Towards Financial Freedom
PREIT - DPU Growth Buoyed By Lease Structure
PREIT's 2Q13 DPU of 2.63 cents made up 24% of our FY13 estimate, with revenue dipping 3.5% y-o-y to SGD22.6m due to the depreciating JPY. As the JPY is likely to remain weak, we are lowering our estimates. Although FY13 DPU is expected to be higher y-o-y, we remain NEUTRAL given the lack of compelling growth catalysts. We adjust our DDM assumptions and arrive at a lower SGD2.48 TP.
- Lowering estimates, TP. The 2Q13 results were within estimates although revenue dipped 3.5% y-o-y. As a result of the depreciation in the JPY, property expenses, management fees and trust expenses came in lower, boosting its distributable income and giving rise to a 6.1% y-o-y rise in 2Q13 DPU to 2.63 cents. As the JPY is expected to remain weak, we lower our revenue growth forecast slightly and arrive at a revised FY13 DPU estimate of 10.64 cents per share (from 10.79 cents). PREIT's unique lease structure should support DPU growth as the rent from its Singapore properties are set to rise 4.44% in the upcoming year of lease. We raise our risk-free rate assumptions to reflect changes in the market environment, and arrive at a TP of SGD2.48. Maintain NEUTRAL.
- Balance sheet still robust. PREIT's loan-to-value (LTV) stood at 32.2% as at end-2Q13, with some headroom for debt of SGD209.7m before hitting 40% gearing. This gives it the flexibility to take on suitable acquisitions when these arise. Management has also been proactive in its financial management strategies. As a pre-emptive move, PREIT has refinanced 66% of its FY14 financial requirements and the corresponding interest rate hedge to FY18. This brought down its overall cost of debt to 1.52% from 1.54% as at end-1Q13.
Source: OSK
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