Parkway Life REIT
Rare opportunity for investors
DBS Group Research analysts Rachel Tan and Derek Tan believe that the potential upcoming renewal of Parkway Life REIT’s (PLife REIT) Singapore hospitals’ master lease will give investors a rare opportunity to ride further upside on the counter.
In an April 19 research note, the analysts maintained their “buy” rating for the REIT with a higher target price of $4.50, from $4.00 previously.
The 15-year master lease for PLife REIT’s Singapore hospitals ends on Aug 22, 2022.
The analysts believe that IHH Healthcare — the REIT’s sponsor and master leasee — will renew the lease, providing a key opportunity to revise rentals upward and carry out upgrades for the hospitals.
They estimate the renewal could increase the REIT’s DPU by 7% to 23%, which translates to a share price upside of 4% to 25%.
They recommend investors to buy the counter ahead of the renewal to ride the upside, despite PLife REIT currently trading at a premium of 2.1 times P/NAV.
Price target: DBS Group Research “buy” $4.50
The analysts also believe the renewal, along with robust income visibility, supports PLife REIT’s position as a “success story” and a favourite among investors.
The REIT’s share price has more than tripled since listing in 2007, translating to a CAGR of 9%.
“On a total return basis, investors have enjoyed a return of more than 4 times since its IPO or 11% CAGR,” they add.
The analysts also note that PLife REIT’s management is currently exploring opportunities to drive its next phase of growth.
They believe this could come from investments in mature healthcare markets like Australia, Europe, or the UK. The acquisition of Mount Elizabeth Novena is also a possibility.
“We believe the hospital would soon reach a stabilised state and potentially be injected into PLife REIT when the yield of the asset is accretive”, they add.
Their target price for PLife REIT is raised to $4.50, factoring in higher rentals from the lease renewal and new acquisitions assumption of $25 million.