PLife – DBSV

Life’s resilient even after the earth shook

At a Glance

• 1Q11 DPU of 2.36 Scts (+14% yoy) within expectations

• Assets unaffected and operations continued in Japan; in fact, crisis may open up acquisition opportunities

• High CPI in Singapore bodes well for minimal rental growth rates in Year 5 of lease that will start in Aug’11

• Raised TP marginally to S$1.95 on higher CPI rates expected; Maintain Buy

Comment on Results

1Q11 DPU 2.36 Scts within expectations. 1Q11 DPU of 2.36 Scts (+14.4% yoy) was within our expectations, forming 24% of our full year estimates. Gross revenue grew 15.2% yoy to S$21.5 m, driven by contributions from the 12 new nursing homes acquired from Jun’10 till Jan’11, and higher rents from its Singapore properties due to minimal rent revision (+1.73%). NPI margin moderated slightly to 91.8% arising from expenses related to the 12 new nursing homes. Book closure for dividends is on 13 May, and will be paid on 8 Jun. The REIT manager has elected to receive 100% of its fees in cash, which will have minimal impact on DPU. In fact, we believe this could be positive in the longer term with payout matching the distributable income, and removing dilution, albeit minor.

No damage from earthquakes in Japan. None of its 30 properties in Japan is structurally affected, as all are located outside of the earthquake-affected areas. Operations are also unaffected by the nuclear situation as its nearest asset is 200km from the nuclear plant site. In our view, the uncertainties may present attractive opportunities for asset accumulation.

Poised to benefit as Singapore’s CPI stays up. With Singapore’s CPI rate averaging at c.4.17% since Jul’10, this bodes well for PREIT’s rental reversion in its Year 5 of lease commencing in Aug’11, and will provide a boost to revenues from 4Q11. Our economist forecasts Singapore’s 2011 CPI at 4.2%.

Recommendation

Maintain Buy, TP raised marginally to S$1.95 on higher CPI. Due to the election to receive fees in cash, our FY11F DPU is lowered marginally by c.2%. We raised our DCF-backed TP marginally to S$1.95 to reflect higher CPI rate of 4.2%/3% (prev. 3.2%/ 1%) for 2011/ 12 in our assumptions. Gearing remains healthy at 34.3%. 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%, empowering PREIT to undertake opportunistic acquisitions.