PLife – Kim and Eng

Staying the course

Event

• PREIT announced a DPU of 2.09 cents (+10.6% YoY) for 2Q10, factoring in the revenue contribution from its acquisitions in Japan. The number is in line with our expectations. The group is targeting other high‐growth healthcare markets, such as Malaysia, for more acquisitions. Maintain BUY with target price raised to $1.64.

Our View

• At half‐year, PREIT recorded $25.1m in distributable income, which accounted for 50% of our full‐year forecast. We expect earnings to be stronger in 2H, as the minimum guaranteed rent for its Singapore hospitals is set to increase by 2% and its two Japanese acquisitions in June and July will begin to contribute to revenue.

• PREIT’s enlarged portfolio of 32 properties has a committed occupancy rate of 100% and a weighted average lease term to expiry of 13.6 years. These serve to underpin the defensive nature of its income.

• Gearing has risen to 34.4% after its July acquisitions. PREIT has debt headroom for only $121.5m before reaching 40% gearing. Hence, any major acquisition henceforth would be funded by debt and equity.

Action & Recommendation

Potential acquisitions, which have yet to be factored in, are catalysts for a re‐rating. With the uncertainty over the ownership of its sponsor Parkway Holdings being resolved, the acquisition of its Malaysian Pantai group of hospitals now looks probable, in our view. We have raised our target price to $1.64 on lower cost of equity assumption. Maintain BUY.