PLife – CIMB

Removing covert dilution

• In line; maintain Outperform. 1Q11 DPU of 2.36cts meets consensus (24%) and our expectations (23% of FY11 estimate). Our above-consensus estimate assumes S$200m of acquisitions, to be realised in 2H11. 1Q11 DPU grew 14% yoy on the back of contributions from Japanese assets acquired in 2010-11 and higher rentals from Singapore assets boosted by inflation (CPI-pegged rental formula). We maintain our estimates and DDM-based target price of S$1.98 (discount rate 7.2%). PLife REIT trades at 1.22x P/BV and a forward yield of 6%. We expect stock catalysts from earlier-than-expected announcements of accretive acquisitions. In our view, PLife is the best inflation hedge in Singapore and is well positioned to acquire accretively. It also has a clear acquisition pipeline from sponsor Khazanah’s Pantai healthcare chain in Malaysia.

• Taking 100% of manager’s fees in cash. 1Q11 DPU dipped 0.7% qoq despite a flat topline as management had decided to take 100% of the manager’s fees in units from this quarter. Previously, it used to receive 80% in cash and 20% in units. Despite the dip, we are positive on the switch to full cash payment. We believe this removes covert dilution for unitholders, and presents clean DPUs which fully reflect portfolio performances.

• Asset leverage was 34%, unchanged from 4Q10. Debt headroom was about S$270m, assuming asset leverage of up to 45%. We believe any sizeable acquisitions in excess of this would likely be funded by debt and equity.