PLife – DBS
On long term financing post 3Q
Comment on Results
3Q08 results within expectations. Net property income ended at S$12.47m with gross revenue at S$13.35m. While property expense to gross revenue for its Singapore Portfolio reduced by 1% from 1Q08 to 3Q08, the REIT’s overall net property margins decreased slightly to 93.4% (from 93.6% in 1Q08) due to its Japanese properties. 9M NPI now forms 73.6% of our full year forecasts. A DPU of 1.71 cents was announced and to be paid on 5 Dec (book closure – 12 Nov).
Refinanced all short-term debt pursuant to 3Q. As of 3Q08, PREIT still has short-term debt of S$201.9m in its balance sheet. However, pursuant to that, management has replaced all its S$201.9m shortterm facilities into 3-year long-term facilities, which has been committed and drawn down in Oct/Nov. Weighted average costs of funds for PREIT stands at around 2.85%. They have also entered into a interest rate swap to secure 100% interest rate fixing and a long term 5 year JPY/SGD forward contract to hedge 100% of net cash flow from its Japanese investments.
Recommendation
On track to meet our FY08F forecasts. On 9 Oct, it was announced that its Singapore Hospital minimum rental rate based on the 1%+CPI formula will be revised upward by 6.25% for the period from 23 Aug 08 to 22 Aug 09. In 4Q, with a higher minimum guaranteed rental for its Singapore hospitals and full contribution from its 7 recently acquired Japanese nursing homes, we expect PREIT to meet our FY08F forecasts and DPU estimates of 6.8cents.
Maintain Buy, TP: S$1.19. We adjust our TP slightly to S$1.19, based on DCF as we factor in a higher WACC (WACC 6.7%, terminal growth 1%) as a result of a higher adjusted beta – due to recent increased share price volatility. We view PREIT as a defensive counter, providing stable gross rental revenue due to its Singapore hospital rental structure (higher of hospital revenue or 1%+CPI%), replacement of short-term debt by longer-term facilities, and the relatively resilient healthcare sector. At current price, dividend yield stands at around 9.0% and 9.7% for FY08F and FY09F.