Parkway Life Reit, IHH Healthcare extend lease agreements for 20 years, with $150m capex injection

Gleneagles Hospital, one of the three hospitals for which Parkway Life Reit and IHH Healthcare are extending the master lease agreement. PHOTO: PARKWAY LIFE REIT

SINGAPORE (THE BUSINESS TIMES) - Parkway Life Real Estate Investment Trust (Reit) and IHH Healthcare Berhad are extending their collaboration for another 20 years, with Parkway Life Reit also injecting up to $150 million in renewal capital expenditure, and receiving the right of first refusal (ROFR) for Mount Elizabeth Novena Hospital.

Parkway Life Reit trustee HSBC Institutional Trust Services (Singapore) has entered into new master lease agreements for Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital with Parkway Hospitals Singapore Pte Ltd, a unit of IHH Healthcare unit Parkway Holdings.

The three hospitals account for 60.2 per cent of Parkway Life 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.

The new master lease agreements extend the term by about 20 years to Dec 31, 2042, with an option to renew for a further 10 years.

Annual rent payable, rental escalation and other conditions were negotiated on an arm's-length basis and based on normal commercial terms.

The initial rent for FY2023 is $97.2 million, with guaranteed rent step-ups till FY2025, of 2 per cent for the interim period through end-2022, and 3 per cent for the following three financial years.

The extension maintains IHH Healthcare's ability to continue operating the three hospitals, and provides a steady stream of rental income for Parkway Life Reit, both parties said in a joint statement on Wednesday.

As part of the arrangement, Parkway Life Reit will inject a one-time renewal capital expenditure of up to $150 million to revamp the hospitals. These renewal capex works are estimated to take three years, with the target being for work to start no later than Jan 1, 2023. A tiered rent rebate totalling $60.9 million will be granted during this downtime.

The proposed entry into the new master lease agreements, and the renewal capex agreement, will require the approval of Parkway Life Reit's unitholders at an extraordinary general meeting.

In conjunction with this proposed transaction, Parkway Holdings will grant Parkway Life Reit the ROFR for the sale, assignment or transfer of its ownership interest - or any part thereof - of Mount Elizabeth Novena Hospital, for a period of 10 years from the date of the ROFR.

Units in Parkway Life Reit closed flat at $4.77, and shares in IHH Healthcare close down $0.01 or 0.55 per cent at $1.80 on Wednesday before the news.

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