• Parkway Life REIT's 4Q20 and FY20 distribution of S$0.0357 and S$0.1379 per unit were slightly above our FY20F projections.
• Improved Singapore operations and contributions from new Japan acquisitions boosted performance.

Parkway Life REIT's 4Q20 Results Highlights

• Parkway Life REIT (SGX:C2PU) posted a 9% y-o-y increase in 4Q20 gross revenue to S$30.6m, thanks to additional contributions from four Japan assets bought in Dec 2019 and Dec 2020, appreciation of the ¥, and higher Singapore hospital income.
• Distributable income to unitholders grew a larger 6.7% y-o-y to S$21.6m as Parkway Life REIT benefited from lower interest cost due largely to a low interest rate environment, realised forex gain as well as release of S$0.9m of COVID-19 related relief measures retained earlier.
• 4Q20 and FY20 distribution of S$0.0357 and S$0.1379 per unit were slightly ahead of our expectations at 26.6%/102.6% of our FY20 forecasts.

Organic Growth and New Acquisitions Boosted Bottomline

• Singapore hospitals achieved a 1.2%/1.2% y-o-y increase in 4Q20 revenue/NPI to S$17.5m/S$16.7m on upward minimum guarantee rent revision of 1.17%. This adjustment commenced on 23 Aug 2020 and will last until 22 Aug 2021. This provides the trust with strong income visibility.
• Its Japan operations reported a 9.3% y-o-y expansion in 4Q NPI to S$11.8m, due to additional rental contributions from four properties acquired in Dec 2019 and Dec 2020 as well as a stronger ¥.

Strong Balance Sheet, New Japan Property Boost FY21F Earnings

• In Dec 2020, Parkway Life REIT completed the acquisition of a nursing home in the Greater Tokyo region in Japan for S$21.2m. The purchase is yield accretive, based on a property yield of 6.4% and should boost its earnings from Dec 2020 onwards.
• Parkway Life REIT’s asset portfolio stands at ~S$2bn as at end-Dec 2020. Parkway Life REIT continued to strengthen its balance sheet as it put in place 6-year committed loan facilities to term out two loans due in Jun 2021 and extended its debt maturity to 3.5 years.
• As at end-4Q20, Parkway Life REIT's gearing stood at 38.5%. Assuming a gearing of 45%, Parkway Life REIT has further debt headroom of S$243.8m to fund potential new purchases.

Reiterate HOLD Rating with Target Price $4.11

• We raise our Parkway Life REIT's FY21-22F DPU forecast by ~2% as we factor in contributions from the new acquisition made in Dec 2020.
• While we like Parkway Life REIT for its stable yield backed by its defensive income structure, our recommendation remains a HOLD given the 6% total return based on current Parkway Life REIT's share price. We would be buyers on any share price weakness.
• Upside risks include accretive acquisitions while downside risks include deflationary periods whereby Singapore rent revisions would revert to 1%.

Source: CGS-CIMB Research - 25 Jan 2021