PLife – DBSV

A strong finish for 2010

At a Glance

• 4Q10 DPU of 2.38 Scents (+16% yoy) within expectations

• Effective borrowing costs lowered further to 1.94% (from 2.13% in 2Q10) with recent re-pricing of a JPY5.3bn loan

• Buy, S$1.90 TP assumes S$200m acquisitions in 2011

Comment on Results

4Q10 DPU 2.38 Scts within expectations. 4Q10 DPU of 2.38 Scts (+16% yoy; 6% qoq) was within our expectations. Gross revenue grew 21% yoy to S$21.5 m, driven largely by additional contributions from a total of 19 nursing homes acquired (Nov’09-Jul’10) and higher revenue from Singapore properties. NPI margin moderated slightly to 91.5% arising from expenses related to the 19 new nursing homes. PREIT recognized a fair value gain of S$18.7m (FY09: S$28.9m) on its investment properties, equating to a 1.45% gain on total portfolio value.

Interest savings from lower effective borrowing costs of 1.94%. As part of actively managing its debt, PREIT successfully re-priced an existing JPY5.3bn (S$84m) loan with effect from 1 Jan’11. This lowers its all-in cost of debt further to 1.94%, from 2.13% previously. The interest cost savings amounts to c.S$800k/yr. Debt weighted term to maturity is 3.95 years, with only S$50m (10.7%) debt due in 2013. Gearing at 34.6% provides headroom of S$122m and S$256m before reaching 40% and 45% gearing.

Acquired another Jap nursing home for S$8.9m at 8% yield. PREIT acquired another Japanese nursing home for S$8.9m, or at a NPI yield of 8% from Sawayaka Club, the same operator as the 6 homes acquired in Jun’10. Going forward, we believe management will still continue to deliver on inorganic growth, though this could also come from other countries, such as Malaysia and Australia, in our view.

Recommendation

Maintain Buy, TP: S$1.90. We like PREIT for its stable and defensive portfolio; 88% of portfolio revenue with downside rental protection. We believe the REIT will continue to provide organic growth, while exploring portfolio expansion opportunities going forward. We have assumed S$200m worth of acquisitions in 2011, funded 70%/30% by equity/debt to maintain its existing gearing ratio of c.35% while still empowering PREIT to undertake further opportunistic acquisitions.