Upgrading Mount Elizabeth
Even so, Tan is suggesting ways to generate further upside: the recent completion of “Project Renaissance”, an extensive $350 million refurbishment of Mount Elizabeth Hospital, the REIT’s flagship hospital, presents an opportunity to adopt a revenue-sharing formula instead of the existing one tied to the CPI. According to Tan’s scenario analysis, this switch could “structurally accelerate” DPU growth by 5% to 10% in FY2027 — an upside markets have yet to price in.
Parkway Life REIT is known among investors for its unblemished track record of delivering annual distribution per unit (DPU) growth since its 2007 listing. Parkway Life REIT holds an overseas portfolio of nursing homes in France and Japan, but is better known for its much more valuable ownership of three private hospitals in Singapore, operated by its sponsor, IHH Healthcare.
The Singapore-based assets have a long-standing arrangement to peg adjustments to the rental rates to the Consumer Price Index (CPI) plus 1%, which ensures sustainable growth in rental income. “Parkway Life REIT stands out as the only S-REIT with income visibility through to 2042, offering a rare combination of earnings certainty, growth and upside potential. The recent share price weakness, amid the higher-for-longer interest rate concerns weighing on sentiment across the S-REIT sector, presents a compelling entry point,” says DBS Group Research’s Derek Tan, who has kept his “buy” call and $4.75 target price.
