Category: PLife
PLife – DBSV
Stable earnings
• Declared 2.69 Scts DPU (+9% y-o-y) in 4Q12, taking FY12 DPU to 10.3 Scts
• Gearing remains healthy
• Raised 2013 CPI assumption to 4%
• Maintain HOLD, nudged up TP to S$2.19 after adjusting for higher CPI
Highlights
4Q12 DPU in line. Gross revenue grew 5% led by three properties in Japan acquired in Mar12, Gleneagles Medical Centre Kuala Lumpur (acquired in Aug12), as well as higher rents at its Singapore hospitals in Year 6 of its lease commencing 23 Aug12 (yield: CPI+1% = 6.31%). However, this was partly offset by a weaker Japanese Yen in in the quarter. Nevertheless, net property income margins inched up to 92.2% led by lower property repair costs and a weaker Yen.
Gearing remains healthy at 32.9%. This gives the REIT S$174m, S$323m and S$995m debt headroom before reaching 40%, 45% and 60% gearing, respectively. Weighted average term to maturity is now 2.4 years with only S$163m JPY loans (34% of total loans) due in 2014. Total cost of debt remains at 1.62%.
Our View
Acquisition yet to materialize. We believe management is continuing its efforts to source for acquisitions, and continue to expect this to be in markets such as Malaysia and Australia. Though this has taken slightly longer than expected, management could be taking a more cautious stance, in our view. We have not factored acquisitions into our assumptions given the uncertainty in timing.
Factoring in higher CPI. We expect PREIT’s hospital assets to continue to benefit from a higher inflation rate in Singapore. In line with DBS economists’ latest forecast, we raised our CPI assumption for 2013 to 4%, from 3.1% previously. Consequently, DPU is nudged up to 10.7Scts for FY13F and 11.1Scts for FY14F.
Recommendation
Maintain HOLD, TP: S$2.19. PREIT is trading at 1.5x P/BV and 4.7% FY13F yield, amongst the lowest in the SREIT universe. Our DCF-derived TP (WACC: 5.7%, t:2%) is raised.
PLife – Phillip
Poised to build on its past successes
Company Overview
PLife REIT is one of the largest listed healthcare REITs in Asia by asset size. Its mandate is to invest in income producing real estate and/or healthcare-related assets primarily used for healthcare and/or healthcare-related purposes in Singapore and Asia.
- 4Q12 (FY12) revenue S$24.0mn (S$94.1mn), NPI S$22.1mn (S$86.4mn), distributable income S$16.3mn (S$62.4mn)
- DPU for 4Q12 (FY12) at 2.69 cents (10.31 cents)
- Maintain Accumulate with revised target price of $2.450
What is the news?
PLife REIT turned in a strong set of results for 2012. DPU grew 7.4% from 9.60 cents in FY11 to 10.31 cents in FY12. The increase was largely due to the purchase of three Japan properties, higher rent collected from Singapore properties and cost-savings on financing. The portfolio asset was revalued at S$1.4bn and recognized revaluation gains of 3.1% compared to last year.
How do we view this?
FY12 DPU exceeded our estimates by 3.8%, principally due to lower-than-expected finance and trust expenses. It is encouraging to see FY12 DPU continued to grow at 7.4% after five years of portfolio expansion since the IPO in 2007. Marching towards 2013, the trust is poised to repeat and build on its past successes on account of (i) potential rental increase for Japan properties under the “Refurbishment AEI” concept (ii) CPI+1% rental revision for Singapore properties owing to elevated inflation rate in Singapore, and (iii) enlarged debt headroom of S$173.5mn to drive inorganic growth.
Investment Actions?
We fine-tuned our assumptions and rolled over our estimates to FY13 and included FY17 to our model. With the adjustments, our price target is raised from S$2.33 to S$2.45, indicating a total return of 11.1% for FY13. As our model does not take into account of potential acquisitions and asset enhancement, further DPU upsides could be expected. Given our conservative projections, we maintain our Accumulate call in view of potential DPU growth.
Healthcare REITs – OCBC
STABLE OUTLOOK FOR 2013
- Strong share price performance YTD
- Defensive income streams and lease structure
- Quality likely priced in
Year in review
The S-REITs sector has been a standout performer in 2012 (+34.5% YTD), buoyed by the ‘yield compression’ theory in light of the current low interest rate environment. Unsurprisingly, healthcare REITs have also delivered strong YTD price appreciation, with First REIT (FREIT) rising 36.2% and Parkway Life REIT (PLREIT) a more modest 19.0%. Both healthcare REITs also continued to showcase steady growth in their financial performance, supported by organic and inorganic growth. For 9M12, FREIT’s revenue and DPU increased 5.4% and 9.1%, while that of PLREIT climbed 8.0% and 6.8%, respectively.
