To Yong Yean Chau, CEO of manager of ParkwayLife REIT (PLife REIT), sustainability of net property income (NPI), DPU and hence the ability of the master lessee of the REIT’s three Singapore-based hospitals to pay rental income to the REIT for the next 20 years, were important considerations in the new master lease agreement announced on July 14, 2021. Further details will be revealed in a circular ahead of an EGM to vote for the new agreement.

PLife REIT owns Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital which contribute around 59.4% to gross revenue. It also owns around 52 Japanese nursing homes. Among the key considerations between PLife REIT’s manager and IHH Healthcare, the REIT’s sponsor and major unitholder, is the occupancy cost of the three hospitals. “The occupancy cost did not deviate too much from the IPO and the objective is to assess the sustainabilility of the rental agreement. In our view it’s a very important consideration for us,” Yong says in a media briefing on July 14.

Occupancy cost, which refers to the rental of the hospitals as a ratio of the cash flow or ebitda generated by the operator, continues to be affordable and sustainable for the next 20 years, Yong indicates. For healthcare REITs, a reasonable Rent/Ebitda ratio ranges from 45% to 55%. The master lease agreement comes with “renewal capex”, which is the capital expenditure taken by PLife REIT of $150 million to improve the three properties so that they maintain a competitive edge to enable IHH to capture a growing market share.

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