Lease structure has revenue downside protection. Currently, 90% of PREIT's leases have downward protection - leases are either pegged to CPI (with a min. 1% growth in rental) or have upward rental revision only. The remaining 10% is open to negotiation at prevailing market rate. With such a feature, revenue is likely to continue growing, which would translate into higher DPU. Going forward, new leases (from new acquisitions) are likely to have upward rental revision only (instead of being pegged to CPI). This may be a good move, given that the demand for services at its assets (e.g. nursing homes) is strong, which could support a stronger growth in rent.

Still looking for acquisitions in Japan. PREIT aims to have Japan contribute 50% of its overall portfolio (currently 31%) eventually. Hence, it plans to focus more of its acquisition strategy towards nursing homes in Japan. With funding cost in Japan relatively low, management is confident that it would still be able to obtain a 7% NPI yield from Japanese assets. Another sign of the growing popularity of Japanese nursing homes is that PREIT is seeing more competition (from other real estate funds) for nursing homes. Management is unfazed, as PREIT has first mover advantage, having established a presence in Japan a few years ago.

Healthy balance sheet would be able to support acquisitions. With gearing at 33%, PREIT has debt headroom of SGD320m for further
acquisitions, before breaching its internal target of 45%

Demand for nursing homes in Japan remains strong. According to statistics, the number of people in elderly care facilities is expected to increase to 1.2m in 2015 (from 920,000 in 2011). There are also long waiting lists for an available bed in nursing homes across Japan. This trend would support the yield from well-operated nursing homes. PREIT's focus is towards the mid- to mid-upper class of nursing homes, where the chances of default by an individual is low (government subsides part of the fee, and the individual's pension is sufficient to cover the balance).

Acquisitions in Malaysia and Australia still possible. PREIT will continue to assess potential healthcare-related assets in Malaysia and Australia, as the demand for quality healthcare services in these two markets is still strong. PREIT remains committed in acquiring yield accretive assets.

 Source: RHB