Steady ship
- 1H22 DPU of 7.06 Scts was in line, at 49.9% of our FY22F forecast.
- Stronger Singapore contributions with inbuilt rental escalation, Japan net income hedged till 1Q27.
- Reiterate Hold rating with an unchanged TP of S$5.05.
1H22 results highlights
PREIT posted 1% and 1.1% yoy increases in its 1H22 revenue and NPI, respectively, to S$60.2m/S$56m. The improvement was due to contributions from new Japan properties acquired in Jul and Dec 2021, and higher rent from Singapore properties, partly offset by divestment of PLife Matsudo and depreciation of the ¥. 1H22 DPU of 7.06 Scts, was up 1.5% yoy. In terms of capital management, PREIT’s gearing stood at 32.5% at end-1H22. PREIT’s gearing stood at 34.5% at end-1Q22. All-in cost of debt was at 0.61%, with 82% of its debt hedged into fixed rates and interest cover of 19.8x.
Singapore operations underpinned by annual escalations
Singapore hospitals revenue/NPI grew 1.6% to S$35.6m/S$33.9m, supported 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 a rental step up of 2% for the period 23 Aug 2022 to 31 Dec 2022, and a 3% annual stepup for the next 3 years till end-FY25, during the renewal capex programme period. Post FY25, PREIT’s annual rent review formula shall kick into effect from FY26 to FY42, providing PREIT with inbuilt organic growth and strong earnings visibility. Furthermore, with its triple-net lease structures, PREIT is shielded from higher inflation-related expenses.
Japan net income hedged till 1Q27
Despite contributions from 3 properties acquired in 2021, Japan operations reported a relatively flat yoy revenue/NPI in 1H22, at S$24.5m/S$22m, impacted by the depreciation of the ¥. That said, at distribution income level, PREIT remains well hedged, with its ¥ net income hedged till 1Q27, providing income stability to unitholders.
Reiterate Hold
We leave our FY22-24F 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. We like PREIT for its stability, backed by its defensive income structure with inbuilt escalation features. In the near term, PREIT has held up well against market volatility and significant immediate upside appears limited as PREIT is trading at sub-3% FY22F dividend yield. We retain our Hold rating. Rerating catalysts include accretive acquisitions, while downside risks include deflationary periods, whereby Singapore rent revisions would revert to 1%, when PREIT’s annual rent formula kicks in again.
