PLife – CIMB

Stepping up organic growth

• Maintain Outperform. We met investors during a week-long non-deal roadshow with PLife REIT’s CEO, Mr Yong Yean Chau and CFO, Mr Loo Hock Leong in the UK and Europe in December. Management elaborated on plans to expand organically and through acquisitions. We retain our assumptions of S$200m of acquisitions with half-year contributions for 2011, fully funded by debt. Our DPU estimates and DDM-target price of S$1.96 (discount rate 7.2%) are intact. Despite being pricier than the REIT sector’s average of 1.2x P/BV, we believe PLife’s ability to hedge against inflation justifies its premium pricing. We anticipate near-term price catalysts from announcements of accretive acquisitions and firm assetenhancement plans for its Singapore portfolio.

• Asset enhancement to start in Singapore. Management had been exploring asset-enhancement possibilities for Singapore hospitals and due diligence is in progress. Although the scale of the work cannot be ascertained for now, we believe with the Singapore portfolio contributing 64% of net property income, there would a material impact on distribution by 2H11.

• Market rent reviews at Japanese nursing homes. The first round of market rent reviews since acquisition is due this year and we estimate that up to 10% of PLife’s revenue would be subject to rental revisions on an annual basis.