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2017 FIRST QUARTER UNAUDITED FINANCIAL STATEMENT & DISTRIBUTION ANNOUNCEMENT

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Balance Sheet

  Notes Group
31/03/17
S$'000
Group
31/12/16
S$'000
Current assets      
Trade and other receivables   10,333 10,504
Financial derivatives   - 335
Cash and cash equivalents (a) 28,069 71,096
    38,402 81,935
Non-current assets      
Investment properties (b) 1,727,527 1,657,209
Interests in subsidiaries   - -
Financial derivatives   193 210
Total assets   1,766,122 1,739,354
Current liabilities    
Financial derivatives   72 336
Trade and other payables   15,474 23,482
Current portion of security deposits   2,669 2,676
Loans and borrowings (c) 11,170 16,246
    26,629 42,740
Non-current liabilities      
Financial derivatives   7,365 8,002
Non-current portion of security deposits   18,986 17,704
Loans and borrowings (d) 650,250 612,539
Deferred tax liabilities   22,080 20,733
Total liabilities   728,066 701,718
Net assets   1,038,056 1,037,636
Represented by:      
Unitholders' funds   1,038,056 1,037,636
Total equity   1,038,056 1,037,636

Note(s):

  1. The decrease in cash and cash equivalents was mainly due to the repatriation of divestment proceeds from Japan in March 2017. The divestment proceeds were subsequently redeployed to fund the acquisition of five Japan properties and to repay short term loans in the same month.
  2. The increase in investment properties was mainly due to the acquisition of four nursing homes and a group home on 24 February 2017 and appreciation of the Japanese Yen.
  3. The decrease in current term borrowings was mainly due to the repayment of short term loan facility for working capital purposes.
  4. The increase in long term borrowings was mainly due to additional funding required for the property acquisition on 24 February 2017 and appreciation of the Japanese Yen.

Review of Performance

 
1Q
2017
S$'000
1Q
2016
S$'000
Inc/ (Dec)
%
Gross revenue 26,947 26,901 0.2
Property expenses (1,806) (1,766) 2.3
Net property income
25,141 25,135 0.0
Management fees (2,752) (2,697) 2.0
Trust expenses (441) (749) (41.1)
Net foreign exchange gain 1,041 578 80.1
Interest income - 2 (100.0)
Finance costs (2,298) (2,495) (7.9)
Non-property expenses (4,450) (5,361) (17.0)
Total return before changes in fair value of financial derivatives 20,691 19,774 4.6
Net change in fair value of financial derivatives (311) (834) (62.7)
Total return for the period before tax and distribution 20,380 18,940 7.6
Income tax expense (2,171) (1,709) 27.0
Total return for the period after tax before distribution 18,209 17,231 5.7
Net effect of non-tax deductible/(non - taxable) items 1,034 1,616 (36.0)
Amount available for distribution to Unitholders 19,243 18,847 2.1
Distribution of divestment gains 1,347 - n.m.
Amount retained for capital expenditure (750) (750) -
Distributable income to Unitholders 19,840 18,097 9.6
Distribution per Unit (cents) 3.28 2.99 9.6
Annualised Distribution per Unit (cents) 13.12 11.96 9.6

1Q 2017 Vs 1Q 2016

Notwithstanding the divestment of four Japan properties in December 2016, gross revenue for 1Q 2017 was comparable to 1Q 2016 mainly due to contribution from one nursing home acquired on 31 March 2016, higher rent from the Singapore properties and appreciation of the Japanese Yen as compared to the same period last year. In addition, the five Japan properties acquired on 24 February 2017 have contributed slightly over 1 month of rental income in 1Q 2017.

After deducting property expenses, we have achieved a net property income of S$25.1 million for 1Q 2017, which was consistent with 1Q 2016.

The increase in management fees were mainly due to higher deposited property value and higher net property income from the properties acquired in February 2017, as well as valuation gains on the existing property portfolio, which led to a corresponding increase in deposited property, fuelled by the appreciation of Japanese Yen as compared with the same period last year.

The decrease in trust expense was due to lower professional fees incurred for 1Q 2017. In the same period, the Group has recognised a realised foreign exchange gain of S$1.2 million comprised S$0.3 million from the delivery of quarterly Japanese Yen forward contracts, and S$0.9 million arose from the capital repatriation for the cash trap in Japan, which unlocked the foreign exchange gain in the foreign currency translation reserve for its earlier Japan acquisitions.

Despite the growth of portfolio and appreciation of the Japanese Yen, finance costs have decreased mainly due to the finance cost savings arising from the refinancing initiatives completed in 2016 and in 1Q 2017.

Overall, annualised distribution per unit (DPU) of 13.12 cents for 1Q 2017 has outperformed 1Q 2016 by 9.6% or 1.16 cents, mainly due to partial distribution of the gains arising from the divestment of four Japan properties in December 2016 of S$1.3 million. Excluding the one-off gain, DPU from recurring operations (net of amount retained for capital expenditure) for 1Q 2017 has grown by 2.2% year-on-year.

Commentary

The long-term prospects of the regional healthcare industry continue to be driven by rising demand for better quality private healthcare services given the fast-ageing populations. However, in the short to medium term, while Parkway Life REIT expects challenges in acquisition opportunities given the market volatility, we remain optimistic about its prospects.

Parkway Life REIT's enlarged portfolio of 49 high-quality healthcare and healthcare-related assets places it in a good position to benefit from the resilient growth of the healthcare industry in the Asia Pacific region.

In addition, Parkway Life REIT is supported by favourable rental lease structures, where at least 95% of its Singapore and Japan portfolios have downside revenue protection and 61% of the total portfolio is pegged to CPI-linked revision formulae, ensuring steady future rental growth whilst protecting revenue stability amid uncertain market conditions.