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2018 THIRD QUARTER UNAUDITED FINANCIAL STATEMENT & DISTRIBUTION ANNOUNCEMENT

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Balance Sheet

  Notes Group
30/09/18
S$'000
Group
31/12/17
S$'000
Current assets      
Trade and other receivables   11,451 10,894
Financial derivatives   79 13
Cash and cash equivalents   32,010 25,720
    43,540 36,627
Non-current assets      
Investment properties (a) 1,764,021 1,731,063
Interests in subsidiaries   - -
Financial derivatives   1,958 3,531
Total assets   1,809,519 1,771,221
Current liabilities    
Financial derivatives   408 163
Trade and other payables   18,581 19,451
Current portion of security deposits   988 940
Loans and borrowings (b) 11,017 15,900
Provision for taxation   - 1
    30,994 36,455
Non-current liabilities      
Financial derivatives   1,117 1,224
Non-current portion of security deposits   18,868 18,076
Loans and borrowings (c) 669,153 626,382
Deferred tax liabilities   25,292 23,744
Total liabilities   745,424 705,881
Net assets   1,064,095 1,065,340
Represented by:      
Unitholders' funds   1,064,095 1,065,340
Total equity   1,064,095 1,065,340

Note(s):

  1. 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.
  2. On 17 August 2018, the Group has refinanced a significant portion of the current term borrowings, comprising the S$50 million term loan and short term facility, by a 3-year unsecured revolving credit facility.
  3. The increase in long term borrowings was mainly due to additional funding required for the property acquisition on 14 February 2018 and the appreciation of Japanese Yen.

Review of Performance

 
3Q
2018
S$'000
3Q
2017
S$'000
Inc/ (Dec)
%
YTD 3Q
2018
S$'000
YTD 3Q
2017
S$'000
Inc/ (Dec)
%
Gross revenue 28,395 27,700 2.5 84,269 82,344 2.3
Property expenses (1,874) (1,817) 3.1 (5,586) (5,441) 2.7
Net property income
26,521 25,883 2.5 78,683 76,903 2.3
Management fees (2,869) (2,801) 2.4 (8,504) (8,370) 1.6
Trust expenses (1,015) (896) 13.3 (2,439) (2,046) 19.2
Net foreign exchange gain 95 142 (33.1) 717 1,177 (39.1)
Interest income 4 - 100.0 4 - 100.0
Finance costs (1,699) (1,839) (7.6) (5,083) (6,060) (16.1)
Non-property expenses (5,484) (5,394) 1.7 (15,305) (15,299) 0.0
Total return before changes in fair value of financial derivatives 21,037 20,489 2.7 63,378 61,604 2.9
Net change in fair value of financial derivatives 1,568 543 188.8 (1,005) 693 n.m.
Total return for the period before tax and distribution 22,605 21,032 7.5 62,373 62,297 0.1
Income tax expense (1,776) (1,810) (1.9) (5,359) (5,777) (7.2)
Total return for the period after tax before distribution 20,829 19,222 8.4 57,014 56,520 0.9
Net effect of non-tax deductible/(non-taxable) items (528) 565 n.m. 3,289 1,991 65.2
Rollover adjustment - (2) n.m. (5) (2) 150.0
Amount available for distribution to Unitholders 20,301 19,785 2.6 60,298 58,509 3.1
Distribution of divestment gains - 1,348 n.m. - 4,042 n.m.
Amount retained for capital expenditure (750) (750) - (2,250) (2,250) -
Distributable income to Unitholders 19,551 20,383 (4.1) 58,048 60,301 (3.7)
Distribution per Unit (cents) 3.23 3.37 (4.1) 9.59 9.97 (3.7)
Annualised Distribution per Unit (cents) 12.92 13.48 (4.1) 12.79 13.29 (3.7)

3Q 2018 Vs 3Q 2017

Gross revenue for 3Q 2018 was higher than 3Q 2017 by S$0.7 million mainly due to contribution from one nursing rehabilitation facility acquired on 14 February 2018 and higher rent from the Singapore properties as compared to the same period last year. In addition, Parkway East Hospital's adjusted hospital revenue for the 11th year lease (23 August 2017 to 22 August 2018) has outperformed its minimum guaranteed rent, contributing to the increase in revenue from Singapore.

After deducting property expenses, we have achieved a net property income of S$26.5 million for 3Q 2018, which was S$0.6 million higher than 3Q 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 2018, as well as valuation gains on the existing property portfolio, which led to a corresponding increase in deposited property.

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 1Q 2018.

Overall, annualised distribution per unit (DPU) of 12.92 cents for 3Q 2018 has declined by 4.1% or 0.56 cents as compared to 3Q 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 3Q 2018 has grown by 2.7% year-on-year.

YTD 3Q 2018 Vs YTD 3Q 2017

Gross revenue for YTD 3Q 2018 has increased by 2.3% year-on-year to S$84.3 million. The growth was largely attributed to revenue contribution from the Japan property acquisition in February 2018, higher yielding properties acquired from the asset recycling initiative completed in February 2017 and higher rent from the existing properties offset by the depreciation of the Japanese Yen.

Correspondingly, property expenses for YTD 3Q 2018 were S$0.1 million or 2.7% higher than YTD 3Q 2017. The result was a net property income of S$78.7 million for YTD 3Q 2018, which was S$1.8 million higher than YTD 3Q 2017.

The Manager's management fees for YTD 3Q 2018 of S$8.5 million was slightly higher than YTD 3Q 2017. This was due to higher deposited property value and higher net property income as explained earlier, offset by the depreciation of the Japanese Yen.

Finance costs have decreased mainly due to finance cost savings arising from the refinancing initiatives took place in 2017 and 1Q 2018 as well as the depreciation of the Japanese Yen. In addition, there was higher amortisation of transaction costs due to larger one-off expense of the remaining un-amortised costs for the debt facilities that were refinanced in YTD 3Q 2017. Higher trust expenses for YTD 3Q 2018 due to higher professional fees incurred during the period.

Of the net foreign exchange movement, the Group had registered a realised foreign exchange gain amounting to S$0.3 million and S$0.4 million from the delivery of Japan net income hedges in YTD 3Q 2018 and YTD 3Q 2017 respectively. In 2017, the Group has further recognised a realised foreign exchange gain of S$0.9 million arising 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.

Overall, annualised DPU for YTD 3Q 2018 of 12.79 cents has declined by 3.7% or 0.50 cents as compared with YTD 3Q 2017's DPU of 13.29 cents, mainly due to one-off distribution of divestment gains arising from the property divestment 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 YTD 3Q 2018 has grown by 3.2% year-on-year.

Commentary

The long-term outlook of the industry continues to be driven by aging population and demand for better quality healthcare and aged care services. Notwithstanding that, Parkway Life REIT remains cautious and vigilant given the current uncertainties in the macro economy and volatility in the financial market.

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 portfolio is largely supported by favourable rental lease structures, where at least 95% of its Singapore and Japan portfolios have downside revenue protection and 62% of the total portfolio is pegged to CPI-linked revision formula, ensuring steady 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 resilience 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 Japanese Yen currency volatility.