Defensive play amid uncertain macro environment
In our opinion, healthcare REITs offer the most defensive attributes within the S-REITs space. This stems from the following reasons: 1) long-term master lease tenures which have significant downside revenue protection and 100% committed occupancy; 2) Singapore CPIpegged rental structure which allows for positive rental reversion (3.5-4.5% headline inflation expected in 2013, according to the Monetary Authority of Singapore); 3) triple net lease structure inherent in a substantial proportion of leases; and 4) resilient underlying cashflows from operators which enhances their ability to fulfil rental obligations. We believe that these defensive qualities would provide stability for investors amid the still-uncertain macroeconomic environment.
Maintain NEUTRAL
Moving into 2013, we believe that healthcare REITs will remain on the lookout for further acquisitions to boost their portfolios. Indonesia will likely continue to be the main focus for FREIT, while PLREIT could deepen its foothold in Malaysia (through sponsor-related or third party acquisitions), in our view. In terms of valuation, we believe that the subsector positives have already been priced in, with healthcare REITs trading at an average historical P/B ratio of 1.37x, while offering current and forward yields of 5.8% and 6.0%, respectively, based on Bloomberg consensus estimates. This is a rich premium to the S-REITs universe (ex. healthcare REITs), which are trading, on average, at 1.06x historical P/B and current and forward yields of 6.1% and 6.4%, respectively. Hence, we maintain our NEUTRAL rating on the healthcare REIT subsector. Within this space, we have a HOLD rating and RNAV-derived S$0.98 fair value estimate on FREIT.
PLife – Phillip
Slightly above our above expectation!
Company Overview
PLife REIT is one of the largest listed healthcare REITs in Asia by asset size. Its mandate is to invest in income producing real estate and/or healthcare-related assets primarily used for healthcare and/or healthcare-related
purposes in Singapore and Asia.
- 3Q12 revenue S$23.9mn, NPI S$22.1mn, distributable income S$15.6mn
- DPU for 3Q12 at 2.58 cents
- Raise FY12-16 DPU estimates by 0.9%
- Upgrade to Accumulate with revised target price of $2.330
What is the news?
PLife REIT reported another set of credible results for the third quarter. DPU was 2.58 cents, up 7.5% from a year ago. This was largely due to the acquisition of three Japan property assets, higher rent received from Singapore properties and cost-savings on financing.
How do we view this?
3Q12 DPU was slightly above our expectation. The DPU for the first three quarters formed 77% of our FY12 estimates. The shortfall in our estimates was partly because of higher trust expenses and lower payout ratio being assumed in our model.
Investment Actions?
We tweak our assumptions on the trust expenses and payout ratio to adjust accordingly to our earlier lower DPU estimates. On average, our DPU estimates are lifted up marginally by 0.9% over the period between FY12-16. In addition, we also lower our discount rate to 6.3% from 7.0%, to better reflect the present low risk-free rate. As a result, our price target is revised up to S$2.330. We believe PLife REIT’s defensive business model in terms of downside revenue protection and long weighted average lease term to expiry will be liked by investors who prefer sustainable and predictable distribution amid global economic uncertainties and slowdown. We upgrade to accumulate rating on the bases of potential upside in price and further yield compression.
PLife – CIMB
Delivering another good quarter
3Q12 was a strong quarter, backed by rent increases in CPI-pegged leases for Singapore hospitals. Persistent inflationary pressure will continue to underpin growth, with acquisitions to top it off. The stock has been accordingly rewarded with premium valuations.
3Q DPU was 26% of our and consensus FY12 estimates while 9M12 made up 76%, in line with expectations. We adjust DPUs for lower interest expense and raise our DDM-based target price after rolling over to FY13 and lowering our discount rate from 7% to 6.7%. Maintain Neutral on account of its premium valuations.
Strong quarter
3Q12 was stronger due to the commencement of new lease terms at Singapore hospitals as CPI-pegged leases meant stronger rental growth for Aug 2012-Aug 2013 (Aug 11: +5.3%; Aug 12: +6.31%). DPU of 2.58 Scts was up 7.1% yoy, after retaining S$0.75m to fund capex. NPI grew 9.5% yoy, led by rental contributions from three Japan properties acquired in Mar 2012, rent increase at Singapore hospitals and two months’ contributions from units at Gleneagles Medical Centre KL.
Going forward
Organic growth will continue to be driven by CPI-pegged leases for Singapore hospitals. Factoring in 2012 and 2013 house estimates for CPI growth (2012: 4.7%), we expect the next lease term to see another rent increase in the range of 5.0-5.5% and ~4% the year after. We maintain expectations of further acquisitions in Malaysia and stronger organic growth from Japan as management implements its asset-recycling initiative over the long run. We factor in CPI growth, S$150m of acquisitions and peg 2% growth to the Japan portfolio for new initiatives. Gearing of 36.4% leaves room to increase debt by S$229m to 45%.
Neutral on valuations
We like the stock as an inflation hedge given persistent inflationary pressure on the back of elevated core CPI and lofty asset prices but struggle to see further upside with yield compression to <5% and >40% premium over book.