According to Lock, the Singapore hospitals' MLA is likely to be renewed with its lease structure maintained when the inital MLA expires on Aug 22, 2022. This renewal could be an opportunity for the REIT to review its rents and possibly mark to market given the strong performance of the Singapore hospitals during the initial lease term.
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To that end, the analyst also believes that PREIT's share price can re-rate further when its portfolio weighted average lease to expiry (WALE) lengthens to about 13.5 years post renewal (from 5.37 years as at 1QFY2021), while a high 95% of its revenue remains backed by downside protection. This provides investors with strong income visibility and growth.
"Furthermore, any possible asset valuation uplift, underpinned by a higher income base, could result in lower gearing and increased debt headroom, allowing PREIT to deliver even greater inorganic earnings growth in the medium term," she adds.
So far, PREIT has diversified and grown its portfolio, with assets in Japan coming in at about 40% of total asset under management (AUM) as at end-1QFY2021.
"Looking ahead, we believe PREIT will continue to look for third party acquisition opportunities in developed markets, including Australia, UK and Europe, in addition to Japan. Within its sponsor’s portfolio of assets, we believe Mount Elizabeth Novena Hospital could be of interest," says Lock.
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Although the timeline remains uncertain at this juncture, she believes that improving operating performance of the latter and IHH’s stated target to double its ROE in five years could mean that this property is an ROFR asset for PREIT given it is the asset recycling vehicle for the group, in the medium term.
"Our current assumptions have not included any pre-emptive acquisitions. While we think current valuations could have factored in some of the anticipated upside in post-review rents, we believe the current share price has not fully reflected the extended income visibility and capacity to realise more inorganic growth prospects in the medium term," says Lock.
As at 2.45pm, units in PREIT are trading at $4.23 or about 2.2 times FY2021 book with a dividend yield of 3.3%.
