PLife – DBS
Getting even more Life-ly
At a Glance
• 2Q09 net property income of S$15.0m in line with consensus and our estimates; DPU of 1.89cents
• New S$50m Islamic facility adds diversity to funding sources
• AEI at P-Life Matsudo for S$2.56m, increase gross rental from asset by 19.4% and DPU by 0.042cents
• Maintain Buy, TP revised to $1.17.
Comment on Results
2Q09 stable as it is. Net property income (NPI) grew 27.9% to S$15.0m, lifted by contributions from its Japanese assets acquired in 2H08 and a higher rental pegged to CPI rate (6.25%) for its Singapore hospitals. NPI margin was slightly lower at 93% vs 93.7% in 2Q08 due higher expenses from the Japanese assets.
DPU of 1.89cents for 2Q09. DPU remained similar to 1Q09 at 1.89cents but registered a growth of 13.7% yoy from 1.66cents in 2Q08. The DPU translates into an annualized yield of c.7% at current price. Ex-date for the dividend is 13 Aug.
S$50m Bank Murabaha facility; low gearing of 22.7%. It has been offered a S$50m 3-yr Revolving Murabaha Facility with Islamic Bank of Asia. This is on top of its S$500m MTN facility and S$126m untapped bilateral bank facility. Hence, P-Life has the flexibility to tap on diversified sources of funds. Gearing remains at a very healthy 22.7%, providing gearing headroom of S$308m and S$996m before the REIT reaches the targeted 40% and 60% maximum gearing levels.
AEI at P-Life Matsudo. The REIT completed a JPY160.1m (S$2.56m) AEI at its P-Life Matsudo asset, involving the conversion of existing utility space into a device manufacturing room. This will increase gross rental of the asset by 19.4% and DPU by c.0.042cents.
Recommendation
Maintain Buy, TP raised to $1.17. We like PREIT for its stable revenue stream, with protection against downward revision, and potential to deliver acquisitions given its debt headroom. We raised our DPU up slightly by c.5-6% for FY09F and FY10F as we revised up our rental assumptions for its Singapore hospitals and a higher NPI from its Japanese assets. Consequently, our DCF-derived TP is adjusted to S$1.17 (WACC 6.6%, terminal growth 1%).