PLife – CIMB

Steady performer

• Maintain Outperform. PLife’s exposure to the resilient healthcare sector, long lease structures of up to 15 years and built-in rent increases pegged to the CPI give greater clarity to its income streams than the other REITs under our coverage. Downside risks to the topline are almost zero for its Singapore portfolio which contributes 80% to PLife’s revenue. With low asset leverage of 23% and the absence of debt maturity till 2H10, PLife is positioned for stable growth even in a difficult financial climate.

• Acquisition rationale and strategies. While short-term acquisitions are likely to remain opportunistic, medium-term targets will likely come from low-risk countries with quality healthcare assets and transparency in government regulations. Management will also attempt to keep similar leasing arrangements for future acquisitions so as not to erode the defensiveness of the REIT. In the longer term, management intends to cut down concentration risks from its major tenant and sponsor Parkway Holdings to 60%. As offers from cash-strapped healthcare operators continue to grow and capital markets seem to be opening up again, we expect acquisitions to be a kicker for PLife.

• DDM-derived target price raised to S$1.24 from S$1.20. This is based on a lower discount rate of 7.9% from 8.1% earlier due to a lower risk-free rate of 4.8% applied across our REIT universe.