• We would be hardly surprised if the party that sold 56.25 mln PLife units this morning at S$1.56 a unit turns out to be TPG.

• Note that TPG, which sold out its stake in Parkway Holdings to Fortis Healthcare, has exactly 56,250,148 units or 9.31% of total issued. It was to us a matter of time for TPG to exit PLife.

• PLife was traded to a record high of $1.68 two days ago.

• We would use any further weakness to add.

More legs to run

• Maintain Outperform with higher target price of S$1.91 (from S$1.57). PLife’s CPI-pegged Singapore assets are set to benefit from rising inflation, upcoming asset enhancement and overseas acquisitions. We factor in an additional S$200m of acquisitions for 2011, higher CPI assumptions, lower cost of debt and a longer lag time for contributions from 2010 acquisitions. Our DPU estimate dips by 5% for 2010 before rising by 4-20% for 2011-12. Our DDM target price rises accordingly to S$1.91 from S$1.57 (discount rate 7.2%). Earlier-than-anticipated announcements of acquisitions could provide stock catalysts, in our view.

• Singapore inflation to reach 3%. With the Singapore economy expected to expand 13-15% this year, inflation risks remain, auguring well for PLife’s Singapore portfolio, whose rental growth is pegged to CPI +1% in the base case. Our house predicts 3% inflation for Singapore this year.

• Organic growth in 2011. We believe asset enhancement at East Shore Hospital and Mount Elizabeth will start next year. Although details have not been released, we believe the AEI would centre on pockets of low-yielding space which could be converted to higher-yielding ward space, operating theatres or space for specialised use such as a cancer centre. We anticipate accretion for ROI in the region of 10% vs. its current NPI yields of 5%.

Range Of Possibilities

• Remarks by Malvinder Singh of Fortis in a BT interview on plans in Singapore, after the acceptance of Khazanah‘s offer for Parkway Holdings, are worth noting, specifically: “it makes sense to look at a reit in healthcare …. we have the largest pathology and diagnostics business in Asia outside Japan, a private company in India which we could bring in here”.

COMMENTS

1. PLife is the only “pure” healthcare reit in Singapore, or indeed in Asia-x-Japan.

2. Trying to establish and list a new reit here, made up of Indian assets, or for that matter anywhere outside of Singapore, is unlikely to “succeed” – just look at IndiaBulls (and other Indian listings here), or for that matter First Reit, comprising 4 Indon healthcare-related assets and 4 in Singapore. These have gone nowhere since listing.

3. PLife is 8 cents off its peak of $1.50 reached on Aug 2nd.

4. Malvinder’s plans aside (possibilities include buying over Parkway’s stake in PLife, currently 35.77%), Khazanah’s possible moves after the close of its offer for Parkway (such as selling Pantai hospitals to Plife) will likely sustain interest in PLife.

5. Offering 5.9% yield based on annualized DPU for Q2 (2.09 cents), PLife still looks attractive. We maintain BUY.

2QFY10 Results

• 2QFY10 revenue of $18.7 million, net property income of $17.3 million, distributable income of $12.6 million.

• 2QFY10 DPU of 2.09 cents

• Maintain Buy, fair value of $1.66

Parkway Life REIT (Plife) registered 2QFY10 revenue of $18.7 million (+16.4% y-y, +0.5% qq), net property income of $17.3 million (+15.6% y-y, +0.6% q-q) and distributable income of $12.6 million (+10.9% y-y, +1.0% q-q). DPU for the quarter was 2.09 cents (+10.6% y-y, +1.0% q-q). The improved y-y performance is attributed to the contribution from acquisitions as well as the annual rent revision of the Singapore properties. For the annual Singapore properties rent revision, Plife announced that it will be revised up by 1.73% beginning 23^rd August for the next one year. This is based on the CPI+1% formula which guarantees a minimum rent increase every year. Plife has been active on the acquisition trail, having made 14 purchases in the last year. It acquired eight nursing homes in November 2009 and another six nursing homes in June 2010. Post 2Q10, it made another purchase of 5 nursing homes which will contribute to 3Q10 revenue.

Since IPO, all of Plife’s acquisitions are in Japan and the portfolio now consists of 3 properties in Singapore and 29 properties in Japan. We view the Japan acquisitions positively given the high yield, low funding cost, which adds to the stability of the REIT. With a sizeable asset value of $400 million in Japan, we believe Plife will start consolidating its Japan properties and shift its expansion focus to other areas. Gearing of the REIT post the July acquisitions is 34.4% with total debt of approximately $460 million.

2Q10 results came in within our expectations. We are expecting revenue growth in 3Q10 to come from the revised Singapore annual rent as well as the contribution from the June and July acquisitions. We adjusted our FY10E DPU forecast up slightly from 8.4 cents to 8.6 cents to factor in the 20% of management fees paid in units versus our previous assumption of 100% cash. We still like Plife for the stability of its revenue stream. We maintain our Buy recommendation and fair value of $1.66.

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%.