PREIT achieved 2Q12 DPU of 2.5 S'' (+4.6% YoY), ~24% of our FY12 estimates, which was in line with our expectations. NPI was up 9.3% YoY to S$21.4m, due to full-quarter contribution from acquisitions made during 1Q12 and higher rental income from Singapore properties. With growing demand for quality healthcare services and facilities amid the economic uncertainty, management is taking a cautious stance towards acquisitions that are in the pipeline. In the meantime, PREIT will continue to explore accretive AEI opportunities to boost growth. At S$1.995, PREIT is trading at 5.1% FY12F yield (it traded at 5.3% during its heydays in 08/09). We have tweaked our COE assumptions in our DDM valuation methodology, given the ongoing uncertainties. Our revised TP is S$2.11 (up from S$2.07). We remain positive on PREIT's long-term prospects and we think PREIT could make some acquisitions in 2H12.

Looking to expand portfolio in Australia and Malaysia. PREIT is negotiating to acquire healthcare assets in Australia and Malaysia where the demand for quality healthcare services in these two markets continue to be strong. As at end 2Q12, PREIT has a gearing of 36.4%, with debt headroom of S$228.7m before reaching 45% gearing. It is in a good position to take on suitable acquisitions.

New Refurbishment AEI concept helps growth. PREIT introduced its new Refurbishment AEI concept, where the cost of refurbishment AEI is borne by PREIT in return for incremental rent. The first Refurbishment AEI at a Japan nursing home is expected to yield a 2% increase in gross rent from this property. PREIT will continue to look out for AEI opportunities to drive growth.

Yield is decent for a defensive stock. We like PREIT for its defensive nature, especially during these uncertain times. The stock's yield may be lower vis-''-vis other S-REITs, but it has a unique revenue downside protection structure.

Source: OSK