PLife – Phillip
2QFY10 Results
• 2QFY10 revenue of $18.7 million, net property income of $17.3 million, distributable income of $12.6 million.
• 2QFY10 DPU of 2.09 cents
• Maintain Buy, fair value of $1.66
Parkway Life REIT (Plife) registered 2QFY10 revenue of $18.7 million (+16.4% y-y, +0.5% qq), net property income of $17.3 million (+15.6% y-y, +0.6% q-q) and distributable income of $12.6 million (+10.9% y-y, +1.0% q-q). DPU for the quarter was 2.09 cents (+10.6% y-y, +1.0% q-q). The improved y-y performance is attributed to the contribution from acquisitions as well as the annual rent revision of the Singapore properties. For the annual Singapore properties rent revision, Plife announced that it will be revised up by 1.73% beginning 23rd August for the next one year. This is based on the CPI+1% formula which guarantees a minimum rent increase every year. Plife has been active on the acquisition trail, having made 14 purchases in the last year. It acquired eight nursing homes in November 2009 and another six nursing homes in June 2010. Post 2Q10, it made another purchase of 5 nursing homes which will contribute to 3Q10 revenue.
Since IPO, all of Plife’s acquisitions are in Japan and the portfolio now consists of 3 properties in Singapore and 29 properties in Japan. We view the Japan acquisitions positively given the high yield, low funding cost, which adds to the stability of the REIT. With a sizeable asset value of $400 million in Japan, we believe Plife will start consolidating its Japan properties and shift its expansion focus to other areas. Gearing of the REIT post the July acquisitions is 34.4% with total debt of approximately $460 million.
2Q10 results came in within our expectations. We are expecting revenue growth in 3Q10 to come from the revised Singapore annual rent as well as the contribution from the June and July acquisitions. We adjusted our FY10E DPU forecast up slightly from 8.4 cents to 8.6 cents to factor in the 20% of management fees paid in units versus our previous assumption of 100% cash. We still like Plife for the stability of its revenue stream. We maintain our Buy recommendation and fair value of $1.66.
PLife – CIMB
Ready to sprint
• In line; maintain Outperform. 1H10 results were in line, with DPU of 4.2cts meeting consensus (48% of full-year estimate) and our expectations (47% of our full-year estimate). The results are considered in line because we are anticipating a more highly-charged 2H from: 1) early debt refinancing on improved credit terms in 3Q10; 2) full contributions from Japanese assets acquired in June-July; and 3) an increase in the CPI-pegged minimum rent from Singapore assets by 1.73%. We maintain our estimates and DDM-based target price of S$1.57 (discount rate 7.2%). PLife REIT trades at 1.05x P/BV and a forward yield of 6.1%. We expect stock catalysts from potential acquisitions and an expected reduction in interest cost upon early refinancing.
• 2Q10 DPU 2.09cts grew 10.7% yoy, primarily from higher revenue from: 1) the input of new assets (eight Japanese nursing homes acquired in Nov 09 and six nursing homes/care facilities in Jun 10); and 2) higher rent from existing properties. Occupancy of 100% and NAV of S$1.39 were unchanged from the last quarter.
• Asset leverage was 32.6%, up from 28.3% in the last quarter as ¥4.2bn of loans were drawn down to finance its June acquisitions. Taking into account its July acquisitions, gearing would have climbed further to 34.4%. PLife REIT has debt headroom for S$121.5m, assuming asset leverage of up to 40%. We believe any sizeable acquisitions in excess of this level will likely be funded by debt and equity.
• Near-term acquisitions, if any, would likely occur in Malaysia and Australia. With the recent shareholding tussle between Khazanah and Fortis resolved, a potential acquisition of the Malaysian Pantai chain by the sponsor Parkway Holdings looks much more likely in the near future, in our view. Separately, management continues to explore opportunities in Australia. In the longer term, it wants revenue contributions from Singapore to remain at least at 50%.
