An oasis in time of turbulence
Parkway Life REIT invests in income-producing real estate assets in the Asia
Pacific region. The assets, used primarily for healthcare and related purposes,
include hospitals, ambulatory surgery centres, primary clinics, medical office
building, step-down care facilities such as nursing homes, research &
development (R&D) facilities and pharmaceutical facilities. The initial portfolio
comprises Mount Elizabeth Hospital, Gleneagles Hospital and East Shore
Hospital in Singapore.
Riding on growth in healthcare focus. The annual rental payable by Mount
Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital comprises
base rent and a variable rent. Total annual base rental from the three hospitals is
S$30m. The variable rent is equivalent to 3.8% of adjusted hospital revenue.
Adjusted hospital revenue encompasses inpatient, outpatient, car park, retail,
pharmacy and food & beverage revenues. The variable rent allows unit-holders
to ride on the growth of the healthcare industry due to an ageing population,
medical tourism and growing affluence in Singapore and across the region.
Downside protection enhances defensive qualities. The minimum rent
payable by each hospital is set at Consumer Price Index + 1% above rent
payable in the preceding year. Where Consumer Price Index is negative for any
given year, then it is deemed to be zero. This ensures that total rent payable is
always increasing, which enhances the defensive quality of Parkway Life REIT.
Reiterate BUY. We like Parkway Life REIT for its healthcare focus. Acquisitions
in Singapore and in the region will provide catalysts for growth in distribution
yield. Parkway Life REIT trades at a discount of 6.4% to NAV/unit of S$1.25.Our
target price is S$1.72 based on the discounted dividend model (WACC: 6.2%,
terminal growth: 2%).
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