• No refinancing issues and sufficient banking lines. PLife REIT does not have refinancing concerns until 2H10. Additionally, PLife also has sufficient funding sources which can be tapped for fund acquisitions and for general working capital purposes. This includes 1) a two-year committed S$100m multi-currency revolving credit facility, of which S$34m was drawn down in Feb 09 to refinance a maturing term loan of S$34m; and 2) a S$500m medium term note (MTN) program. Asset leverage continues to be one of the lowest in the REIT sector at 23% as at 1Q09.
• Interest rate and forex risks mitigated. The management has fixed interest rates for the whole quantum of its debt for three years via interest rate swaps. Additionally, the net income from Japan was also fully hedged for five years with foreign currency forward contracts. This creates clarity of interest expenses and income from its Japanese assets in the medium term.
• Maintain Outperform, earnings forecasts and target price of S$1.20. We continue to like PLife REIT as it remains one of the few REITs with clear visibility on earnings, and continued positive growth in the medium term based on its inflationlinked lease structure; Its strong balance sheet and the management’s tamed stance on growth via acquisitions strategy puts PLife in a favourable position to ride out the downturn. PLife offers a forward yield of 8.7% at a P/BV of 0.65x. Maintain Outperform and DDM-based target price of S$1.20 (discount 8.09%).
PLife – Phillip
Parkway Life REIT reported gross revenue for 1QFY09 of $16.3 million (+37.6% y-o-y), net property income was $15.2 million(+36.6% y-o-y). Distributable income was $11.4 million(+16.6% y-o-y). DPU for the quarter was 1.89 cents (+16.7% y-o-y).
Results were largely inline with expectations as Plife REIT’s properties have strong and stable cash flow characteristics. Growth in revenue was mainly due to the annual increment in rents of 6.25% of the Singapore hospitals as well as contribution of revenue from the Japanese properties, which were acquired in 2nd and 3rd quarter of 2008.
Balance sheet remains healthy with gearing ratio of 23.0%, a slight decrease of 0.3%pt from 4QFY08, due to the depreciation of JPY. Correspondingly, asset value registered slight drop of 0.6% from the Japan properties. Plife REIT has total debt of $247.5 million, out of which $34 million denominated in S$ is due in the 2nd half of 2010. The rest are JPY denominated and due in the 2011.
Share price has run-up 20% since our previous recommendation. We maintain our positive call on Plife REIT and like it for the stable and resilient cash flows. We reiterate the defensive nature of the healthcare sector and the revenue model of the REIT whereby 93% of total portfolio (NLA) has downside revenue protection. We maintain our Buy recommendation with fair value of $0.95.