1Q09 results in line with expectations. PREIT achieved 1Q09 DPU growth of 16.6% YoY to 1.89 S¢. Topline rose 37.6% YoY to S$16.3m, boosted by higher rental from its Singapore properties and contribution from its Japan assets (S$3.7m) which it had acquired in 3Q08. Its Singapore properties enjoyed higher rentals due to the higher rental growth rate of CPI+1% in the second year of the lease. Although it incurred higher property expense for its Japan properties, 1Q09 NPI grew 36.6% YoY to S$15.2m. The committed occupancy for its properties remained at 100% across its portfolio.
Low gearing of 23.0% and no immediate refinancing risks. PREIT is cushioned against immediate refinancing risks, as the next refinancing requirement will be in 2H10. Its low gearing of 23% means it has the flexibility to take on some more debt for future acquisitions (about S$300m debt before it reaches a gearing of 40%, and about S$990m before it hits 60% gearing).
Management had indicated that Singapore will remain its core focus, but it does not rule out seeking acquisitions in countries like China, India or Australia, for mature assets that are yield Positive over long term prospects. Despite the current economic recession and the expected contraction in Singapore’s GDP, the long term prospects for PREIT is positive, underpinned by the expected continued growth in demand for premium healthcare in Asia.
Maintain BUY with target price of S$1.01. We are keeping our DDM value assumptions of no new acquisitions and cost of equity of 8.7%. Although PREIT’s dividend yields are not as attractive as the other REITS in the sector (~ 9% vs sector of ~ 11%), we remain positive on PREIT, for its defensive nature and the revenue downside protection that its lease structure offers. Maintain BUY.
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