Healthcare REITs grapple with slower rental growth as inflation drops to record low

Rental growth is tied to CPI.

Singapore's negative consumer price index (CPI) is having an impact on rental growth for healthcare REITs, according to a report by OCBC.

Domestic inflation has been in negative territory since November 2014, falling between -0.1% to -0.8% year-on-year.

"This would impact the healthcare REITs, as the rental of some of their properties are linked to the CPI," said the report.

For instance, the base rental growth rate of First REIT's Indonesian properties is pegged too twice the percentage increase of Singapore's CPI for the preceding year, with a ceiling of 2% and a floor of 0%.

For Parkway Life REIT, meanwhile, rent revision for its Singapore hospitals is a function of a CPI+1% review mechanism.

However, there may be some reprieve ahead, as Bloomberg consensus estimates point to an average Singapore CPI growth of 0.9% in 2016.