PLife on track to meet FY13F earnings

Highlights
2Q DPU of 2.63 Scts within expectations. PREIT registered DPU growth of 6% in 2Q13 to 2.63 Scts. Gross revenue and net property income fell by 3.5% and 1.5% y-o-y, respectively, due to the impact of a weaker JPY. This was partially offset by contributions from Japanese and Malaysian properties acquired in 2012 as well as higher rentals from its Singapore hospitals which grew by 6.3%. 1H DPU forms c.49% of our full year estimates.

Hedges in place to counter impact of a weaker JPY. Given the weaker JPY, PREIT has extended its Japan net income hedge till 1Q17, and hence the weaker JPY would be offset by a foreign exchange gain. This should provide stability for unitholders.

Our View
On track to meet FY13F earnings. We believe PREIT is on track to meet our FY13F earnings, as we expect rentals for its Singapore hospitals to rise 4.44% from its 7th year of lease starting on 23 Aug’13, based on the CPI+1% formula. Income will be further enhanced by contribution from its recent acquisition of 2 nursing homes in Japan for S$23.1m at a NPI yield of
7.1%, which was completed in early July.

Proactive capital management. Management has adopted a proactive capital management strategy, and had refinanced 65% (or S$95.1m) of its JPY loans due in 2014. This has been replaced by a 5-year committed and unsecured bank loan that will be due in 2018 instead. PREIT’s debt weighted average term of maturity stands at 2.08 years with an all-in cost of 1.52%.

Recommendation
Maintain HOLD, TP revised to S$2.49. We maintain our HOLD recommendation with a revised TP of S$2.49 (previously S$2.57) as we revise our risk-free rate assumption for Singapore and Japan to 2.6% and 1%, respectively, from 1.6% and 0.5%. We have also revised our FY13F/14F DPU marginally up to factor in PREIT’s recent acquisition of an additional 2 nursing homes in Japan, bringing its stable of nursing homes to 34.