PLife – DMG

Maintains resilience during challenging times

PREIT achieved 1Q12 DPU of 2.6 S¢ (+8.3%), representing ~26% of our FY12 estimates. NPI was up 5.6% YoY, which was mainly attributed to full-quarter contribution from acquisitions made during 1Q11 and higher rental income from Singapore properties. Lower finance cost, a result of lower rates locked in during refinancing, enabled PREIT to achieve the higher growth in 1Q12 DPU. It recently marked its foray into the Malaysian market, with the acquisition of strata-titled units at the Gleneagles Medical Centre in KL. Going forward, management remains cautiously optimistic with regard to near-term acquisitions, although the longer-term is still positive, backed by growing demand for quality healthcare services and facilities. PREIT is currently trading at 5.3% yield. Maintain BUY with DDM-based TP of S$2.07.

Additional contributions from new acquisitions. PREIT acquired three nursing homes in Japan in end 1Q12. These nursing homes would start making full-quarter contributions to earnings from 2Q onwards, while its Malaysia properties would start contributing from 3Q. PREIT is negotiating to acquire heathcare assets in Australia and/or Malaysia where the demand for quality healthcare services in these two markets remain strong.

Expect higher rental from Singapore properties. Between Jul 11 and Dec 11, the average CPI was 5.5%. From Jan 12 to Mar 12, CPI on average was ~5%. Should the CPI for Apr 12 – Jun 12 be 0%, rental at its Singapore properties can be expected to be ~5% higher (based on CPI+1% formula) for the new lease term (beginning Aug 12). This would contribute to revenue growth.

We like PREIT for its defensive nature. We derive a TP of S$2.07, based on DDM methodology. We also like PREIT for its unique revenue downside protection structure. Maintain BUY.