PLife – DBSV

Stable earnings

• Declared 2.69 Scts DPU (+9% y-o-y) in 4Q12, taking FY12 DPU to 10.3 Scts

• Gearing remains healthy

• Raised 2013 CPI assumption to 4%

• Maintain HOLD, nudged up TP to S$2.19 after adjusting for higher CPI

Highlights

4Q12 DPU in line. Gross revenue grew 5% led by three properties in Japan acquired in Mar12, Gleneagles Medical Centre Kuala Lumpur (acquired in Aug12), as well as higher rents at its Singapore hospitals in Year 6 of its lease commencing 23 Aug12 (yield: CPI+1% = 6.31%). However, this was partly offset by a weaker Japanese Yen in in the quarter. Nevertheless, net property income margins inched up to 92.2% led by lower property repair costs and a weaker Yen.

Gearing remains healthy at 32.9%. This gives the REIT S$174m, S$323m and S$995m debt headroom before reaching 40%, 45% and 60% gearing, respectively. Weighted average term to maturity is now 2.4 years with only S$163m JPY loans (34% of total loans) due in 2014. Total cost of debt remains at 1.62%.

Our View

Acquisition yet to materialize. We believe management is continuing its efforts to source for acquisitions, and continue to expect this to be in markets such as Malaysia and Australia. Though this has taken slightly longer than expected, management could be taking a more cautious stance, in our view. We have not factored acquisitions into our assumptions given the uncertainty in timing.

Factoring in higher CPI. We expect PREIT’s hospital assets to continue to benefit from a higher inflation rate in Singapore. In line with DBS economists’ latest forecast, we raised our CPI assumption for 2013 to 4%, from 3.1% previously. Consequently, DPU is nudged up to 10.7Scts for FY13F and 11.1Scts for FY14F.

Recommendation

Maintain HOLD, TP: S$2.19. PREIT is trading at 1.5x P/BV and 4.7% FY13F yield, amongst the lowest in the SREIT universe. Our DCF-derived TP (WACC: 5.7%, t:2%) is raised.