PLife – DBS

Bulking up with Life

• Acquired 8 additional nursing homes for JPY5bn (c.$77.6m)
• NPI yield at 8.29%, favourable against existing nursing homes portfolio of 6.14% and cost of funds
at 3.22% (5 year term loan)
• Increased FY10F DPU forecast to 8.0 Scents (from 7.7 Scents), equating to c.6.6% yield
• Maintain Buy; TP: S$1.45.

8 more nursing homes. PREIT announced that it has entered into an agreement to acquire 8 nursing homes in Japan for a total consideration of JPY5bn (c.S$77.6m), which has a net property income (NPI) yield of 8.29%. This compares favourably against the 6.14% NPI of its existing nursing homes portfolio. The REIT will fund the acquisition via a 5 year unsecured term loan at a cost of 3.22%.

Gearing for the REIT will increase from 23.2% to 28.7%. Long leases with rental deficit support. The nursing homes have long-term lease agreement with the operators, with a weighted average lease term to expiry of 19.29 years. The vendors of the nursing homes are subsidiaries of Kenedix Inc, a real estate manager in Japan. Kenedix will be providing a rental deficit support for 7 years provided, capped at 5% of the purchase price (i.e. JPY250m or c.S$S$3.87m). Five of the eight properties also have backup operator agreements.

Maintain Buy, TP: S$1.45. We view this acquisition positively given that it is yield accretive, in line with the
REIT’s strategy to invest in healthcare related assets and diversify its income stream. Our DPU estimates are raised to 8.0 Scents (FY10F) and 8.2 Scents (FY11F), equating to a yield of 6.6-6.8%.