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2018 FIRST QUARTER UNAUDITED FINANCIAL STATEMENT & DISTRIBUTION ANNOUNCEMENT

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Statement of financial position

  Notes Group
31/03/18
S$'000
Group
31/12/17
S$'000
Current assets      
Trade and other receivables   10,806 10,894
Financial derivatives   5 13
Cash and cash equivalents (a) 26,755 25,720
    37,566 36,627
Non-current assets      
Investment properties (b) 1,775,730 1,731,063
Interests in subsidiaries   - -
Financial derivatives   234 3,531
Total assets   1,813,530 1,771,221
Current liabilities    
Financial derivatives   66 163
Trade and other payables   16,615 19,451
Current portion of security deposits   978 940
Loans and borrowings (c) 26,637 15,900
Provision for taxation   1 1
    44,297 36,455
Non-current liabilities      
Financial derivatives   4,679 1,224
Non-current portion of security deposits   19,405 18,076
Loans and borrowings (d) 660,316 626,382
Deferred tax liabilities   25,364 23,744
Total liabilities   754,061 705,881
Net assets   1,059,469 1,065,340
Represented by:      
Unitholders' funds   1,059,469 1,065,340
Total equity   1,059,469 1,065,340

Note(s):

  1. The increase in cash and cash equivalents was mainly due to the appreciation of the Japanese Yen. At the Trust level, cash was re-deployed to partial finance a property acquisition in February 2018 which resulted in the decrease in cash and cash equivalents as compared to 31 December 2017.
  2. The increase in investment properties was mainly due to the acquisition of an elderly nursing rehabilitation facility in Japan on 14 February 2018, capital expenditure of existing assets and appreciation of the Japanese Yen as compared to 31 December 2017.
  3. The increase in current term borrowings was mainly due to the drawdown 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 14 February 2018 and appreciation of the Japanese Yen.

Review of Performance

 
1Q
2018
S$'000
1Q
2017
S$'000
Inc/ (Dec)
%
Gross revenue 27,815 26,947 3.2
Property expenses (1,854) (1,806) 2.7
Net property income
25,961 25,141 3.3
Management fees (2,798) (2,752) 1.7
Trust expenses (742) (441) 68.3
Net foreign exchange gain 503 1,041 (51.7)
Finance costs (1,733) (2,298) (24.6)
Non-property expenses (4,770) (4,450) 7.2
Total return before changes in fair value of financial derivatives 21,191 20,691 2.4
Net change in fair value of financial derivatives (2,539) (311) 716.4
Total return for the period before tax and distribution 18,652 20,380 (8.5)
Income tax expense (1,742) (2,171) (19.8)
Total return for the period after tax before distribution 16,910 18,209 (7.1)
Net effect of non-tax deductible/(non - taxable) items 3,007 1,034 190.8
Amount available for distribution to Unitholders 19,917 19,243 3.5
Distribution of divestment gains - 1,347 n.m.
Amount retained for capital expenditure (750) (750) -
Distributable income to Unitholders 19,167 19,840 (3.4)
Distribution per Unit (cents) 3.17 3.28 (3.4)
Annualised Distribution per Unit (cents) 12.68 13.12 (3.4)

1Q 2018 Vs 1Q 2017

Gross revenue for 1Q 2018 was higher than 1Q 2017 by S$0.9 million mainly due to contribution from one nursing rehabilitation facility acquired on 14 February 2018, higher yielding properties acquired from the asset recycling initiative completed in February 2017, higher rent from the Singapore properties offset by the depreciation of the Japanese Yen as compared to the same period last year.

After deducting property expenses, we have achieved a net property income of S$26.0 million for 1Q 2018, which was S$0.8 million higher than 1Q 2017.

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 and 2018, as well as valuation gains on the existing property portfolio, which led to a corresponding increase in deposited property, partially offset by the depreciation of Japanese Yen as compared to the same period last year.

The increase in trust expense was due to higher professional fees incurred for 1Q 2018. In the same period, the Group has recognised a realised foreign exchange gain of S$0.1 million from the delivery of quarterly Japanese Yen forward contracts.

Despite the growth of portfolio, finance costs have decreased mainly due to the finance cost savings arising from the refinancing initiatives completed in 4Q 2017 and in 1Q 2018 and depreciation of the Japanese Yen.

Overall, annualised distribution per unit (DPU) of 12.68 cents for 1Q 2018 has declined by 3.4% or 0.44 cents as compared to 1Q 2017, mainly due to the absence of one-off distribution of divestment gain, arising from the divestment of four Japan properties in December 2016 which has been fully distributed to Unitholders over four quarters in FY2017. Excluding the one-off gain, DPU from recurring operations (net of amount retained for capital expenditure) for 1Q 2018 has grown by 3.6% year-on-year.

Commentary

The long-term outlook of the industry continues to be driven by favourable patient demographics and demand for better quality healthcare and aged care services.

Parkway Life REIT's enlarged portfolio of 50 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. Also, the entire portfolio 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.

In addition, Parkway Life REIT adopts prudent financial risk management to manage the exposure to interest rate risk and foreign currency risk. Interest rate risk is managed on an ongoing basis by largely hedging long-term committed borrowings using interest rate hedging financial instruments or issuance of fixed rate notes. This strengthens Parkway Life REIT's resiliency against potential interest rate hikes. Foreign currency risk is managed by adopting a natural hedge strategy for the Japanese investments to maintain a stable net asset value and putting in place Japanese Yen forward contracts to shield against JPY currency volatility.