Brokers' take: Analysts positive on PLife Reit's master lease renewals, raise TPs

ANALYSTS are positive on Parkway Life Real Estate Investment Trust's (PLife Reit) proposed master lease renewals with sponsor IHH Healthcare and a S$150 million renewal capital injection to revamp three hospitals.

The Reit is also receiving the right of first refusal (ROFR) for Mount Elizabeth Novena Hospital, for a period of 10 years, its manager announced on Wednesday.

These moves are expected to benefit PLife Reit's distribution per unit (DPU) and net asset value (NAV) per unit, as well as raise the valuation of its properties, said the analysts.

Research teams from CGS-CIMB, DBS and UOB Kay Hian have raised their target prices on the counter to S$5.05, S$5.75 and S$4.72 respectively. This implies upsides of 3.7 per cent and 18.1 per cent, and a downside of 3.08 per cent respectively from the Reit’s Thursday closing price of S$4.87, with the counter up 2.1 per cent or S$0.10.

While CGS-CIMB and DBS have maintained their calls at "add" and "buy" respectively, UOBKH has downgraded PLife Reit to "hold" as unit price performance has been "spectacular".

PLife Reit's manager is proposing the entry into new master lease agreements (MLAs) for three of its hospitals - Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital. The new MLAs extend the term by about 20 years to Dec 31, 2042, with an option to renew for a further 10 years.

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CGS-CIMB estimates the new MLAs and renewal capex agreement to boost PLife Reit's pro forma DPU by 32.4 per cent by FY2026 versus FY2020. Meanwhile, pro forma NAV could rise by 27 per cent over the same period.

The MLAs will also lengthen the Reit's portfolio weighted average lease expiry to 16.6 years, which will provide long-term income certainty and an inbuilt growth structure.

Meanwhile, the renewal capex will improve the properties' operational performance and asset values and enable IHH to ride the growth potential of the Singapore healthcare industry, CGS-CIMB added.

DBS said the renewals imply PLife Reit's intention to remain Singapore-centric as well as display the support its sponsor lends. It believes rental upliftment from the master lease renewal is "just the start of a new chapter of growth".

"PLife Reit is now in a better position of focusing on inorganic growth via asset recycling strategies, venturing into a new market and exercise the ROFR from its sponsor," DBS added.

Echoing the sentiment, UOBKH said the comprehensive package fosters future collaborations with IHH Healthcare. On top of the possibility of acquiring Mount Elizabeth Novena Hospital, there is also potential for partnership with IHH in overseas expansion where IHH acquires healthcare operators while the Reit acquires the assets.

PLife Reit's manager is seeking unitholder approval for these proposed transactions at an extraordinary general meeting to be convened. It will issue a circular on these transactions "in due course", it said on Wednesday.

The three hospitals account for 60.2 per cent of PLife Reit's portfolio by asset value, and 58.9 per cent by net property income. The existing 15-year leases of the hospital expire on Aug 22, 2022.