Stability priced in
? 1Q22 revenue/NPI were in line at 24%/24.3% of our FY22F forecasts.
? Stronger Singapore and Japan contributions due to organic and acquisition
growth.
? Downgrade to Hold with an unchanged TP of S$5.05.
Highlights of 1Q22 business update
In its 1Q22 business update, PREIT reported 1Q22 revenue of S$30.7m, up 2.3% yoy
thanks to contributions from 3 Japan properties acquired in 2021 and higher rent from
Singapore properties, partly offset by divestment of PLife Matsudo and depreciation of the
¥. Net property income grew 1.9% yoy to S$28.6m, translating into a slightly lower NPI
margin of 93.1% (vs. 93.4% in 1Q21). 1Q22 performance was in line with our projections,
at 24%/24.3% of our FY22F revenue/NPI forecasts. PREIT’s gearing stood at 34.5% at
end-1Q22 with an interest cover of 20.2x.
Singapore contributions boosted by rental escalation structure
Singapore hospitals achieved 1.6%/1% yoy increase in 1Q22 revenue/NPI to
S$17.8m/S$17m, underpinned by an inbuilt rental escalation structure of 1.66% for the
period from 23 Aug 2021 to 22 Aug 2022. Under the new master lease agreement (MLA)
and renewal capex agreement, PREIT will enjoy guaranteed rents from 23 Aug 2022 till
FY2025 with 2% and 3% yoy step-up in rent for the interim period and the downtime period.
The provides PREIT with strong income visibility. In addition, the annual rent review
formula shall kick into effect from FY2026 to FY2042, providing PREIT with inbuilt organic
growth. Furthermore, with its triple-net lease structures, PREIT is shielded from higher
inflation-related expenses.
Contributions from new assets lifted Japan income
Its Japan operations reported a 3.1%/2.1% yoy rise in 1Q22 revenue and NPI to
S$12.8m/S$11.5m, due to contributions from 3 properties acquired in 2021, partly offset
by a depreciation in ¥ interest rate and income. PREIT indicated that it has hedged 81% of
is interest rate exposure through new ¥ interest rate hedges put in place in Mar 2022. In
addition, management guided it has hedged its ¥ income for FY22-23F, providing income
stability to unitholders.
Downgrade to Hold
We leave our FY21-23F DPU estimates unchanged and maintain our DDM-based TP of
S$5.05. With a robust balance sheet, PREIT is well placed to tap inorganic growth
opportunities, in our view. While we like PREIT for its stability, backed by its defensive
income structure with inbuilt escalation features, its share price has outperformed in recent
months and near-term upside appears limited. As such, we downgrade our rating to Hold
from Add. Re-rating catalysts include accretive acquisitions, while downside risks include
deflationary periods, whereby Singapore rent revisions would revert to 1%.