PLife – CIMB

In the pink of health

• In line, NPI driven by 5.25% inflation rate in 2008. 1Q09 results were in line with consensus and our expectations. DPU of 1.89 cts forms 25% of our forecast of 7.54 cts, up 16.3% yoy. The minimum guaranteed rent from the Singapore hospitals is set to grow annually on a unique structure of the preceding year’s inflation rate + 1%. Net property income of S$15.2m was up 36.6% yoy driven by CPI of 5.25% in 2008. All of PLife’s asset remain 100% occupied as at 31 Mar 09.

• No refinancing issues and sufficient banking lines. PLife REIT does not have refinancing concerns until 2H10. Additionally, PLife also has sufficient funding sources which can be tapped for fund acquisitions and for general working capital purposes. This includes 1) a two-year committed S$100m multi-currency revolving credit facility, of which S$34m was drawn down in Feb 09 to refinance a maturing term loan of S$34m; and 2) a S$500m medium term note (MTN) program. Asset leverage continues to be one of the lowest in the REIT sector at 23% as at 1Q09.

• Interest rate and forex risks mitigated. The management has fixed interest rates for the whole quantum of its debt for three years via interest rate swaps. Additionally, the net income from Japan was also fully hedged for five years with foreign currency forward contracts. This creates clarity of interest expenses and income from its Japanese assets in the medium term.

• Maintain Outperform, earnings forecasts and target price of S$1.20. We continue to like PLife REIT as it remains one of the few REITs with clear visibility on earnings, and continued positive growth in the medium term based on its inflationlinked lease structure; Its strong balance sheet and the management’s tamed stance on growth via acquisitions strategy puts PLife in a favourable position to ride out the downturn. PLife offers a forward yield of 8.7% at a P/BV of 0.65x. Maintain Outperform and DDM-based target price of S$1.20 (discount 8.09%).