PLife – DBSV

Growing from Strength to Strength

At a Glance

• 3Q10 DPU of 2.25 Scents (+18%) within our expectations

• Post refinancing, effective borrowing costs lowered to 2.1% while maturity lengthened to 4.37 years

• Buy, S$1.84 TP assumes S$200m acquisitions in 2011

Comment on Results

3Q10 DPU 2.25 Scts, within expectations. 3Q10 DPU of 2.25 Scts (+18% yoy; 8% qoq) was within our expectations. Gross revenue grew 28% yoy to S$21.2 m, driven largely by additional contributions from a total of 19 nursing homes acquired – Nov’09 (8 homes), Jun’10 (6 homes) and Jul’10 (5 homes). NPI margin moderated slightly to 91.5% arising from expenses related to the 19 new nursing homes. As a result, NPI grew by 26.5% to S$19.4m.

Interest savings from lower effective borrowing costs of 2.1% (vs 2.6% in 2Q10). During 3Q, management successfully refinanced its S$207m JPY facility at a lower interest cost and at the same time lengthened its debt weighted average term to maturity to 4.37 years, from 2.87 years a quarter ago. Going forward, we expect the REIT to continue adopting a proactive stance towards lengthening its debt maturity profile to match the long leases of its assets. Gearing level remains low at 35%.

Recommendation

Defensive play… We like PREIT for its stable and defensive portfolio; 88% of portfolio revenue with downside rental protection and 98.4% with rent review provision. We believe the REIT will continue to provide organic growth (through AEI and rental upside), while exploring portfolio expansion opportunities going forward. In line with the robust outlook for healthcare facilities, we believe management will probably look to structure its new leases such that it provides upside benefit to the REIT.

…with upside from acquisition pipeline; factored in S$200m worth. We have assumed S$200m worth of acquisitions in 2011, funded 70%/30% by equity/debt to maintain its existing gearing ratio of c.35% empowering PREIT to undertake opportunistic acquisitions. Maintain BUY and S$1.84 TP.