PLife – UOBKH

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%).