PLife – CIMB

Assurance in tough times

• Maintain Outperform. Amid global uncertainties and persistent inflationary pressures, PLife is likely to enjoy both DPU stability and upside, owing to its CPIpegged rents and portfolio of long-dated leases. We also expect management to exercise prudence in new partnerships and acquisitions, mitigating risks from nonaccretive M&As. Although current valuations (1.3x P/BV) reflect those positives, we believe its premium pricing can be justified by the assurance of defensive, resilient yields. We maintain our assumptions and DDM-based target price of S$2.05 (discount rate 7.4%), anticipating catalysts from accretive substantially debt-funded acquisitions. We advocate PLife as an ideal inflation hedge.

• Guaranteed rent increases set the backdrop for strong, stable DPU growth. PLife has announced minimum guaranteed rent increases of 5.3% for its Singapore assets for the year commencing 23 Aug 11. We expect another 4% minimum rental increase in Aug 12-13, underpinning 3.4% and 2.7% minimum DPU growth in Aug 11-12 and Aug 12-13 respectively, stronger than for most SREITs.

• Acquisitions in core markets. Management is on the lookout for overseas acquisitions, while exercising prudence in the current environment. We expect more reasonably priced assets amid global uncertainties and 3-5% DPU accretion from acquisitions. With S$261m debt headroom to a 45% gearing ratio and its strong share price thus far, PLife should be well-positioned to finance its acquisitions.