FY07: Maiden results exceeded forecast

Parkway Life REIT reported its maiden set of results for the period from 23 Aug to 31 Dec 08.

Parkway Life REIT achieved rental revenue of S$16.9m, 5% higher than forecast provided in the IPO prospectus. This comprises base rent of S$10.7m and variable rent of S$6.2m. Higher variable rent was driven by increased revenue from foreign patients, higher consumption of diagnostic outpatient services and contribution from Parkway Cancer Centre.

Distributable income was 5.8% higher than forecast at S$13.6m. Parkway Life REIT declared DPU of 2.27 cents, representing annualised distribution yield of 5.3%. The distribution will be paid on 28 Mar 08.

Revaluation boosted NAV/share. Parkway Life REIT has revalued its portfolio from S$775.3m at 17 Jul 07 to S$831.6m at S$831.6m at 31 Dec 07. This is an increase of S$56.3m or 7.3%. The appraised value for hospitals are based on discounted cash flow while the appraised value for medical centre units at Mount Elizabeth Medical Centre (S$5.7m per medical centre unit) and Gleneagles Medical Centre (S$2.5m per medical centre unit) are based caveats lodged. NAV/share for Parkway Life REIT has therefore increase by 8.8% to S$1.36.

Investment grade rating from Fitch boost debt capacity. Parkway Life REIT will pursue yield accretive acquisitions focusing on Singapore, Malaysia, Thailand, India and China. The company has received investment grade rating of BBB+ from Fitch Rating on 19 Feb 08. Its maximum permissible gearing has increased from 35% to 60%. Additional debt capacity to fund acquisition has increased from S$410m to S$1,200m.

Parkway Life REIT will diversify in terms of asset type. It will seek investments in ambulatory surgery centres, primary clinics, medical office building, step-down care facilities such as nursing homes, research & development (R&D) facilities and pharmaceutical storage and distribution facilities. Parkway Life REIT targets to targets to double size of portfolio to S$1.6b by end-09.

Reiterate BUY. Parkway Life REIT provides strong defensive qualities. It benefits from revenue growth at Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital as variable rent is 3.8% of adjusted hospital revenue. Our target price is S$1.72 based on the discounted dividend model (discount rate: 7.1%, terminal growth: 3%).

An oasis in time of turbulence

Parkway Life REIT invests in income-producing real estate assets in the Asia Pacific region. The assets, used primarily for healthcare and related purposes, include hospitals, ambulatory surgery centres, primary clinics, medical office building, step-down care facilities such as nursing homes, research & development (R&D) facilities and pharmaceutical facilities. The initial portfolio comprises Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital in Singapore.

Riding on growth in healthcare focus. The annual rental payable by Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital comprises base rent and a variable rent. Total annual base rental from the three hospitals is S$30m. The variable rent is equivalent to 3.8% of adjusted hospital revenue. Adjusted hospital revenue encompasses inpatient, outpatient, car park, retail, pharmacy and food & beverage revenues. The variable rent allows unit-holders to ride on the growth of the healthcare industry due to an ageing population, medical tourism and growing affluence in Singapore and across the region.

Downside protection enhances defensive qualities. The minimum rent payable by each hospital is set at Consumer Price Index + 1% above rent payable in the preceding year. Where Consumer Price Index is negative for any given year, then it is deemed to be zero. This ensures that total rent payable is always increasing, which enhances the defensive quality of Parkway Life REIT.

Reiterate BUY. We like Parkway Life REIT for its healthcare focus. Acquisitions in Singapore and in the region will provide catalysts for growth in distribution yield. Parkway Life REIT trades at a discount of 6.4% to NAV/unit of S$1.25. Our target price is S$1.72 based on the discounted dividend model (WACC: 6.2%, terminal growth: 2%).

Defensive play with upside exposure to healthcare sector

An oasis in time of turbulence

Parkway Life REIT invests in income-producing real estate assets in the Asia Pacific region. The assets, used primarily for healthcare and related purposes, include hospitals, ambulatory surgery centres, primary clinics, medical office building, step-down care facilities such as nursing homes, research & development facilities and pharmaceutical facilities. The initial portfolio comprises Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital in Singapore.

Riding on growth in healthcare focus. The annual rental payable by Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital comprises a base rent and a variable rent. The variable rent is equivalent to 3.8% of adjusted hospital revenue. Adjusted hospital revenue encompasses inpatient, outpatient, car park, retail pharmacy and food & beverage revenues. This allows unitholders to ride on the growth of the healthcare industry due to an ageing population, medical tourism and growing affluence in Singapore and across the region.

Downside protection enhances defensive qualities. The minimum rent payable by each hospital is set at Consumer Price Index + 1% above rent payable in the preceding year. Where Consumer Price Index is negative for any given year, then it is deemed to be zero. This ensures that total rent payable is always increasing, which enhances the defensive quality of Parkway Life REIT.

Acquisition strategy drives growth in distribution yield. Parkway Life REIT has been granted the first right of refusal by Parkway Holdings over future sale of healthcare and related facilities. It will diversify its portfolio by acquiring medical offices, research & development facilities, storage and distribution facilities for pharmaceutical companies, and nursing homes.

An oasis in sea of turbulence

Parkway Life REIT invests in income-producing real estate assets in the Asia Pacific region. The assets, used primarily for healthcare and related purposes, include hospitals, ambulatory surgery centres, primary clinics, medical office building, step-down care facilities such as nursing homes, research & development facilities and pharmaceutical facilities. The initial portfolio comprises Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital in Singapore.

Riding on growth in healthcare focus. The annual rental payable by Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital comprises a base rent and a variable rent. The variable rent is equivalent to 3.8% of adjusted hospital revenue. This allows unitholders to ride on the growth of the healthcare industry due to an ageing population, medical tourism and growing affluence in Singapore and across the region.

Downside protection enhances defensive qualities. The minimum rent payable by each hospital is set at Consumer Price Index + 1% above rent payable in the preceding year. Where Consumer Price Index is negative for any given year, then it is deemed to be zero. This ensures that total rent payable is always increasing, which enhances the defensive quality of Parkway Life REIT.

Acquisition strategy drives growth in distribution yield. Parkway Life REIT has been granted the first right of refusal by Parkway Holdings over future sale of healthcare and related facilities. It will diversify its portfolio by acquiring medical offices, research & development facilities, storage and distribution facilities for pharmaceutical companies, and nursing homes.

Initiate coverage with BUY. We like Parkway Life REIT for its healthcare focus. Acquisitions in Singapore and in the region will provide catalysts for growth in distribution yield. Our target price is S$1.72 based on the discounted dividend model (WACC: 6.2%, terminal growth: 2%).