PLife – CIMB

Ready to sprint

• In line; maintain Outperform. 1H10 results were in line, with DPU of 4.2cts meeting consensus (48% of full-year estimate) and our expectations (47% of our full-year estimate). The results are considered in line because we are anticipating a more highly-charged 2H from: 1) early debt refinancing on improved credit terms in 3Q10; 2) full contributions from Japanese assets acquired in June-July; and 3) an increase in the CPI-pegged minimum rent from Singapore assets by 1.73%. We maintain our estimates and DDM-based target price of S$1.57 (discount rate 7.2%). PLife REIT trades at 1.05x P/BV and a forward yield of 6.1%. We expect stock catalysts from potential acquisitions and an expected reduction in interest cost upon early refinancing.

• 2Q10 DPU 2.09cts grew 10.7% yoy, primarily from higher revenue from: 1) the input of new assets (eight Japanese nursing homes acquired in Nov 09 and six nursing homes/care facilities in Jun 10); and 2) higher rent from existing properties. Occupancy of 100% and NAV of S$1.39 were unchanged from the last quarter.

• Asset leverage was 32.6%, up from 28.3% in the last quarter as ¥4.2bn of loans were drawn down to finance its June acquisitions. Taking into account its July acquisitions, gearing would have climbed further to 34.4%. PLife REIT has debt headroom for S$121.5m, assuming asset leverage of up to 40%. We believe any sizeable acquisitions in excess of this level will likely be funded by debt and equity.

• Near-term acquisitions, if any, would likely occur in Malaysia and Australia. With the recent shareholding tussle between Khazanah and Fortis resolved, a potential acquisition of the Malaysian Pantai chain by the sponsor Parkway Holdings looks much more likely in the near future, in our view. Separately, management continues to explore opportunities in Australia. In the longer term, it wants revenue contributions from Singapore to remain at least at 50%.