Parkway Life threatened by weaker yen

3% rise in NPI could have been better.

According to CIMB, it expects steady growth for Parkway Life REIT on the back of existing hedges on JPY cashflows and an inflation-pegged rental review in Singapore. 1QFY13 DPU grew 2.9% yoy and would have been a stronger 7.0% yoy without a one-off positive tax adjustment in 1QFY12.

CIMB also noted that yoy NPI rose 3% on positive rent reviews in Singapore and acquisitions. NPI growth would have been stronger if not for a weaker yen, although the impact at the DPU levelwas marginal given existing cashflow hedges in place till 1Q17.

Here's more:

We see the potential for near-term acquisitions in Japan, with wide spreads between acquisitions yields of 6-7% and funding cost of 1.6%boosting accretion. Given its strategic relationships with nursing home operators, we expect Plife to be able to find adequately-priced assets despite compressing property yields.

We assume S$130m in acquisitions from Japan and Malaysia/Australia.

With JPY cashflows hedged and >30% exposure to Japan, Plife is one of the best proxies for Japan reflation among Singapore-listed stocks. An inflation-pegged anddownside-protected lease in Singapore should serve Plife well in DPU growth. Stock has however traded well with FY13 yield of 3.9% now the lowest in the SREIT sector.

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