PLife – Kim and Eng
Staying the course
Event
• PREIT announced a DPU of 2.09 cents (+10.6% YoY) for 2Q10, factoring in the revenue contribution from its acquisitions in Japan. The number is in line with our expectations. The group is targeting other high‐growth healthcare markets, such as Malaysia, for more acquisitions. Maintain BUY with target price raised to $1.64.
Our View
• At half‐year, PREIT recorded $25.1m in distributable income, which accounted for 50% of our full‐year forecast. We expect earnings to be stronger in 2H, as the minimum guaranteed rent for its Singapore hospitals is set to increase by 2% and its two Japanese acquisitions in June and July will begin to contribute to revenue.
• PREIT’s enlarged portfolio of 32 properties has a committed occupancy rate of 100% and a weighted average lease term to expiry of 13.6 years. These serve to underpin the defensive nature of its income.
• Gearing has risen to 34.4% after its July acquisitions. PREIT has debt headroom for only $121.5m before reaching 40% gearing. Hence, any major acquisition henceforth would be funded by debt and equity.
Action & Recommendation
Potential acquisitions, which have yet to be factored in, are catalysts for a re‐rating. With the uncertainty over the ownership of its sponsor Parkway Holdings being resolved, the acquisition of its Malaysian Pantai group of hospitals now looks probable, in our view. We have raised our target price to $1.64 on lower cost of equity assumption. Maintain BUY.
ART – Kim Eng
An opportunistic sell‐out
What’s New
• ART is divesting Country Woods in Jakarta for S$33.9m, which is 60% above the property’s valuation as at June 2010 and implies an exit yield of 2.9%. The net proceeds from the sale could be used for funding future acquisitions. We are keeping our estimates intact as the impact from the sale is negligible. Maintain BUY.
Our View
• Country Woods was sold to an unrelated party via a bidding process. We understand that ART is disposing of this aging property as it has reached its full growth potential as a rental house in South Jakarta’s intensely competitive environment.
• As Indonesia accounts for just 7% of ART’s total gross profit, the impact of the divestment on its income is insignificant. Post divestment, Indonesia’s share of total asset value and gross profit is 4% and 6%, respectively. The group’s NAV will inch up by 1 cts/share.
• The net proceeds of $28.8m are small relative to ART’s total debt, which means they would more likely be used to fund future acquisitions. Management continues to target Vietnam, India, China and Singapore for potential acquisitions.
Action & Recommendation
This is ART’s first divestment and it demonstrates management’s ability to optimise the yield of its portfolio. Potential acquisitions are catalysts for re‐rating. Maintain BUY.
ART – BT
Ascott Reit sells Jakarta asset
ASCOTT Residence Trust (Ascott Reit) has agreed to sell Country Woods in Jakarta for $33.91 million. The sale price – the highest submitted in a bidding process – is 60 per cent above the property’s valuation of $21.2 million at June 30. Ascott Reit said that it expects a net gain of $5.7 million from the sale. The transaction is expected to be completed in the fourth quarter.
Ascott Residence Trust Management chairman Lim Jit Poh said: ‘The sale proceeds from the divestment will provide Ascott Reit with greater financial flexibility to maximise returns to unitholders. Proceeds from the sale will be used to pare the group’s debt or for funding future acquisitions.’
The sale is in line with Ascott Reit’s strategy to unlock the underlying value of property that has reached a stage that offers limited growth, and to redeploy proceeds to optimise the yield of its portfolio, the trust said. Country Woods would have required significant capital expenditure to compete with increased competition in South Jakarta. the Reit said. The implied exit yield of Country Woods is 2.9 per cent based on the sale price of $33.9 million.
Following the divestment, Ascott Reit will continue to have a presence in Indonesia through Ascott Jakarta and Somerset Grand Citra, both of which are in the heart of the city’s business and shopping district. Ascott Reit said that it would continue to seek yield-accretive acquisitions to expand its portfolio and look for opportunities to divest properties that have reached optimal yield.