PLife – DBSV

Life has positive surprises ahead

• Acquisitions should continue to fuel growth; we factor in S$200m for FY11F

• Funding likely to be part equity, part debt; maintaining gearing slack for opportunistic purchases

• Asset enhancement opportunities in Japan and Singapore could supplement growth

• Raised DPU by c.5% even after factoring potential new units; Maintain Buy, TP raised to S$1.84

Japan and Malaysia on Life’s radar. From our visit to PREIT’s nursing homes in Japan last week, we believe the opportunities for investment continue to be strong there. We have factored in S$200m acquisitions for FY11F (Japan/Malaysia). We believe management is keen to continue its strategy in Japan, as well as expand into other countries, namely Malaysia, given the recent resolution of ownership at Parkway.

AEIs in Japan and Singapore. PREIT is also exploring asset enhancement initiatives (AEI) in Japan, such as converting common areas into more rooms. In Singapore, we believe PREIT could look to increase GFA of existing hospitals given recent initiatives by Raffles Medical for its hospital.

Equity raising likely for acquisition. Equity raising to fund future acquisitions is probable, in our view. While PREIT still has debt headroom of S$121m before reaching 40% gearing, we believe management is likely to maintain some slack to avail for quick response to opportunistic acquisitions. Along with our acquisition assumption, we have assumed $140m proceeds raised through equity and S$60m funded through debt in FY11, maintaining its gearing level at c.35%.

TP raised to S$1.84, Buy. YTD, counter is up c.34%, given its accretive acquisitions, astute management and defensive profile, among others. We believe there is further upside as management continues to pursue accretive acquisitions. Our TP is raised to S$1.84, after factoring in S$200m acquisitions (funded by 30%/70% debt/equity), lower all-in interest costs to 2.15% and rolling our valuations to FY11F. Our DCF TP is S$1.84 (WACC 6.3%, t=2%), representing 18% total return upside.