PLife – Phillip

2QFY11 Results

•2Q11 revenue 21.4million, NPI $19.6m, distributable income $14.3m

•DPU for 2Q11 at 2.37 cents

•Revised annual pro-forma DPU up by 4.0-6.9% primarily due to interest cost saving

•Maintain hold recommendation with revised target price of $1.91

2Q11 results

PLife REIT reported revenue of $21.4 million (-0.5% q-q, +14.1% y-y), net property income (NPI) of $19.6 million (-0.6% q-q, +13.3% y-y), distributable income of $14.3 million (+0.1% qq, +13.4% y-y). DPU for the quarter was 2.37 cents (+0.1% q-q, +13.4% y-y). Gross revenue for 1H11 was broadly in line with our expectations, forming 48.9% of our full year estimates. The y-y increase in revenue was primarily due to the acquisitions made from last year to January 2011 and higher rent contributions from the existing properties. DPU has stabilized over the past three quarters since 4Q 2010, sustaining in the region of 2.36 to 2.38 cents. DPU improved slightly compared to 1Q11. This was partially due to lower trust expenses.

Minimum guaranteed rents for Singapore hospitals to escalate by 5.3%

5Th year minimum guaranteed rent is set to escalate by 5.3% for the period between 23 August 2011 and 22 August 2012. Singapore hospital properties contribute c.63% of total revenue and thus the rental escalation is a considerable increase to the overall portfolio revenue. On the other hand, high inflation in Singapore does not translate to lower net property income as the rising property expenses will be incurred by the head tenant thanks to the triple net lease arrangement.

Interest cost saving enhanced DPU growth

PLife REIT extended interest rate swap hedges with notional amount of S$208.6m (c.45% of its loan portfolio) for an average 3.5 years to capitalize on the low interest rate environment. This will bring about a reduction of effective all-in cost of debt from 1.96% to 1.65% with effect from August 2011. The interest cost saving will improve on the DPU.

Well-positioned to sail through the choppy wave

Long-term master lease structure, ample debt funding from diversified sources and downside revenue protection will serve as the defensive lines to ride through the global turmoils.

Valuation

We revised our model by taking into consideration of finance cost reduction and potential higher rental review for Singapore hospital properties for 2012 in relation to our previous estimates. The revision raised our annual pro-forma DPU across the board by 4.0 to 6.9%. Our target price is therefore lifted to $1.91. Maintain hold recommendation.